Internet Service Providers
In the 21st Century
A white paper addressing the changing role of
the Internet Service Provider in the
emerging Internet supply chain.
US Internet Industry Association
Service Providers in the 21st Century
By David P. McClure
Introduction time would collapse or consolidate to roughly
500 by the year 2000.1
Internet Service Providers created the Internet
industry. They brought connectivity to homes The following year, the Gartner Group warned
and businesses, built electronic mail and web enterprises that converged network services
sites into essential services, and wired the would reduce the ability of “access oriented”
nation’s schools, churches and governments – ISPs to compete, and that the Internet of the
often at no charge. future would be dominated by a handful of
multi-service networks capable of transmitting
Today, as the first decade of the commercial voice, video and data traffic.2
Internet draws to a close, the role of these
Internet pioneers is rapidly changing. In some Both of these respected research firms were
cases, ISPs are finding their role in the Internet correct in their projections, given the set of
supply chain supplanted by larger competitors assumptions that existed at the time. But the
or the relentless advance of technology. In ISP industry has grown even as it consolidated.
some cases a reversal of government policies – And while multi-service networks will someday
notably reciprocal compensation payments, dominate the Internet access business,
UNE unbundling of telco services, or line innovative business strategies and technological
sharing in the local copper loop – may eliminate advances keep this segment of the Internet
the financial advantages of the “traditional” ISP industry vibrant and alive.
In the first quarter of 2003, there are an
Internet Service Providers, however, endure as a estimated 30,000 Internet Service Providers in
critical link in the supply chain. Their the United States alone:
businesses are constantly evolving, their range
of services shifting with the differing perceived • 5,000 are colleges and universities.
needs of the marketplace. • 1,800 are fixed wireless service
providers3, including “community” or
This white paper, a revised and updated version non-commercial shared networks.
of a document first released in March of 2002, • 2,500 are Wi-Fi Wireless network
examines the prevalent business models that nodes, “hot points,” and similar free-
will shape the role of the ISP in the years ahead, access services.
as well as noting several of the opportunities for • 15,000 are Multi-Tenant Unit and
new ISP businesses in the years immediately Multi-Dweller Unit providers, serving
ahead. apartment buildings, office buildings,
college campuses and other properties4.
The Death of the Traditional ISP
The fact that “traditional” Internet Service
Providers – those whose business is based on
dial-up access to Internet services and news/mail 1
“Local ISPs May Survive Shakeout,” CNet News,
servers – will become obsolete is hardly news. August 19, 1997
“Converged Network Services Accelerate ISP
U.S.-based Forrester Research released a report Consolidation, Gartner Group, Research Note,
in 1997 on the demise of traditional ISPs, August 17, 1998
projecting that the estimated 4,500 ISPs of that 3
Source: In-Stat/MDR, March, 2003.
Source: Broadband Properties Magazine, 2003
• 2,300 are dialup and broadband services over ISDN and T-1 lines. The growth
offered by independent ISPs using of broadband over wireless, satellite,
incumbent telephone companies.5 cable, DSL and powerline has
• 1,000 are rural and independent ILEC eliminated these clean lines of
telephone companies that offer demarcation, throwing the industry into
broadband and narrowband Internet a competitive frenzy that has injured
services.6 competitors large and small. And it has
• 1,000 are cable television companies, begun to alter the competitive landscape
including cable over-builders, private further as users abandon their dial-up
cable systems, and local and national accounts in favor of broadband.
cable providers that offer broadband Nielsen/NetRatings reports that of the
Internet services. 110 million Americans online today, 33
• 340 are cyber-cafes, resorts, shopping million are on broadband. Broadband
mass kiosk sites and others offering posted a 59 percent growth rate in 2002,
Internet access. while dial-up accounts declined by 10
percent.8 Broadband connections are
• 100 are competitive local exchange
expected to surpass dial-up connections
carriers that offer broadband services,
in 2007 and virtually replace dial-up by
wireless or dial-up services.7
• 125 are “virtual ISP” services such as
the AFL-CIO and the Republican Party,
• Bursting of the “Internet bubble.”
which operate Internet services but have
The rapid decline in the value of
no infrastructure or support of their
Internet stocks in 2000 through 2002 –
the telecommunications sector alone lost
• An unknown number of other ISPs, $2 trillion – took much of the value out
including the remnant “free” services, of the industry while drying up sources
Fiber-to-the-home (FTTH) providers, of capital needed for continued growth.
powerline providers, information Moreover, the succession of companies
services, private ISPs and virtual private under investigation or indictment for
networks, corporate ISP services, and their accounting and business practices
web hosting companies. has left investors wary and risk averse
of technology companies, particularly
Five major trends are affecting the Internet Internet companies.
service provider industry in the opening years of
the 21st Century:
• Increasing capital requirements.
