Fighting the Bells' "Death By a Thousand Cuts"

While the owners of the telephone network are not allowed to cut ISPs out of the local loop, that has never stopped them before. New research, corroborated with discussions at the ISP Business Expo 2002, show how ISPs propose to fight back.

by Jim Wagner Managing Editor, ISP-Lists [April 4, 2002]

Ever since the Telecommunications Act of 1996 opened up the telecommunications market to the competition, a horde of Internet service providers (ISPs) have set up virtual shop around the nation in the late '90s.

While the spirit of the law hasn't changed since that landmark act, neither has the reality of the law—many providers and advocacy organizations say that to this day, getting the incumbent local exchange carriers (ILECs) to open up its networks have been an uphill battle, and a losing one at that.

The reports of Baby Bell abuses, shoddy service, and stonewalling tactics are legion—a search through any Web-based media archive will provide the proof.

ISPs seem to have two choices: working with telephone companies or finding a way to circumvent the Bell's network.

According to a report released by INT Media Research Tuesday, a growing number of ISPs, tired of beating their heads against the proverbial wall, are finding options to survive—and even thrive—by going with the second choice.

Michael Pastore, INT Media Research senior analyst, finds in his report, "ISP Evolution: Providing Services for the 21st Century," that in addition to the relatively slow adoption rate of broadband throughout the U.S. in the residential market, ISPs have the double whammy of working through the Bells to get high-speed users signed up.

"Supplying broadband access is central to the current and future plans of ISPs," he said. "But questions have risen about the demand for broadband among residential customers, and ISPs are limited in creating this demand."

The answer: superior value-added services and wireless Internet connectivity.

The past few years have seen a dramatic increase in the number of ISPs turning to fixed wireless services to bypass the telephone and cable companies. By setting up a wireless backbone from the ISP to the customer's home, it avoids the provisioning problems inherent with digital subscriber line (DSL) and cable Internet service (independent cable services are realistically more than a year away for the local ISP).

There are two wireless options available for ISPs to bypass the last-mile quandary—fixed wireless (on the 2.4GHz license-free band) and satellite.

The report finds nearly 30 percent of ISPs today are planning on a fixed wireless solution for their customers, with 13 percent looking at satellite services.

According to the report, it's not enough for ISPs to continue providing run-of-the-mill services that got them to this point in time with America's increasingly tech-savvy and demanding public.

"There was a time not that long ago when an ISP offering its customers 56K dialup access could provide a decent living for its proprietor and keep customers satisfied," Pastore said. "ISP customers, led first by businesses and now residential subscribers, have raised the bar for connectivity services. ISPs have responded to these demands by offering several means of Internet access at varying speeds and making additional services, such as webhosting, filtering, and security services available to users today."

The report shows more than half of today's ISPs have value-add options in mind to compete with the telephone companies, services considered essential and beyond those normally provided by Internet access providers.

• 60 percent of local ISPs plan to add firewalling in the next six months.
• 50 percent plan to add virtual private networking (VPN) services.
• 70 percent of all ISPs add less than 100 new users each month.

Meanwhile, at the ISP Business Expo 2002, ISPs were talking to each other. Ask an Internet service provider (ISP) owner whether he or she has picked an easy business to get into, and if they don't laugh you out of the room, the most you can expect is a rueful, 'Yeah, right' response.

ISP leaders from throughout the U.S. at the ISP Business Expo Tuesday afternoon got together to figure out how to deal with the four incumbent local exchange carriers (ILECs): Verizon Communications, SBC Communications, Bell South, and Qwest Communications—and how to survive.

Dave Robertson is president of STIC.net, a Texas-based ISP providing dialup and digital subscriber line (DSL) services to several communities. He likens the relationship between ISPs and the Baby Bells to a man looking across the room and saying, 'Ah, there's my future ex-wife.'

"Your future with the ILECs will end badly, it's just a matter of making enough money and getting market share before it sours," he said. "Understand, it's an adversarial arrangement we have and it's not a question of if it will go bad, but when."

Robertson, and many other ISPs, go through competitive LECs (CLECs) for their copper lines whenever possible, but even then all parties involved know there is only one owner of the telephone network—the four Bells.

Broadband only accounts for 10 percent of the total number of Internet users today, most of it coming from either DSL or cable Internet modems. Fixed wireless and satellite-based Internet are still fledgling technologies and account for only a small market-share in the broadband arena. With the Federal Communications Commission labeling cable an "information service," that leaves only DSL as a viable high-speed service for ISPs.

While the Telecommunications Act of 1996 might have made competitive access to telecommunications services with the Bells a reality, it doesn't mean they are going to make it easy, according to ISP advocacy organizations.

Gene Crick, executive director of the Texas ISP Association, said when dealing with the Bells, it's important to understand their actions aren't based on keeping ISPs and CLECs happy and wholeheartedly supporting the Telecom Act; it's based on pleasing the shareholders.

"If we realize these people (working at the telephone companies) were hired to bring a return on investment (ROI) for their shareholders, you can get a handle on where they're coming from," he said. "If your grandma has sunk her life savings into a Bell's stock, that Bell is responsible for making sure she gets a dividend."

Many ISPs fault the telephone companies for a decline in the independent ISP industry. Only two years ago, Robertson said, there were about 7,200 ISPs, wheras today that number hovers around 5,400. While a glut of ISPs in one market or acquisitions and mergers can account for most dropoffs, getting the short end of the stick when it comes to negotiated contracts is also to blame, said one legal expert.

Speaking at the ISP convention here, Scott McCollough, a lawyer specializing in telecommunications law for ISPs and CLECs, said that anyone looking to repair a strained relationship should just forget it.

"(The Bells) will always look at you as the competition at the same time you come to them as a customer," he said. "That's why the Bells throw two of their best weapons at (ISPs), the 'death by a thousand cuts' or full-blown nuclear attack."

Examples of the death by a thousand cuts include Bell technicians accidentally missing truck rolls with ISP customers or showing up and trying to convince them to switch to the telephone company for service, McCollough said, while a nuclear assault involves telephone companies setting a $35 per month fee for an ISP reselling a DSL line while charging their own customers $36 a month for DSL.

McCollough said ISPs need to document every business dealing with telephone company officials, from support calls to contracts, while Crick said getting the cooperation and support of the local community is equally important.

"Organizations like the Chamber of Commerce know that local ISPs bring tax money and other benefits to a small town, while the Bells take the money straight out of the town and into Wall Street," Crick said. "You'd be surprised how many people don't like the telephone companies."

Finally, Robertson reminded his audience that even the smallest ISP can find an opportunity to talk directly to the community and oppose the Bells. "It's when they need permission to dig new lines. There's a public meeting where the Bells ask permission. Go to that meeting and point out that the phone company is letting down local business, and present your case."

— End