Small Internet Service Providers Outswim the Telecom Sharks
The seminar was so pessimistic and foreboding that I still remember it with a chill, though it took place five years ago.
Pioneering Internet entrepreneurs, economists and populist academics at the Computers, Freedom and Privacy conference all rose to decry what at the time seemed inevitably around the corner. Internet services, the link that even then was beginning to seem as necessary as air, would soon be available only from a handful of big telecom companies.
In one of the Internet’s big surprises, they were proved wrong.
That outcome seems to defy the laws of gravity--or at least the laws and deals of monopoly capitalism--in the aftermath of the 1996 Telecommunications Act.
AT&T; has hungrily gobbled TCI and opened its $58-billion maw to attempt to swallow MediaOne. Bell Atlantic is seeking to acquire GTE; WorldCom took over MCI; SBC Communications grabbed Pacific Telesis and is awaiting approval on its proposed bid for Ameritech, and Deutsche Telekom and Telecom Italia hope to consummate a merger to create what could be the largest communications company on Earth.
Yet independent Internet service providers have somehow swum faster than the voracious fish just behind, breaking the chain of telecom gluttony.
As phone and cable providers grow fewer and fatter, the number of ISPs in the United States has risen to more than 5,000--more than tripling their ranks from three years ago, according to industry publication Boardwatch.
And a recent report by San Diego-based market researcher InfoBeads shows that the long-distance and local phone behemoths provide service to a paltry 6.3% of all businesses connected to the Internet--compared with 46.9% for small local ISPs.
Moreover, the share of businesses turning to local ISPs is growing steadily. Even America Online is losing market share to such providers as BadgerNet Communications in Redondo Beach or Culver City-based Miller’s Party Board.
This is not to say that tiny ISPs collect the lion’s share of profits. They normally don’t win the biggest and most lucrative corporate accounts. And the typical $20-a-month rate favors large providers, pricing many small ones out of the residential service market. But those small fries represent a formidable commercial presence.
It’s tempting to explain erroneous predictions of the demise of small ISPs as a typical early-Internet foible: a failure to grasp the Internet’s tendency to transform itself overnight.
But the continuing popularity of such services seems grounded in a deep value. Even for something as prosaic as a dial-up number, cyberspace customers crave a sense of linkage that goes beyond a modem connection: a human touch.
Greg Tally, associate editor at Boardwatch, uses a banking comparison.
“You can go to a large national bank and get all kinds of capital to borrow, but you may have impersonal service and have to go through voice systems that are automated,” he said. “When you go to a small commercial bank, you get lollipops on the desk and people who know your first name and what your kids are up to in school.”
Services such as San Francisco Online, with fewer than 3,000 customers, survive because they function like old-fashioned businesses--paying attention to each customer’s particular needs, such as constructing elaborate Web sites, building specialized chat rooms or supporting a few dozen businesses that still need to receive e-mail via an anachronistic protocol called UUCP.
“Our growth has been almost exclusively word of mouth,” said William Sommers, president of the small ISP that runs San Francisco Online. “Many of our customers know me, know my voice anyway, and really appreciate the personalized service.”
Charles Smith of Tucker, Ga.-based StarNet Inc. is chairman of ISP Consortium, a trade group of 300 ISPs. Smaller ISPs offer specialized services that can be more lucrative than providing standard dial-up connections and server space for a Web site, he said.
“The big players--the Microsofts, the BellSouths--do cookie-cutter products,” Smith said. “So far, we just regard [the telecommunications companies] as a source of customers” rather than as direct competitors.
If small providers thrive on service, new ones can be created because of a simple fact of today’s telecommunications infrastructure. Because the phone system is open, they can lease lines from the telecommunications firms and off they go.
For as little as $50,000 (high school kids working in their parents’ garage would say far less), you can build a fully functional ISP--an amazing anomaly in modern telecommunications.
But it’s not an unheard-of phenomenon in the world of technology. These same qualities--flexibility, attention to the customer, a strong service ethic and a sense of community--find a similar home in the PC business.
A multitude of tiny shops that create white-box PCs--no-name brands assembled from standard parts--sell more than twice as many computers in this country as the biggest PC maker, Compaq Computer, according to InfoBeads.
So much for economies of scale.
But can little guys survive when high-bandwidth services--such as cable-based Internet connections that, unlike phone lines, can’t be leased--gradually replace dial-up? Highly unlikely.
Then again, that’s what the experts said five years ago.
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Times staff writer Charles Piller can be reached at charles.piller@latimes.com.
