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Almost a third of businesses in the UK use small internet service providers (ISPs), according to communications regulator Ofcom. Only five per cent of consumers use small, or niche ISPs, the research found.

The companies have 1.3 million customers or customer organisations in the UK, despite the fact the ISP market contains some very large competitors with significant marketing budgets. Ofcom's research found that the market for smaller ISPs is worth £1.15bn a year.

Niche ISPs, which are defined as those with fewer than 150 employees, were the subject of research carried out by research company Recom for Ofcom.

Most of the niche ISP business is in serving other small companies: 88 per cent of the ISPs serviced the micro-company market of firms with fewer than 10 employees, while 86 per cent serviced the small company market of firms with up to 30 employees.

While 30 per cent of the ISPs said their customers were mostly local, a surprising 70 per cent said their customers were spread all over the UK.

The ISPs themselves believe it is their small size and approachability which makes them attractive to customers. Thirty-four per cent of the ISPs said they believed customers came to them because the technical support was a person on the phone rather than a series of automated systems and long telephone queues.

"Delivery [is] by fully qualified engineers, not a call centre. We can identify and diagnose the problem and surgically solve the problem in real time," one ISP said.

Niche ISPs feel there is not a level playing field with the big operators when it comes to regulation. Twenty-nine per cent of the companies said the main support they want is better, fairer regulation, whereas only 13 per cent said financial support would be more valuable.

One surveyed company manager said regulators could help "by creating an environment where small providers can compete. Co-existence needs to be able to continue in a healthy, productive way".

Auxiliary services such as web hosting were said by firms not to need much regulation, but the provision of broadband internet access was, said one, "difficult for small suppliers to compete [in]".

Recom surveyed 313 niche ISPs for Ofcom.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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