19September 2022

Small ISPs will have a harder time surviving after the latest Bell acquisition

On September 2, 2022, Bell announced that they acquired Distributel, a major Internet Service Provider (ISP) in Canada. As consumers, we do not know how many small ISPs Rogers or Bell will continue to acquire in the future. But one thing we will know for certain is that the big guys like Bell, Rogers, and Telus will continue to acquire more independent Internet Providers in the future. Without any doubt, Canadians will suffer from the higher internet prices eventually.

How do Independent Internet Providers Survive?

Small Independent ISPs need to purchase internet access from major ISPs, so they always get a wholesale rate from the big guys.

Small independents don't have any pricing power, since customers are completely elastic to the price, so raising the price will further reduce their market share.

These small ISPs can only offer cheaper prices than major ISPs if they want to survive in the market while cutting into their profit margins. According to Cansumer.ca, the independents’ prices are always 10% cheaper than the major ISPs. The big guys offer customers prices below wholesale rates at times, which makes it impossible for independent ISPs to compete.

Major ISPs are interested to acquire small ISPs

Eventually, some small ISPs survive in the market and grow on a certain business scale. Then the major ISPs may consider acquiring the company.

It is always more difficult for a company to acquire a new customer in the market than to retain its current customers. Therefore, the easiest way to increase the customer base is to acquire a company with certain business size.

Thus, the big guy can have more customers on one hand, and also promote their new products or plans to the existing customers on the other.

Why the market needs competition

A healthy market should always have competition, which means firms and individuals try their best to improve their services and products to attract more customers.

In addition, the government should put their hand to regular and monitor the competition, to make sure all the firms have equal weight in the market. This is not the case in Canada.

It is challenging for small ISPs to survive

Without any doubt, it is challenging for small ISPs to survive in the market. On one hand, high inflation leads to reduce cost-spending from consumers. On the other hand, small ISPs need to fight with big guys like Bell or Rogers.

The inflation situation won’t be solved in the near team, at least for the next two years. Consumers may consider finding some cheap home internet deals to fight the high inflation. However, small ISPs can only provide cheap internet plans in the hope to acquire more market share as their wholesale rates from the Major ISPs are higher than some of the promotions from the big ISPs.

Meanwhile, small ISPs also need to “fight” with the big guys, as more and more big guys are putting pressure on the small ISPs to sell, and this makes it very difficult for the rest of the small ISPs more difficult to survive in this turbulent market.