Independent ISPs Plot Survival Course

WASHINGTON — Executives representing hundreds of small and medium dial-up ISPs will leave the ISPCON spring trade show today with conflicting feelings about the future of their industry.

Many believe that the Federal Communications Commission (FCC) approved proposed rules to add another 50 Megahertz of spectrum will help ISPs wirelessly bypass the Baby Bells’ last-mile copper links.

At the same time, there are lingering concerns that other regulatory and legal battles could curb their ability to tap into broadband networks.

National independent ISPs like and Earthlink and United Online dominate the dial-up market not controlled by incumbent carriers, leaving small metros and regionals struggling to hang on to their dwindling handful of subscribers.

More ominously, FCC decisions have left them feeling unable to capitalize on the demand for high-speed access. Although the 1996 Telecommunications Act mandates that Baby Bells provide ISPs with dial-up access to their copper lines at non-discriminatory rates, the landmark law is less specific about broadband.

For many independent ISPs, cost is a limiting factor in leasing DSL lines. What’s worse, in a decision likely to be determined by the Supreme Court, the FCC exempts cable companies from line sharing obligations.

“The ISP that can’t find a way into broadband is dead,” Dave Robertson, president of Texas-based and head of the Texas Independent ISP Association, said during an ISPCON panel discussion. “Inside the beltway, they want you to die. The game’s going to be over in the next several years if we don’t get something going.”

Donny Smith, president and CEO of Minnesota CLEC Jaguar Communications, which counts several ISPs among its thousand or so customers, agreed, saying, “hands down, regulatory issues are the biggest threat.”

Robertson and Smith’s advice to their fellow executives? Get out of dial-up, or, at least diversify beyond simple access.

“I wouldn’t want to be in the access business unless I was the phone company,” said Will Pemble, CEO of Los Angeles-based “We got out of the ISP business at the end of 1998. Now, we are a Web hosting company.”

Added Doug Luce, founder and president of Pittsburgh-based Telerama, “In 2004, everybody’s doing something else.” Luce said. For instance, Telerama has approximately 2,000 hotspot users to augment his 8,000 wireline users. The hotspots allow Telerama
to take a $50-per-month DSL line and turn it into a $300-per-month revenue generator.

Elliot Noss, of Toronto’s Tucows, paints a brighter picture of the future for small independents. Earlier this week, he told, “I think the tough road is much overrated. Too many people think of cable and DSL access as an end-game. I think it is just a point.”

Tucows calls itself a wholesale Internet services company and offers domain name registrations, digital certificates, managed DNS and e-mail services to a distribution channel of more than 6,000 ISPs, Web hosting companies and other service providers.

“I got into this business in 1995 and people predicted that in just two years there would be just five ISPs,” Noss said. “In 2000, people said the same thing and it just hasn’t happened. The competition is a bit unfair, which explains the reaction.”

Noss urges dial-up ISPs to seize business opportunities that are “sitting right in front of them,” like Web hosting and commercial e-mail. “There are tons of things we give away today that we could be charging for,” he said. “Old ISPs don’t die, they just become another business.”

In addition, Noss said ISPs will always have better service than the incumbents and cable companies. Over time, it’s a great advantage, he said. For the few small independents offering DSL, the InStat/MDR report agrees that high-touch service for new consumer broadband customers will be key.

“Newer subscribers . . . will expect all of the benefits of the Internet, but will have less patience for dealing with its technical issues,” senior analyst Daryl Schoolar wrote. “When their service goes down they are going to be less likely than early adopters to perform self-diagnosis, and more likely to just pick up the phone and call customer service.”

Noss claims the small independents are actually “winning, not losing. They just don’t know it yet.” He contends less sophisticated customers are a natural for the beleaguered ISPs.

Robertson’s offers computer training and charges $10 for the one-day classes. “Teach them how to use the computer, and they’ll come back to you for Web page design services,” he said.

But for the dial-up independents, the future may very well be in the hands of the courts and Congress rather than hotel training rooms. If the Supreme Court decides to hear the cable case, attorneys estimate it will be at least
until next summer before it reaches a decision, another year lost for the ISPs. Even further out is possible telecom reform by Congress that might favor open access to the incumbent and cable lines.

For the ISP execs streaming out of Washington Friday morning, it’s a lot to think about.

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