Make Your ISP Facilities-Based or Non?

     Part 1

Planning to build a new ISP? Here's an important set of choices you'll face.

by Christopher M. Knight Managing Editor, ISP-Lists.com [May 20, 1999]

The decision to go facilities-based or non-facilities-based isn't a simple one. In this two-part series, we'll raise a number of issues that you might want to chew on while considering this question. But first, we'll nail down some definitions before we launch into the subject.

• Facilities-Based ISP means that you OWN your own dialup access servers or switches.
• Non-Facilities-Based ISP means that you do NOT own ANY dialup access servers or switches.
• Hybrid ISP means that you own some of your POPs (Points of Presence) but your customers can connect to your network through you have other POPs that you do NOT own, but someone elses POPs.

Many ISPs are implementing a combination of facilities based ISP and non-facilities based wholesaling with any one of a number of dialup access switch aggregators, such as UUnet, MegaPOP, GTE, PSInet, etc. Just about every major tier one backbone provider is providing wholesale access to their POPs.

We'll take a look at some of the advantages and disadvantages of each setup. Today, we'll focus on facilities-based businesses; tomorrow, we'll examine at the non-facilities-based alternative.

Advantages of Facilities-Based ISPs:

• You control 100 percent of what is going on with your dialup switches

• Possible lower cost if you hit sufficient economies of scale

• Makes it easier to wholesale your network to other ISPs—whereas it may be impossible to cost effectively wholesale a non-facilities-based ISP where you are buying wholesale and selling wholesale.
• You may be able to receive additional termination revenues if you have telco ties or CLEC status.
• Possibly faster to the market with the latest dialup enhancements since you control the speed of rolling out new technology. Most non-facilities based ISPs have to wait till their wholesaler catches up with the market when new technology rolls into town.

Disadvantages of Facilities Based ISPs:

• It can be a negative cash flow pit. You'll spend a lot of capital on which you may not get a very high return. Flexibility is extremely limited because you may have signed leases and commitments to your telco that carries high penalties for early termination.

• Your hardware will depreciate faster than the government will allow for tax purposes, so your depreciation and write-off expenses after you dispose of old access switches may be high.

• Must have highly trained experts on staff to manage your network around the clock. It can get very expensive to dispatch technicians all over the country to manage the network if your POPs are very spread out.

Read Part 2, Pros and Cons of Non-Facilities-Based ISPs.

To Your ISP Success!
—Christopher M Knight