Dial-up Internet services have not
• The growth of broadband. The most traditionally been capital-intensive.
significant factor in defining the Making use of telephone lines and
industry and its opportunities has been simple modem/computer configurations,
the growth of broadband Internet. In its these services effectively had no barriers
initial stages, the Internet was cleanly to entry – anyone could and generally
divided between dial-up Internet access did participate, to the point that by 1999
– dominated by a handful of there were an estimated 8,000 such
information services and thousands of ISPs. But emerging technologies for
small independent ISPs – and the broadband are extremely capital
telephone companies, which dominated intensive – the investment made in
the markets for higher-speed services broadband over cable is already over
Source: Combined data from Verizon, SBC, See http://cyberatlas.internet.com/markets/
BellSouth and Qwest broadband/article/0,,10099_1570321,00.html
Source: US Telecom Association, 2003 9
Study By ARC Group, referenced at
Source: New Paradigm Resources Group “CLEC http://cyberatlas.internet.com/markets/broadband/art
Industry Report 2003” icle/0,1323,10099_985891,00.html
$60 billion, with additional investments increase by 40% per year through this
of up to $100 billion necessary to decade, according to the Gartner Group.
complete buildout of those networks. And the US Department of Commerce
Given the lack of available investment notes that retail sales online surged
funding in the technology markets – again last year, up 28 percent over 2001.
from the stock exchanges to private Added to these traditional applications
investors -- this capital intensity will are a new generation of network
allow only the largest companies to services that include peer-to-peer file
participate in Internet access. sharing, instant messaging, Internet to
cell phone integration and text
• Government deregulation. Though messaging, and Voice-Over-IP
much of the impetus for industry growth telephony. These services will combine
can be traced to the with other telecommunications and
Telecommunications Act of 1996, that video services over broadband to drive
act has also served as a barrier to growth and profitability.
investment and led almost directly to
the stock collapse of 2000-2002. By These factors, combined with continuing
heavily regulating telephony while consolidation and the on-anytime nature of
refusing to regulate other forms of broadband, will ensure that the traditional dial-
Internet access, the Federal government up ISP of the 1990s will disappear within a
created strong competition from cable matter of years – almost exactly as predicted.
and wireless Internet providers, but Those that survive may well number in the
substantially weakened the development thousands, but that will depend on their ability
of telephony-based broadband. This to move to a next-generation level of service.
situation began to reverse itself through This move – the evolution of the Internet service
a series of court rulings and FCC provider industry – is predicated on four
decisions beginning in 1999. The FCC business models.
in particular has removed requirements
for reciprocal compensation payments,
line-sharing for broadband and access to Model #1: Open Systems Interconnection
the high-frequency portion of the copper
loop. This has resulted in a decline in The Open System Interconnection model is the
the number of competitors who have not traditional method of defining the interaction of
invested in their own lines and facilities, the levels, or layers, of Internet services. It
but in the long run will allow the defines a networking framework for
telephone companies remain implementing protocols in seven layers.
competitors in the industry with
enhanced broadband offerings and In this model, the Internet is not a single entity
fiber-to-the-home (FTTH). with a “telecommunications component,” but
rather three (or more) inter-related services that
• Evolving Internet services. operate across seven layers. All seven are
Traditional Internet services -- email, integral to the operation of the Internet, and the
web browsing and e-commerce – OSI model is the accepted definitional model for
continue to grow. Email messaging will how the Internet works in both dial-up and
This layer supports application and end-user processes. Communication partners are identified,
quality of service is identified, user authentication and privacy are considered, and any constraints
on data syntax are identified.
This layer provides independence from differences in data representation (e.g., encryption) by
translating from application to network format, and vice versa. It is sometimes called the syntax
This layer establishes, manages and terminates connections between applications.
Transport This layer provides transparent transfer of data between end systems, or hosts, and is responsible for
(Layer 4) end-to-end error recovery and flow control. It ensures complete data transfer.
