Migrating your customers from dialup to DSL isn't going to be easy. In fact, it's going to be downright impossible if you don't market your broadband access in areas that the Bells can't compete.

by Jim Wagner of internetnews.com [October 17, 2001]

Mike Apgar doesn't know how good he has it as a digital subscriber line (DSL) provider. Then again, maybe he does.

The President and Chief Executive of Speakeasy could be the poster child for Internet service providers (ISPs) who've made the successful transition from dialup Internet services to providing high-speed access.

Speakeasy got its start as a cyber café back in 1995, serving coffee and Internet connections to Seattle patrons. Word of mouth popularity led Apgar to expand operations as a full-blown 28.8K dialup ISP in 1997, and 56K the next year. In 1999, Speakeasy started offering DSL to the masses.

It's an arena that's been the ruin of many a provider over the past couple years, from the large national data local exchange carriers (DLECs) like NorthPoint Communications to smaller ISPs like Telocity, recently bought out by Hughes Electronics Corp.

But Apgar and his Seattle-based ISP have weathered the storm of lousy provisioning support by the regional Bell operating centers (RBOCs) and the often-noisy complaints of burned-out customers by keeping focused on the customer base.

Demographic appeal
The niche market Speakeasy targeted from the moment it started migrating 56K subscribers over to DSL access has been the online gamers, system administrators and telecommuters. These demographic targets make up some of the most tech-savvy sectors of the residential world.

Unlike the business model for dialup customer acquisition and retention, targeting DSL customers takes a little more homework. Coming in with a DSL product that's cheaper and provides decent customer support isn't enough to acquire customers and keep them—the RBOCs have taken care of that.

While DLECs and many local, regional and national ISPs stumbled over the toes of giants like Verizon Communications and SBC Communications, competing for the same base of residential customers, Speakeasy was able to avoid the bloodletting (for the most part) by targeting niche demographics and catering to those customers exclusively.

Apgar's DSL offering cost more and met with some of the same difficulties in provisioning that other ISPs faced, but he was able to retain most of his customers by providing superior support services who were willing to fork over a few extra dollars every month for a good symmetric DSL (SDSL) or ISDN DSL (IDSL) connection.

The trick, he said, was making sure to pick a product that the RBOCs couldn't compete with on pricing alone. In the case of the Bells, who were trying to undercut competitors, Apagar had to steer clear of offering residential asymmetric DSL (ADSL) products.

"We don't compete with the ILEC (incumbent local exchange carrier) because of our customers," Apgar said. "We haven't done any marketing since sometime late last year and the customers keep coming in. That's in large part due to favorable word-of-mouth ratings on DSL Reports.com.

"If ISPs can do that to differentiate from ILECs," he continued, "they will do well. It's all about appealing to your niche customers."

Policing the market
It's a lesson the smart ISP operators have embraced from the start of the telecommunications deregulation process, which began in 1996 with the enactment of the Telecommunications Act.

The Act called for telcos to open up their network to the competition, unbundling their loop and giving independent and competitive carriers the same level playing field. Of course, every competitive local exchange carrier (CLEC) and ISP knew the Bells weren't going to play fairly—and they were right.

A variety of elements since that time, according to one ISP, are the reason independent ISPs are going to have a very rocky road in the DSL arena, at least for the near future.

Jared Reimer, vice president of operations for The River, an ISP out of Tucson, AZ, said that lousy enforcement by the Federal Communications Commission have stalled DSL for independent ISPs, possibly forever.

"The thought that I write my biggest monthly vendor check to Qwest, a company that is doing its best to get rid of me, is frightening," Reimer said. "It's chilling to think that my business is dependent on them."

Despite evidence to the contrary, Verizon and its ilk have been able to lobby their way out of many of the strictures put in place by the Telecom Act by somehow convincing regulators they were opening up for the competition.

SBC has even gone so far as to apply for a non-dominance ruling from the FCC in some of its states, despite the very clear fact that the Bells still control more than 90 percent of the market.

Into that breach do the independent ISPs operate.

Reimer said that what would bring independent DSL providers a measure of success is the managed services that ISPs can deliver much more effectively than the Bells.

"Independent ISPs are much smarter than the ILECs," Reimer said. "We'll always find something that keeps us going. There's still money to be made, there's still services we can provide much better than they can."

If you're an ISP looking to migrate your customer base from dialup to DSL, good luck. The opportunities are there for those ISPs that think it out and consciously target a niche market, but it's not going to be easy. Those that run into the field expecting to take their dialup business model and convert it to DSL are in for a rude awakening—just ask former Covad, NorthPoint, and Rhythms executives.

The successful ISPs target areas that the Bells just can't compete, like business class and high-speed connections for telecommuters and gamers—the most demanding customers won't settle for a Bell.

— End