How are today's ISP operators handling the first recession since the early 1990s? Better than you'd expect. But the decisions you make for your ISP today will predominantly figure in how profitable your business is year from now.

by Jim Wagner of internetnews.com [October 11, 2001]

What, exactly is the state of the ISP nation? Is the independent ISP sector in the last stages of its life cycle, doomed to a slow demise at the hands of large corporate entities that don't give a whit about lessor rivals?

In a time when the Regional Bell Operating Centers (RBOCs) and big cable companies seem to be gaining control over state and federal regulators, independent ISPs collectively account for only nine percent of the Internet access market share in the U.S. As a result, many ISP operators have asked themselves if its time to hit the road and get out of the business all together.

According to many ISP operators and industry experts attending Fall 2001 ISPCON in Las Vegas this week, this could be a defining moment for the industry—despite the uncertainty in the market—there is a way to navigate the obstacle course and come out on top.

At a roundtable discussion represented by a cross-section of experts from the ISP industry, the consensus seemed to be that the door hasn't closed on the independent ISP business operator just yet.

Dialup death is overrated
The big issue at ISPCON seems to be whether dialup Internet access is dead, on life support or experiencing a renaissance? The answer varies depending on whom you talk to.

You're always going to have the doom-and-gloom folks who are eager to tell the world that the sky is falling for dialup service providers. But the fact is, dialup is most certainly not dead and ISP operators would do well to remember that fact.

Brian Becker, president of regional ISP Poplar Bluff Internet, said that dialup still has a lot of game left in it. In Poplar Bluff's coverage area, which spans much of southern Missouri, Becker's ISP operation is a relative loner in the region. There is no national competition in its service area and only a couple of local players, making Becker "The Man" for Internet connectivity.

For Poplar Bluff Internet, Becker said the ISP business is wide open and a genuine long-term profit proposition from providing dialup services. "I see dialup remaining a viable product for many years yet," Becker said, "especially since in my area, which is mostly rural, broadband won't come out here for years, if ever."

Becker's not worried about future competition, because Poplar Bluff Internet has something that every ISP should have—customer loyalty—a customer base that doesn't take kindly to strangers.

"Down in southern Missouri, I'd be afraid to sell my ISP to a national carrier," he said with a laugh. "I live there and it'd be a rough time having to look at these people if they were getting bad service. I bought up a local ISP in a very rural area earlier this year, and people from the former owner's town were sending him hate mail."

What's more, broadband isn't the smoking pistol that it was expected to be. High-speed access has not shot down dialup services for good. A number of issues have contributed to dialup's continued survival in the wake of diminished demand for high-speed access.

Third dimension of service
A hot-button item brought up by roundtable members is the increasing popularity of third generation (3G) wireless broadband offerings in the U.S. The technology, with its much-hyped speeds of 11Mbps may mean more than just fast access to the Internet. Handheld mobile devices, Internet-ready portable phones and the like will begin to take personal computer users away for conventional connectivity soon.

As the U.S. struggles to offers only 2.5G Internet services, consisting primarily of mobile chat services and limited Web access, carriers are trying to make up for lost time and catch up with 3G advances in Europe and Japan. Verizon Wireless, Sprint PCS (which just partnered with Virgin) and AT&T have hustled to catch up with the rest of the world. Each carrier is expected to roll out some type of 3G service sometime next year.

For the time being, the consensus of the ISP experts is "let the carriers have their 3G." Most view the technology as suspect, with small screen capabilities and incredibly awkward typing schemes hindering mainstream consumer adoption of the devices, let alone wireless Internet access.

Concerns that 3G devices would eventually replace the PC are unfounded, according to this group of industries gurus.

Changing business model
So how are independent ISPs, faced with the 10th recession since the close of World War II going to survive in a market seemingly dominated by RBOCs and mega-media giants?

Dave McClure, president and chief executive officer of the U.S. Internet Industry Association, says the ISP of the future will look much different than it does today.

After W.W.II, McClure said, there was a boom in the construction business as soldiers returning from overseas looked for homes to start up a family. Contractors were under a constant barrage from vendors selling the perfect nails, boots, tarp, moldings, lumber or whatever. Distributors, who picked out the best deals from vendors, presented the contractor with a best product bundle for the lowest price won over contractors left and right.

According to McClure, tomorrow's ISP will offer telecom services to consumers and business, much the same way distributors created better deals for contractors, ISPs will move toward supplying Internet access as part of a distributive service bundle.

"Face it, the Bells and cable companies own the last mile, that's a result of their deep pockets and poor enforcement," McClure said. "Get into digital phones, get into e-commerce and be the person who knows what Internet option is best for customers. As a niche player, you're in the best position to be a distributor as long as you think outside the box."

Along with becoming an Internet access distributor, McClure said the successful ISP of the future will differentiate itself in the market to become indispensable to their customer base. That success, he said, isn't dependent on growth.

"Find the people that self-identify themselves, whether its parents of a local school district or left-handed Lithuanians," McClure said. "Once you get the left-handed Lithuanians, go and get the right-handed Romans. Dominate your niche then improve your services."

Services McClure has found in great demand by consumers include:

• List services
• Exchange server email boxes
• Web design and hosting services
• Domain name and domain management services
• Security services

Regardless of how you run your ISP business today, it's going to change 18 months from now. At last count there are about 7,000 independent ISPs in the U.S., down from about 9,000 last year. This year, analysts expect this number to decrease even more as small ISPs are bought by larger operations or simply shutter their small business operation and hang out their "gone fish'in" sign for good.

Your ISPs fate or fortune down the road depends on the decisions you make today. Yesterday's ISPs are those businesses that cannot adapt to change—tomorrow's ISPs are those that can evolve and adjust to the changing marketplace known as the ISP industry.

— End