This layer provides switching and routing technologies, creating logical paths, known as virtual
circuits, for transmitting data from node to node. Routing and forwarding are functions of this layer,
as well as addressing, internetworking, error handling, congestion control and packet sequencing.
At this layer, data packets are encoded and decoded into bits. It furnishes transmission protocol
knowledge and management and handles errors in the physical layer, flow control and frame
Physical This layer conveys the bit stream - electrical impulse, light or radio signal -- through the network at
(Layer 1) the electrical and mechanical level.
Figure #1 – Open Systems Integration Model
The Telecommunications Act of 1996 defines an Layer 1 defines a capability that does not meet
“information service” as “the offering of a the definition of an information service, but
capability for generating, acquiring, storing, does provide transport carrier services regardless
transforming, processing, retrieving, utilizing, or of the platform on which the information is
making available information via transported. That is, the services of Layer 7 do
telecommunications, and includes electronic not need to differentiate between the various
publishing, but does not include any use of any types of transport provided in Level 1 –
such capability for the management, control, or telephony, wireless, power grid, cable or other.
operation of a telecommunications system or the
management of a telecommunications service. Layers 5, 4, 3 and 2 are performed by an
altogether different service entity called an
Under this model, Layers 7 and 6 meet the Internet Access Provider.12
definition given an information service -- the The Internet is therefore comprised of three or
“transforming, processing, retrieving, utilizing, more distinct services – including information
or making available of information via services, Internet access services and transport
telecommunications.”10 services. A single company may choose to offer
all three of these services, bundled (e.g.,
This definition was further delineated by the US Comcast Cable), it may offer a combination of
Supreme Court to include “electronic mail, any two (e.g., Earthlink, which does not own its
automatic mailing list services (‘mail own transport services), or only one of these
exploders,’ sometimes referred to as ‘listservs’), (e.g., backbone providers such as Genuity,
‘newsgroups,’ ‘chat rooms,’ and the ‘World 12
Wide Web.’”11 The Commission has defined “Internet access
services” as services that “alter the format of
information through computer processing
applications such as protocol conversion and
47 U.S.C. § 153(20). interaction with stored data.” Report to Congress, 13
Reno v. ACLU, 521 U.S. at 851. FCC Rcd at 11516-17, para. 33.
content services such as eBay.Com, or In Porter’s model, an industry is “fragmented” –
independent Internet Access Providers such as lacking cohesion, leadership and other qualities
None of the three services are capable of Figure #2 – Porter’s Curve
independently providing what we term Internet
service. The Transport service requires the
ability to initiate, route and terminate data. The Porter’s Curve
Internet Access service requires data and the
means to transport that data. And the
Information Service becomes inaccessible
without Internet access and transport.
This model defines the Internet supply chain, o
and provides the means to categorize Internet f
service providers according to their participation i
in one or more of the levels. t
Model #2: Porter’s Curve
Dean of the school of Business Administration Market Share
at Harvard University for more than a decade,
Michael Porter rocked the business world in the
Eighties with his theories of competition.
of a mature industry -- until at least one
In his landmark text Competitive Strategies, competitor garners a 40 percent market share.
Porter noted that there is a relationship between The Internet industry remains highly
the amount of market share a company fragmented, while larger competitors scramble
commands and its profitability. It wasn’t and merge to reach that position.
simply that companies with more market share
are more profitable, Porter says. The curve is In Porter’s model, an almost infinite number of
U-shaped, with companies at both ends of the smaller players participate in the market at the
scale showing superior profitability. left side of the curve. These are what Porter
termed “niche” players. They are companies
In Porter’s model, there are two ways to reach that carefully select a target market (or “niche”),
maximum profitability. The first is to increase pamper that market with exceptional service,
market share in order to reach the right side of and charge a premium price. And they are very
the curve. At that point, the ISP has enough profitable – in some cases just as or more
subscribers to commoditize the product, drive profitable as the ISPs to the right of the curve,
down prices and use efficiencies of scale to be though on a lesser scale.
Porter’s Curve is a handy tool for examining a
This is where the larger companies choose to marketplace, and for crafting a competitive
participate. AOL claims to be farthest to the strategy for an ISP. On the simplest level, the
right, though even it fails to dominate the right strategy is this: if an ISP is able to marshal the
side of the curve with only a 17 percent market resources necessary to acquire market share
share. Mindspring and Earthlink merged to get (either through growth or acquisition) to
further to the right. Comcast and AT&T challenge for leadership, then it should do so as
merged for the same reason. quickly as possible. The strategy is to get as far
to the right of the curve as possible in order to
be as profitable as possible.
