Newbie's Guide to Starting an ISP

You get an adrenaline rush every time you think about starting your own ISP. Although the cost of entering this game drops every day, competition is heating up, so this is a big decision.

by Christopher M. Knight [August 9, 1999]

[It says it right in the title, but I want to re-emphasize that this article is aimed at ISP newbies; it's not meant to be comprehensive. It also assumes you're not operating a business of any kind.]

Brief initial reality check:
This not an easy business to navigate. You will work very long hours, you'll have to read tens of thousands of emails to educate yourself, and you can count on having it cost at least twice as much as you expected. Many critical items—such as your telco—will be out of your control, whereas your subscribers always expect you to be in control of everything. Finally, believe it or not, it's near suicide to start this business without having a clear ISP exit strategy.

Another note: If you're familiar with the differences between facilities based and non-facilities based ISPs (terms I reference later in this article), read on. If not do yourself a favor; take a few minutes to read my two-part ISP-Planet article on the subject: Make Your ISP Facilities-Based or Virtual?

Okay, now let's take a deep breath and look into the basics of what you must have in order to get started and open for business.

Top 7 Items You Will Need To Start Your ISP

1. Generic business underpinnings
This includes any licenses your state requires, your federal and state employer ID numbers (for ISPs in the U.S.), your domain name registration and trademark application, your business checking account and banking relationship—along with a possible preapproved credit line—and a merchant account so that you can accept credit cards and direct checking account drafts. You will also need some other business basics, such as a phone system, security service, CPA & Attorney.

2. ISP billing and accounting software
This can make or break your profitability and your ability to maintain your business as you grow. A sizable industry has grown up developing and offering customizable off-the-shelf ISP invoicing systems—many for under $2,000. (For more detailed information, you might want to join the ISP-Invoicing discussion list.)

Whatever billing program you buy should integrate with a general ledger, and be able to track accounts receivable, accounts payable, invoices, customers, usage, overages, and your checking register. Some packages even provide instant profit/loss balance sheets—along with reports that help you make better business decisions. You will also need a collection agency to help you collect on bad debts; I don't know a single ISP that doesn't have bad debts collections issues.

3. Internet feed and local loop
In order for you to provide Internet access, you have to get it from a regional or national backbone provider. The connection between your provider and your physical location is called the local loop. The cost for this can range from a few thousand dollars one-time charge—if you are co-located within an ISP building and own your local loop—to between $125 and $5,000 per month or more, depending on the size of your pipe and how many miles you are from your provider and your local telco central office or CO.

Internet feed will cost you $800 to $2,000 per T1 worth of Internet access per month. Assuming an 8:1 user-to-modem ratio on your dialup ports, a single T1 will be enough to feed 200 concurrent connections or about your first 1,600 customers. (This means for each modem port you have eight customers signed up. They won't all be trying to use it at the same time, you hope.)

While some small ISPs use POTS (Plain Old Telephone Service), adding a line when the old ones become crowded, this is not something you should even consider. Rather, start up with a 24 channel T1 or PRI (Primary Rate Interface) circuit for your first access switch. Shop around, because prices for these services vary a great deal. Unless you have no alternative, do not negotiate directly with the incumbent major telco. Many of the best deals or promotions are available through their resellers and distributors.

Many backbone providers include Usenet feed via NNRP (Network News Relay Protocol) as part of their package. If your does, take it and run. You do not want to have to run your own Usenet servers if you're just starting out. You can do a DNS trick which will fake it and make it appear that you have your own Usenet server, when you don't.

4. Your network of servers
This includes your PC based servers that will handle your primary functions, which include DNS, mail, Web (both regular: httpd and secure: https), athentication, and news (if you don't outsource it). Theoretically, you can do all this on just one PC, but in my opinion, anyone who starts an ISP with fewer than four separate dedicated PC's is asking for trouble.

If you're going to be a facilities-based ISP, you will also need access servers (a relatively recent innovation that combines terminal server and modems). Good ones range from $7,000 on up. Some of the popular names of access servers include US Robotics/3Com, Ascend, Livingston, Cisco, and Nortel.

go to page 2: Marketing/Sales plan & budget