NetZero Founders Move On By Staying Close To Home

The original four founding fathers (and one mother) of the popular free
Internet service provider (ISP) NetZero Inc. , have
taken their show on the road with a new venture that caters to the ISP market.

When Ronald Burr (chief executive officer), Stacy Haitsuka (chief
technology officer), Harold McKenzie (senior vice president, software) and
Marwan Zebian (senior vice president, networking and communications) built
up their scrappy, popular free ISP, many Americans didn’t know what the Internet had to offer.

Three years, 5,000 cities and eight million registered users later, tens of
millions of users have a dial-up Internet account; many thanks to the
“Defenders of the Free World” who gave them a free peek at the World Wide

Looking to get away from the corporate mindset creeping into the company as
it tries to stay profitable in today’s market, the original four employees
of the free ISP are going back to their roots.

“You know, we’ve been together for 12 years now and through three startups,
people who do things like this do it for more than just the money,” Burr
said. “You don’t get presented with too many real opportunities in your
life when you see them. There are two factors that make any business
successful: a real product and the ability to execute on that
opportunity. Our team has been able to do that successfully and we feel
like we have the opportunity to do it again.”

The Founding Four hope to bottle lightning a second time and spur the
inevitable rush to broadband Internet service with their new
venture Layer2Networks, a broadband wholesale company that hopes to fill a
needed niche in the high-speed Internet community by facilitating the
connection between the backbone carrier and the network edge for ISPs.

The one thing Burr & Co. don’t need to worry about is finding a new
house. Layer2 headquarters is just down the street from NetZero in
Westlake, Calif. — in sight of the company they once made.

The business model Layer2 is pinning its hopes to is similar to wholesale
dial-up companies like MegaPOP, which buy up large amounts of bandwidth
from carriers like AT&T, UUNet and WorldCom, and then offer discounted
pricing on POP servers around the county for smaller ISPs or virtual ISPs
who cannot afford their own nationwide infrastructure.

It’s a model Burr sees as the eventual evolution for independent ISPs
throughout the U.S., as they move from providing their own dial-up and
broadband infrastructure to outsourcing the bandwidth they need from
wholesale companies like Layer2.

At the moment, there isn’t much in the way of a market for broadband
wholesale services. MegaPOP is one of the few companies that offer
broadband connectivity and service, via a fixed wireless solution, to ISPs — and that’s just in the Midwest at present.

Pricing for the wholesale service hasn’t been nailed down completely, but
Burr said when Layer2’s service is launched ISPs can expect to pay between $5 to $10
per subscriber for a broadband connection.

Despite the fact that this is a very low price to pay for broadband
connections when the telephone companies are bumping the costs up, not
down, for DSL service, Burr finds the pricing “right in the sweet spot of
where pricing needs to be.”

Burr, who resumes his role as chief executive officer at Layer2, said the
idea is the result of years working as an ISP owner himself and talks he’s
had with other national ISPs.

“I spent a lot of time in my former life talking to and building
relationships with other ISPs,” Burr said. “And as we talked we saw that
there was a significant hole in the broadband market, something that’s
become more apparent in today’s market. So we knew that there was a
definite opportunity at the network edge.

“Besides big dogs like America Online, EarthLink Inc., and the Microsoft
Network, who can take care of themselves,” Burr continued, “there are many
smaller ISPs who we think will find the product we have useful and will let
them concentrate on marketing their business.”

While Layer2 will eventually offer aggregated bandwidth to ISPs from all
three pipes of broadband (fiber/copper-based, wireless and cable) service,
Burr said for the time being it is concentrating on building up digital
subscriber line (DSL) services.

Currently in talks with telephone companies like SBC Communications Inc.,
and Verizon Communications, he doesn’t expect Layer2 to be up and running
for another three to four months. And despite its initial launch recently,
the only thing parked on its Web
right now is a logo and email contact address. A redesigned site
is scheduled to go live the third week in October.

Burr said there’s been a lot of money spent building up the broadband
infrastructure by fiber companies. The problem these days is there are not
a lot of companies to take advantage of all the bandwidth available today.

Companies like Covad Communications and Rhythms NetConnections, which are
both going through bankruptcy proceedings at the current time, are the end
result of competing against, not working with, the local telephone
companies who own the telephone, i.e., DSL, lines. Burr said Layer2 steps
in neatly to fill the void left by these competitive local exchange
carriers (CLECs) as a neutral facilitator.

“If you look at companies like Covad, which were competing against the
phone company for voice and data services and with the ISP for customers
while they performed that middleman position of providing aggregated
services, we’re not like that. Our position is that we’re strictly in the
wholesale business and we’re helping to get more traffic for the ISP; at
the same time we’re helping the carrier, who really wants to get more
traffic out there.”

Funding for the company comes through a combination of seed money by the
founders and angel investors. He said they are currently in the midst of
the first round of venture funding, which Burr expects to finish with in
the next four to six weeks.

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