Pacific Internet Australia MD Dennis Muscat said over the next two years, he expects to see around 30 or 40 percent of Pacific's dial-up base to move to broadband.
In its third quarter results, Pacific claimed 37,300 dial-up subscribers in Australia, down from 38,300 in the June quarter and 42,500 in the September 2001 period.
Although broadband subscriptions reached 3000 in the quarter, Pacific still has not made up for the slide in its dial-up subscription numbers.
With dial-up growth potential limited, Pacific is now concentrating on broadband. "Companies our size and smaller are finding it a challenge to grow their dial-up base," Muscat said. He said broadband subscribers are also more profitable.
Nevertheless, Muscat said new dial-up products launched in October, which feature inbuilt anti virus and spam screening, have brought the company back to positive dial-up subscriber growth for that month.
Muscat cited competitive pricing as the main reason for the dial-up drop off. He said Pacific has revised pricing to $24.95 with unlimited downloads, "but we don't want to reduce our prices down to the point where you'd call them bargain basement".
"The challenge is, at $24.95, to say you're getting a premium service," Muscat said. "A lot of people will go for the lowest price regardless."
Muscat said bundling deals from bigger ISPs put pressure on smaller operators. "If you are out of the money it does hurt, but if you are competitive, it is not the number one threat."
He said Pacific's broadband strategy is to get in early and sign as many subscribers as possible, as people tend to be loyal to their ISP.
While many cite $29.95 as the point at which most consumers will become interested in broadband, Muscat said it would be difficult for Pacific to get pricing to that level and remain profitable, due to wholesale costs.
He said $44.95 still does not provide a big margin, but does give one big enough to be profitable. Download caps are a necessary fact of life at the low end of the broadband market, he said. "There is no way you can produce a product and make money on it if you don't have a cap on peak hour usage."
Muscat said he expects more rationalisation in the Australian ISP market. "There are about 600 [ISPs] out there and the market will eventually rationalise as the capital adequacy is just not there," he said.
He said the next 12 months will probably see 40 or 50 ISPs leave the market, with fewer than 100 left in five years time.