If the ISP cannot marshal those resources, and Figure #3 – The Internet Supply Chain
cannot get far to the right of the curve, the only
competitive strategy available is to define a Their access products to the next level of the
niche and stay to the left of the curve. Porter supply chain. That next level may be a
clearly warned that companies that could not secondary wholesaler in the case of a T-1 line,
understand this would waste their resources in a or an aggregator who buys in volume at a
futile effort to “get bigger” without discount in order to serve a number of ISPs.
understanding that this also meant to “get less
profitable.” He called such companies “stuck in ISPs, who do not own the network, nonetheless
the middle.” are the critical resale outlets that sell the
capacity of the “factories” to the end consumers.
Consumers then make use of that capacity to
Model #3: The Internet Supply Chain Model create works and products that are shared in a
common marketplace with other consumers.
Industries need fully developed and independent
supply chains in which producers sell to In the early days of the Internet, it was
wholesalers, who in turn sell to retailers, who in conventional wisdom that the Internet was the
turn sell directly to the public. The only engine of disintermediation – that it would
exceptions to this rule are small boutique collapse supply chains to facilitate direct sales.
businesses – and telecommunications is This has proven largely untrue, even for the
anything but that. Internet itself.
Though it is generally permissible for factories The fact that the Internet supply chain has been
to sell direct to the public through outlet stores, slow to evolve is due to two factors.
and to bypass wholesalers to serve the largest of
the retail outlets through direct national First, larger companies engaged in the Internet
accounts, there are virtually no industries that misinterpreted the nature of the Internet.
can thrive by cannibalizing their own supply Telephone companies, accustomed to operating
chain. as a single supply chain in and of themselves,
tried to move the Internet to fit that model.
The Internet supply chain consists of the
transport “factories” – telephone, cable, satellite, Cable and satellite companies, meanwhile, tried
power grid and other companies who own and to bend the model to fit that of cable, in which
maintain the networks, and wholesale the content providers are the factory and the
transport companies are the wholesale/retail
channel for that content.
Transport Factories Both types of companies missed the central
point that the product being purchased by
consumers is connectivity, not content. The
inability to grasp this fundamental has resulted
in billions of dollars in wasted investment
Aggregators chasing “killer applications” such as streaming
video and interactive television.
Internet Service Providers In this respect, Internet consumers more closely
follow the narrow-casting model: there is no
single reason why the majority will want
Consumers/Content Providers broadband, just as there is no single reason why
consumers subscribe to any given magazine.
What consumers are purchasing from the Because such large and successful companies
Internet supply chain are the means and tools to are adept at listening to their customers, and
connect comfortably, reliably and securely in giving customers what they say they want, they
order to share information and content with excel at sustaining existing technologies.
Disruptive technologies, however, are distinctly
Second, the supply chain was wrecked in its different from sustaining technologies.
infancy by the misapplication of onerous and Disruptive technologies change the value
burdensome telephone regulations by the proposition in a market. When they first appear,
Congress and the Federal Communications they almost always offer lower performance in
Commission. terms of the attributes that mainstream
customers care about.
In passing and implementing the
Telecommunications Act of 1996, the Congress The Internet, for example, did not initially offer
and the FCC barely considered the potential any of the rich content, graphical interfaces or
impact on the Internet industry – they were ease of use of even the most humble electronic
attempting to stimulated competition in long bulletin board system (BBS).
distance and local telephony. By not But like other disruptive technologies, the
considering the Internet, however, these two developers of the commercial Internet improved
forces of government policy provided financial their products' performance to eventually
incentives for the Internet industry to telescope dominate the online services industry.
the supply chain – forcing ISPs to try to
compete with their own upstream providers, and In The Innovator's Dilemma, Christensen offers
forcing the telecommunications factories to four Principles of Disruptive Technology to
attack their own distribution channels in explain why the management practices that best
response. exploit existing technologies are counter-
productive when it comes to developing
The result has been chaos, acrimony, disruptive ones:
widespread business failures and significant
deterrents to the deployment of faster, cheaper, • Leading companies must please
better Internet services to consumers. existing customers and investors.
