Market Analysis – 83121703 – Internet related services

Market Analysis: Internet Related Services (UNSPSC 83121703)

Executive Summary

The global market for business internet services is valued at est. $185 billion and is expanding steadily, driven by enterprise cloud adoption and digital transformation. We project a 5.8% compound annual growth rate (CAGR) over the next three years, fueled by demand for higher bandwidth and advanced network solutions like SD-WAN. The primary opportunity for our organization is to leverage this technological shift to decouple network services from underlying transport, allowing for greater supplier competition and an estimated 15-25% cost reduction on refreshed sites. The most significant threat remains cybersecurity, with the increasing sophistication of attacks requiring a more integrated approach to network and security procurement.

Market Size & Growth

The global Total Addressable Market (TAM) for business-grade internet access and related WAN services is substantial and growing. The market is primarily driven by the increasing data-intensity of enterprise operations, including the shift to cloud-based applications, video collaboration, and IoT. The largest geographic markets are 1. North America, 2. Asia-Pacific, and 3. Europe, with APAC showing the fastest growth trajectory due to rapid digitalization and infrastructure investment.

Source: Internal analysis based on data from TeleGeography and Gartner reports.

Key Drivers & Constraints

1. Demand Driver: Cloud & Hybrid Work. Enterprise migration to public/multi-cloud environments and the permanence of remote/hybrid work models necessitate high-availability, low-latency connectivity, moving demand from centralized MPLS to distributed, internet-based WANs.
2. Technology Shift: SD-WAN & SASE Adoption. Software-Defined Wide Area Networking (SD-WAN) and its security-focused evolution, Secure Access Service Edge (SASE), are becoming the default enterprise architecture. This allows for transport-agnostic networks, increasing supplier optionality.
3. Cost Input: Labor & Construction. The cost of skilled fiber technicians and civil engineering for new circuit builds is rising with wage inflation and material costs, putting upward pressure on non-recurring installation charges (NRCs) and build-outs to off-net locations.
4. Constraint: Last-Mile Monopoly. While the core network market is competitive, last-mile fiber access to specific commercial buildings is often a monopoly or duopoly (e.g., the local telco and cable company), limiting leverage for physical circuits.
5. Innovation: 5G Fixed Wireless Access (FWA). The maturation of 5G FWA presents a viable, rapidly deployable alternative for primary or backup connectivity, especially in locations with poor terrestrial options or for temporary sites.

Competitive Landscape

Barriers to entry remain high due to the immense capital intensity of building and maintaining physical network infrastructure, regulatory hurdles for rights-of-way, and the incumbency of established providers.

⮕ Tier 1 Leaders * AT&T: Dominant global footprint with extensive fiber assets and a mature managed services portfolio, including SD-WAN and cybersecurity. * Verizon: Premier provider in the U.S. with a strong focus on network performance and a leading position in 5G FWA for business. * Lumen Technologies: Owns one of the world's largest fiber backbones, excelling in high-capacity wavelength and dark fiber services for enterprises. * Comcast Business / Spectrum Enterprise: Leading cable operators in the U.S. leveraging their HFC/fiber networks to provide high-speed, cost-effective broadband and DIA.

⮕ Emerging/Niche Players * Zayo Group: Pure-play fiber infrastructure provider specializing in dark fiber, wavelengths, and high-bandwidth solutions for data-intensive industries. * Cato Networks: A leader in the cloud-native SASE space, converging SD-WAN and security into a single managed service. * Starlink (SpaceX): Emerging LEO satellite provider offering a disruptive solution for business continuity and connectivity in remote/rural areas.

Pricing Mechanics

The price build-up for internet services is dominated by the Monthly Recurring Charge (MRC), which is determined by bandwidth (e.g., 1Gbps, 10Gbps), service type (Dedicated Internet Access, Broadband, MPLS), and contract term (typically 12, 24, or 36 months). Location is a critical factor; "on-net" buildings (already connected to a provider's fiber) are significantly cheaper than "off-net" locations requiring a costly new build. One-time Non-Recurring Charges (NRCs) cover installation and setup.

Service Level Agreements (SLAs) guaranteeing uptime, latency, and packet delivery are standard for DIA and MPLS, with more aggressive SLAs commanding a price premium. The most volatile cost elements impacting suppliers are labor for field technicians, energy for network operations, and construction materials for new fiber runs.

• Skilled Labor (Field Techs): est. +4-6% YoY (annual wage inflation)
• Industrial Electricity Rates: est. +8-12% over the last 24 months [Source - U.S. EIA, 2024]
• Fiber Optic Cable: Prices have stabilized but remain +15-20% above pre-pandemic levels.

Recent Trends & Innovation

• SASE Unification (2023-2024): Major carriers and managed service providers are aggressively bundling SD-WAN with cloud-delivered security services (e.g., ZTNA, SWG, CASB) into single SASE offerings, simplifying procurement for enterprises.
• Rise of NaaS (2023-2024): Network-as-a-Service (NaaS) models are gaining traction, offering enterprises OpEx-based, on-demand consumption of network resources via a software portal, mirroring a cloud-like experience.
• Private 5G Networks (2023-2024): Enterprises are beginning to deploy private 5G networks for specific use cases like smart factories and large campus environments, requiring integration with the broader corporate WAN.
• Infrastructure M&A (Oct 2022): Zayo announced the acquisition of Global Cloud Xchange (GCX), significantly expanding its global network reach and subsea cable capacity, highlighting the ongoing consolidation in the fiber infrastructure space.

Supplier Landscape

Regional Focus: North Carolina (USA)

Demand for high-capacity internet services in North Carolina is robust and accelerating, driven by the tech and biotech sectors in the Research Triangle Park (RTP), the financial hub in Charlotte, and significant data center growth. Major investments from Apple, Google, and Toyota are creating new centers of demand. The supplier landscape is dominated by AT&T and Spectrum (Charter), with Lumen also having a significant presence. Regional fiber providers like Segra offer competitive alternatives in certain metros. State-level initiatives like the GREAT grant program are actively funding broadband expansion, which may increase supplier diversity in underserved areas over the next 2-3 years, though skilled labor for fiber deployment remains a competitive constraint.

Risk Outlook

Actionable Sourcing Recommendations

1. Mandate SD-WAN/SASE for Network Refreshes. For all sites with contracts expiring in the next 18 months, issue an RFP for a managed SD-WAN or SASE solution. This decouples the network overlay from the physical circuit, enabling the use of lower-cost broadband and 5G FWA alongside DIA. This strategy targets a 15-25% cost reduction over legacy MPLS and improves network agility and security posture.
2. Execute a Network Portfolio Optimization. Initiate a global audit of all internet circuits to identify and decommission underutilized services and consolidate disparate regional contracts under a primary and secondary Master Service Agreement (MSA). Leveraging total spend will improve unit pricing and SLAs, targeting 5-10% in direct savings and reducing administrative overhead by an estimated 20% through supplier consolidation.