Providing Dialup Service Wholesale

ZipLink wants to be the king of the outsourced Internet access providers. Today, it supplies dialup access for more than 300 ISPs. In the future, its customers may include all kinds of online businesses.

by Christopher M. Knight [November 8, 1999]

ZipLink Inc., headquartered in Lowell, Mass., is a national provider of wholesale Internet connectivity solutions, including dial-up and Digital Subscriber Line (DSL) services. This in turn makes it an enabler of emerging Internet business models such as free Internet access, Web appliances with bundled connectivity, and virtual ISPs.

Utilizing a state-of-the-art ATM network, ZipLink services a diverse and expanding base of customers. These include ISPs, Web appliance vendors, PC manufacturers and distributors, and a variety of e-businesses from banks, retailers, Web portals, and Fortune-500 companies to startups on a shoestring.

Two amazing Internet access predictions
International Data Corporation (IDC) predicts . . .

1. U.S. homes will be outfitted with 150 million Internet-aware appliances by 2002.
2. One out of every three Internet access connections in the future will not be a PC.

ZipLink has carved out its niche in large-scale remote access service, namely wholesale access for major players, such as Alta Vista's and NetZero's ad-supported free access service, WebTV, and ISPs in the 1,000-to-5,000-subscriber range—as well as regional phone companies like Connecticut Telephone, which now offers Internet service.

Thirteen percent of ZipLink is owned by Nortel Networks, 2 percent by Williams Communications, and the company is publicly traded on the NASDAQ [ZIPL]. At the time of this writing, approximately 325 ISPs use ZipLink to provide wholesale access and 460 virtual POPs.

Underpinning these virtual POPs are CLEC relationships that back-haul their traffic to their core dialup access concentrators, where ZipLink is able to maintain very high user-to-port ratios without giving busy signals. This keeps costs down significantly and allows the company to deliver service at rock-bottom prices.

Building loyalty
There's more to ZipLink than just wholesale Internet access however. The company focuses strongly on helping its partners develop Internet access, authentication, registration, and billing systems, many of which are proprietary. This becomes a key advantage, making ZipLink's customers "stickier," and also reduces the time it takes new Web-appliance vendors to bring their service to market.

In another stickiness strategy, ZipLink is offering its ISP partners DSL, gaming services, private labeled registration CD's, 24x7 human technical support, and other customer relationship management services.

ZipLink's President Chris Jenkins, who has a strong background in the pager business, has realized that its hard to know who going have a successful program with you in an industry like this. Accordingly ZipLink takes on pretty much all comers, as long they are willing pay the $100 minimum account maintenance per month.

Staying power
Jenkins believes Internet access is not likely to quickly become a commodity. One reason is that because web appliances can't display ads, they will therefore always need a commercial provider—unlike the ad-supported free ISP model. On the other hand, he thinks we're likely to see the bundling of set-top boxes with one of the free access providers some time in the future, so no matter if Internet access will be ad-supported or fee-based, wholesale dialup access will always be in strong demand.

Asked about churn, Jenkins points out that ZipLink doesn't have churn, in the sense that a typical ISP does. Their underlying customers do experience churn, however, which potentially effects ZipLink's business. Many of their clients are now seeing that, because of the free ISP movement, it's getting increasingly difficult to get renewals from their dialup customers. For this reason, he's convinced that there will be a fundamental shift in the price-oriented sale as the free guys gain strength.

Creative adaptation
Jenkins believes that even as the dialup market shrinks, ZipLink can grow its market by pioneering new kinds of relationships. For example, companies such as online brokerage firm DLJDirect could hook up with ZipLink and provide their customers free Internet access so they can trade stocks online. He believes that more businesses will attempt to give away Internet access service in order to make their clients stick to them. ZipLink is well positioned to benefit from this trend, regardless of what may happen in the retail dialup field.

Jenkins concedes that many ISPs have a comfort factor in owning their own hardware and network equipment, as many times it's a control issue. However, he's out to prove that there is no good financial reason not to use a company like ZipLink or one of its competitors (NaviNet, Split Rock, MegaPOP, etc.) to outsource their Internet access infrastructure.

To Your ISP Success!

Christopher Knight
Founder & Managing Editor of the ISP-Lists Discussion Community

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