In order to survive, companies must
provide customers and investors with
Model #4: Disruptive Technologies the products, services and profits that
they require. The highest performing
The fourth model, proposed by Professor companies, therefore, have well-
Clayton M. Christensen, concerns the effect of developed systems for killing ideas that
what he terms “disruptive” technologies – their customers don't ask for. They fail
simpler, cheaper and lower performing to invest in disruptive technologies
technologies that are first commercialized in -lower margin opportunities that their
emerging or insignificant markets but which customers don't ask for - until their
grow to dominate an industry. customers demand them. And by then,
it is too late.
Christensen concludes in his work The
Innovator’s Dilemma that large and successful • Large companies have trouble
companies often fail over the long term because serving small or niche markets. To
the management practices that allowed them to maintain their share prices and create
become industry leaders also make it extremely internal opportunities for their
difficult for them to develop the disruptive employees, successful companies need
technologies that ultimately steal away their to grow. As they get larger, they need
markets. increasing amounts of new revenue just
to maintain the same growth rate.
Therefore, it becomes progressively mindset – or partner with small companies that
more difficult for them to enter the are already comfortable with the new
newer, smaller markets that are technology.
destined to become the large markets of
the future. To maintain their growth Lessons of the Four Models
rates, they must focus only on large
markets. Taken together, these models provide an
evolutionary path for Internet Service Provides
• New and emerging markets are
as well as other elements of the supply chain,
impossible to analyze. Sound market
affording each the opportunity to be healthier
research and good planning followed
and more profitable. The lessons provided by
by execution according to plan are the
these models may be summarized as follow:
hallmarks of good management. But,
companies whose investment processes
demand quantification of market size • There are at least three (and possibly
and financial returns before they can more) distinct types of Internet
enter a market get paralyzed when businesses – transport providers,
faced with disruptive technologies Internet access providers and
because they demand data on markets information services. The OSI model
that don't yet exist. It is still not clearly demonstrates that the Internet is
possible, for example, to know how not a single, homogenous business that
many business web sites there are can be effectively managed by a single
worldwide, or to quantify electronic entity. In fact, the vast dissimilarities in
commerce sales. these differing types of business make it
difficult for any single company,
• Disruptive products upset the market regardless of size, to keep pace with the
dynamics. Products that are currently evolving technologies in all of these.
in the mainstream tend to perform
better than they need to, because they • There is room for a significant
are mature and well developed. number of Internet Service Providers
Disruptive technologies tend to under- in the industry. While the largest of
perform relative to customer the Internet Service Providers and
expectations in the mainstream market Information Services will battle for the
today, but will grow to compete with 80 percent of the US population in the
the existing products (an example here top 50 population centers, it is still
might be peer-to-peer file sharing, necessary to serve the 70 percent of the
which will eventually challenge US geography (and 20 percent of the
traditional distribution channels for population) in rural areas. Smaller,
music and videos. well-niched ISPs will serve these
markets. That is to say, Porter’s Curve
A mistake that managers make in dealing with will remain in effect for the Internet
new technologies is that they try to fight or industry as it is for others. Other niches
overcome these Principles of Disruptive will include the SOHO and SME
Technology – as many major companies markets, where ISPs have traditionally
initially did with the Internet. Applying the held strong customer relationships.
traditional management practices that led to
success with sustaining technologies always • Transport companies own the “last
leads to failure with disruptive technologies mile.” Companies that have invested in
“last mile” technologies are in the
This means that larger companies will have transport business, offering a service
difficulty competing with disruptive independent of the content or
technologies in the Internet space unless they information carried on their networks.
can create separate organizations with a different ISPs who invest in the buildout of the
“last mile” – particularly in isolated more nimble, more focused reseller
urban or rural areas not well served by organizations to manage customer
larger competitors – will nonetheless relationships.
have to either niche well in their
markets or prepare for competition from • Successful Internet companies will
the larger cable and telephony transport form partnerships with other
companies. companies in the Internet supply
chain. Small companies with a
• Internet Service Providers own the demonstrated ability to deploy Internet
customer relationship. Consumers services will be sought after as business
have learned to look to ISPs to partners by larger companies, because
recommend, install and maintain their they are able to adapt to rapid and
Internet connections and services. disruptive advances in the core
Consumers are less interested in trusting technologies. Large companies,
these functions to transport companies meanwhile, will be able to offer ISPs
unless other options do not exist. This the resources to effect that deployment,
is particularly true in the critical Small and economies in the production of
Office/Home Office (SOHO) and Small- Internet services sold by the ISPs.
to-Medium Enterprises (SME) markets.
