This Local ISP Has Grown

LocalNet, based in Williamsville, NY, has grown to 85,000 subscribers. It's a story of organic growth and basic common sense.

by Alex Goldman ISP-Planet Associate Editor [June 13, 2003]

"In 1994, I had a Gateway computer and a product called Galacticom," recalls Marc Silvestri, founder and president of LocalNet, an ISP based in Williamsville, NY that now claims 85,000 subscribers and will be added to ISP-Planet's ISP rankings in July. "They made Galactiboards. You put it in a slot and hung four (analog) modems off of it. When we needed more, we would go to the computer store and get more modems."

Technological progress soon made the process of adding modems easier. "We started to assemble computers ourselves with eight modems each. Then the Lucent Portmaster and Ascend MAX units simplified all of that. But when we started, I had analog modems on ventilated shelves in an 8' by 10' room, modems from floor to ceiling. You could go in there, turn off the lights, and watch the modem lights blinking. It impressed people. They would ooh and aah."

Like many ISP founders, Silvestri was inspired by Jack Rickard, founder of Boardwatch and the original ISPCON, then called BBSCon. "I met Jack Rickard at the first BBSCon in, I think, Denver in 1993. I went again in 1994 to Atlanta, and I remember that better. Our consulting business had set up a BBS and I wanted to buy pieces of software to do gaming and chat. But I spoke to Jack Rickard, and listened to all the great stories about people doing well with BBSes, and came home convinced that Internet was the thing, not BBS."

The question, however, was how to get into the business. Television provided the answer. "I was watching Dateline NBC, and they were talking about how the Internet had to be charged per-minute, and I realized that the reason this was true was because ISPs were paying long distance charges. I saw that if I could build a local ISP, I would not have to charge per-minute. Then I realized, hey, I know how to do that. Of course, as I was having this epiphany, so were hundreds of others across the country."

When CLECs were made possible by the Telecommunications Act of 1996, the ISP business improved further. "With no ILEC involved, things go quicker," notes Silvestri. "When you rent space and deal with an ILEC to bring in a circuit, you're working on their time frame. It takes 4 to 6 weeks to get a telco circuit provisioned. Colocating with CLECs changes everything. These CLEC guys can just run a wire. I save on space, I get provisioned faster, and I don't have to send someone to be there when a change is made. We monitor all of our locations, and when we get to 75 percent utilization, we order new equipment. Because of the CLECs, we never have to leave our office for an install, and we have locations with security, environmental controls, fire suppression, battery backup, and generators."

In 1997 and 1998, low cost providers charging $9.95 per month began to appear. Silvestri streamlined operations and cut the monthly fee from $19.95 to $9.95, expecting that his home turf would be invaded by one such provider, but the expected attack never came. "The competition did not come to us," he says, "so we took it to them."

In cutting costs, it helped that Silvestri's background was in consulting. His company has built its own network management system and billing system.

Expanding in tier 2 and tier 3 markets requires quasi-independent operations, something large command and control enterprises cannot do. Silvestri allows local managers to advertise creatively and cheaply, and as a result, customer acquisition costs are far lower than those of national providers.

Silvestri has avoided growth through acquisition or through dialup wholesalers. Acquisitions are far more expensive than growing organically, he feels, and he likes to control his own network, not outsource it. "As long as you own and control your own network elements, you can do well," he says. "If you're paying a per-user price, you cannot sell dialup for $9.95 per month. You could be paying as high as $8 per month. Big carriers will give you an attractive price, but they'll set a monthly hour limit. Then you have to turn people off after 150 hours, and I don't do that."

He has also avoided broadband because nobody can compete with the monopolies. He says, "I'm not willing to discount. Time Warner will give customers their first three months for $19.95, and I just want to say, guys, why do you want to lose $20 per month? That's not for us. The Internet business used to be growth at any cost, but we never were that way. We've always followed a philosophy of growth where we can provide it and still be profitable."

—End