State Of The ISP Nation

BALTIMORE — Industry leaders spoke about the future of Internet access to a packed crowd of Internet service
providers attending an informal debate at ISPCON Thursday morning.

The three-man panel of Charles Ardai, Juno Online Services,
Inc.
, president, chief executive officer and
director; John Kane, Telseon chief
executive officer; and Michael Mael, president of
Focal Data Communications, sometimes agreed and other
times didn’t on issues that affect ISPs in today’s
market.

The topic on everyone’s mind was the drastic slowdown
in business following the collapse of venture capital
funding and the subsequent bear market.

The financial affliction has affected companies
spanning the spectrum of Internet access: from
digital subscriber line modem makers like Copper
Mountain
to networking companies like Nortel Networks to
providers like
NorthPoint Communications
.

NorthPoint nonwithstanding, Ardai said the bear market
today is a good thing for companies already in
business — ones that handled their venture capital
money wisely in the past.

“(A general slowdown) is not necessarily a bad thing,”
said Ardai. “It’s a very bad thing if you want to
start up a new company now and want to get funded.
This slowdown means you have fewer competitors and
other competitors are going out of business.”

For ISPs that means those in the business now are
going to face some lean times ahead, but by just
surviving they are positioning themselves for success
in today’s market.

“There’s something to be said about surviving,” said
Mael. “(Dial up) isn’t going away, because people
will continue to use it.”

According to Mael, remaining successful depends on
more than just getting more customers to make more
revenue. It takes a concerted effort by the ISP to
keep the customers it already has and use the
relationship to market new products.

“When times are tough, it’s a whole lot easier selling
to your existing base of customers and keep them happy
than trying to replace them with a whole new set of
customers,” Mael said.

The future of Internet connectivity, especially dial
up connectivity is very bright, despite concerns by
many ISPs that the old-school method is going the way
of the bulletin board service (BBS) of the late 70s
and 80s. With less than 70 percent dial up
penetration rates, on average, around the country,
dial up’s a product with a lot of leg left.

Juno, the fourth-largest ISP in the nation, with nearly four
million dial up customers, has a vested interest in
the future of dial up connectivity.

But for the past couple years, broadband has been the
darling of the media and a growing number of
high-speed businesses and consumers.

Despite that, Ardai said Juno is still committed to a
strong dial up access customer base and the success of
dial up in the U.S.

“I used to be embarrassed to come to an event (like
ISPCON) and talk about dial up, because I knew that I
couldn’t raise any money and get laughed at by
people,” Ardai said. “But the truth of the matter is,
dial up is going to be here for a long, long time.”

That flies in the face of figures by Dave Baker, dial
up ISP EarthLink,
Inc.
, director of law and policy issues, who said
at the convention that dial up access has flatlined,
with future ISP growth dependent on broadband access.

Ardai said high-speed venues like DSL and cable
Internet access have yet to get past the “my dad”
threshold. “My dad” users are reluctant,
inexperienced computer users who aren’t willing to get
broadband Internet because of the difficulties both
sides of high-speed Internet are experiencing as far
as service, and paying double or triple the cost of
dial up access.

Juno, an ISP with a mixture of free and premium paying
dial up users, has been lumped in with other free
ISPs, who have completely different business model.
The financial failure of these free ISPs led many to
think that Juno will fail also.

An anonymous post at f**kedcompany.com earlier this week reported that Juno was about to go under.

Ardai had a chance to defend erroneous rumors of his
company’s imminent financial demise, saying it’s the
price of doing business in today’s world.

“There have been rumors about Juno’s demise for about
five years now,” Ardai said. “If we replied to every
rumor that came out, we wouldn’t have time to do any
business. We just have a policy of not answering any
rumors and let them fall where they may.”

“I will say this, however,” Ardai continued. “The
core of the reports seemed to suggest that we were
about to go bankrupt, which is ridiculous. We ended
(2001) with $56 million in the bank, with an expected
net loss of about $25 million. Rumors are just
something you have to expect when you’re in this
business.”

Wireless Internet, the third leg in the broadband
access triumvirate, got short billing by all panelists
in the debate, relegating it to niche market status.

That’s not to say that ISPs who have a viable business
model to capture those customers shouldn’t go for it,
said Mael, in the case of a wireless phone that plays
games on its miniscule screen attracting only 10,000
customers in the U.S.

“The interesting question is, if it’s the right 10,000
people and if they’re willing to pay the right amount
of price for it, why not go for those consumers,” Mael
said.

The debate over broadband is all predicated on the
belief that ISPs will be able to offer broadband
connectivity in the form of DSL.

Broadband ISPs have been falling by the wayside the
past year, as the price to do business and the
difficulties provisioning the service from the
incumbent local exchange carriers (ILECs) has driven
them into bankruptcy courts.

Ardai and Mael remained optimistic about the future of
ISPs and DSL service.

“There’s always going to be competition,” Mael said,
“because consumers and businesses want choice. They
aren’t going to stand for just one company, the
telephone companies, providing the only DSL service.”

Kane, on the other hand, is not as confident. Many
analysts have been predicting that ILECs, who own the
lines ISPs sell the DSL service over, have the last
word.

“In the end, the ILECs are going to win,” Kane said.
“They’re going to be the ones to compete with cable
and fixed wireless in the fight for broadband
acceptance.”

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