• Dial-up Internet access is fading. The 21st Century ISP
They days in which “Internet access” is
a viable business for anyone but a The Internet Service Provider industry is larger
handful of companies is nearly at an end and more robust today than it was in 1997, but
in 2003. With the exception of the rural the role of the ISP within the supply chain is
markets, the majority of US homes in evolving.
the 21st Century will be served by fiber
optic and wireless services that offer At the end of this evolutionary process, the
telephony, Internet, video and television Internet Service Provider will emerge as the link
content across a single line. Internet in the supply chain that connects the product
access services have three choices for factories for transport to the end users and
their business model: remain in dial-up, content producers.
extending it as far as possible as it
declines through the end of this decade; The customer base will be a mix of business and
build out their own “last mile” solutions residential customers. While larger companies
in wireline, wireless, cable or other in the cable and telecommunications industry
technologies; or resell the bundled will dominate the less profitable residential
services of larger competitors. market, the business markets will be dominated
by a more diverse mix of national ISPs and
• Transport Companies must develop well-niched smaller players. Different ISPs
effective reseller programs or lose within the same market may serve different
business to competitors. The transport niches, particularly in the SOHO and SME
companies have been slow to recognize markets. For example, some may operate
the need for strong reseller wireless networks while others specialize in
relationships, even in the face of the dial-up, cable and DSL services.
poor performance of their affiliated
ISPs, the failure of most of the DSL ISPs will specialize in delivering the most
data LECs and the stall-out of DSL self- appropriate mix of Internet products for each
deployment. The reality is that segment of both residential and business
transport companies can efficiently markets. While residential customers will lead
handle transport, which is a large-scale,
large pipeline business. It will require
in number of connections, the most profitable Also of strong interest will be the continued
segment will be business customers.13 growth of 802.11 WiFi networks, which are
predicted to attract 21 million subscribers by
As part of this process, some ISPs currently 2007.15 An estimated 3,500 WiFi Internet
operating at the mid-level will reinvent services are already in place or under
themselves as secondary wholesalers and development to meet this demand. Again the
aggregators, acting as the link between smaller FCC is working to expand availability,
ISPs and the transport companies. Others will announcing in 2003 that it would make
become niche players in the transport business, additional spectrum available for WiFi and other
and will service rather than own reseller wireless applications.
Revenue streams will be derived both from
Internet Service Providers will expand and direct payments by the end customer and
diversify the products offered to consumers to through commissions from the transport
include a more complete range of companies. That is, the transport companies
telecommunications products and services. For will pay a commission to the ISPs as
some, this will mean reselling broadband compensation for filling the capacity of their
services offered by the transport companies as transport “factories.” The commission structure
well as network management and servicing, and other payments will be managed through
VOIP telephony, Instant Messaging, cellular standard commercial contracts that are
telephone services, satellite services and other unimpeded by government regulations or tariffs.
communications products in addition to the
contemporary blend of web hosting and email. The small, independent ISP will be particularly
critical in serving rural and other areas where it
In particular, ISPs will continue to explore the is simply not cost effective for larger national
myriad of alternatives to traditional wireline players to compete.
Perhaps the most significant changes will be the
On February 14, 2002, the Federal closure of ISP businesses that do not have a
Communications Commission (FCC) issued a coherent and workable business model, and the
First Report and Order for Ultra Wide Band erection of barriers to new entrants into the
(UWB) technology, which authorizes the market.
commercial deployment of UWB14. Ultra-
wideband (UWB) is a technology for wireless While competition is desirable as a mechanism
communication, precision location and portable to regulate service and pricing, an industry with
radar. It offers a simple, cheap method for no barriers to entry will suffer from runaway
distributing high-bandwidth data wirelessly at competition that destroys profitability. This, in
up to a kilometer in range. Because it’s sent on turn, leads to lesser levels of service and
all frequencies, from high to very low, UWB innovation, since companies will not generate
can pass straight though objects like the sea sufficient revenues to support customer service
or layers of rock, and be used in radar or R&D. This was the situation created by the
applications. Not only that, UWB pulses can be 1996 Telecommunications Act, which enabled
set at any random interval, meaning the number thousand of new competitors to emerge in the
of devices it could be embedded in is virtually Internet industry without making any significant
limitless. investment in infrastructure. The dismantling of
this regulated competition early in this decade
will lead to improved profitability and the
deployment of new services and applications,
“Broadband Appeal,” though at the cost of fewer companies in the
See http://www.uwb.org/files/new/ See http://cyberatlas.internet.com/markets/
the quality of their tech support or other
factors. In reality, small companies fare
10 Rules For Success in the 21st Century poorly in head-to-head competition with
large companies due to the resource
The fact that many ISPs will survive and thrive imbalance involved. As a rule of
in the 21st Century does not mean that all ISPs thumb, companies that are unable to
share the potential to evolve into attract millions of dollars in capital
communications resellers and service providers. financing should avoid competing
At present, approximately 30 percent of ISPs are outside of their class.
already on the evolutionary track, as evidenced
by the growing number of aggregators and the 4. Niche or die. It is necessary for small
expanded services being offered by ISPs. But ISPs to decide how they will participate
the remainder are either stalled or already in in the supply chain and what niche or
their final stages before closure. niches they will serve. Attempting to
remain un-niched will be a fast track to
For ISPs who do not fall in the top 10 largest disaster.
national ISPs,16 there are 10 rules that will be
critical for success in the 21st Century. 5. Compete on service, not price. The
most fatal mistake made by small ISPs
1. The goal is profitability, not size. is to match the prices of the larger
Porter’s Curve makes this lesson clear competitors (see Porter’s Curve again)
for smaller ISPs – in the vast majority to attract customers. Niche players –
of cases, increasing size will also everyone below the top two or three
increase costs, with insufficient largest ISPs – will compete on service,
economies to offset those costs. This is not price. It will be necessary to
the deadly “stuck in the middle” improve service at every level of the
scenario that has already claimed many business and to expand product
mid-tier players in the industry. offerings to remain competitive.
2. Be wary of the transport wars. 6. Get training. It is not enough to have
Transport companies, particularly cable, suppliers provide commissions, product
telephone and satellite, will face a samples and spiffs. Commercial
pitched battle for dominance in their contracts with every major vendor,
own markets. This war will only grow including transport companies, should
as the next generation of fiber optic include mandatory training for staff and
products roll out in the coming decade. periodic meetings at trade shows or
ISPs must decide whether to ally other events to assist the ISP in keeping
themselves with one side or another, or current with the technology.
hope for neutral trade with each. The
policies of the transport companies and 7. Stay current with the technology.
contractual exclusivity may require ISPs Voice over IP and cell phone integration
to choose sides. are arriving in the Internet space. New
satellites are coming on stream with
3. Compete wisely. ISPs have in the past capacity to sell to ISPs. And business-
been led to believe they can compete class instant messaging could emerge as
head-to-head with multibillion-dollar a major product line. ISPs must remain
corporations based on government fiat, current in the technology to survive.
While this list is subject to constant change, as of 8. Get legal representation. All too
the first quarter of 2003 these included America often, smaller enterprises attempt to
Online, MSN, United Online, Earthlink, manage their own legal affairs as they
SBC/Prodigy, Roadrunner, AT&T, Verizon, do other facets of their business, with
BellSouth and Comcast.
disastrous results. In the coming
environment, contractual relationships
with transport companies and other
vendors can mean the difference
between success and failure. A
company’s future could turn on the deal
it makes. For this level of criticality,
ISPs need a legal expert in their corner.
9. Out-source services where possible.
ISPs have been successful in out-
sourcing a wide range of services, from
technical support and billing to
marketing. Where it makes financial
sense to do so, this will enable the
smaller enterprise to focus its
management attention and activities to
other, more critical functions such as
developing and maintaining customer
10. Get involved and stay involved. The
ISP industry is widely known in
government circles for its unwillingness
to participate in public dialogues and its
lack of support for government
initiatives. This will have to change, at
both the state and national levels, if
ISPs are not to be left to the mercy of
lobbyists for larger firms. At a
minimum, ISPs should get to know
their local legislators, join their state
association, and join the USIIA.
US Internet Industry Association
815 Connecticut Ave. NW, Suite 620
Washington, DC 20006
(703) 924-0006 Voice
(703) 924-4203 Fax
(703) 851-4784 Mobile