Clock ticking on independent ISPs

With the number of broadband customers increasing and analysts predicting that a full-scale rollout is still five to 10 years out, independent ISPs in a broadband era will likely find themselves biting the dust that large ISPs leave them in.

Major cable operators, even if forced to open their networks via legislation, and RBOCs that own their own broadband networks are poised to dominate the space while thousands of smaller ISPs will be relegated to the ultimately declining dial-up market.

“The small Internet service providers are fighting for their lives at this point,” said Andrew Goldman, policy associate for the Center for Digital Democracy. “The dial-up modems are going to be left behind, and I imagine we're going to see quite a few of them going out of business.”

The biggest thumb under which independent ISPs find themselves pinned in the fight for open access is AOL Time Warner. With a merger-conditional nudge from the FCC and Federal Trade Commission, the über-company was ordered to offer broadband access to three nonaffiliated ISPs before allowing its own ISP AOL access to Time Warner's cable network. EarthLink is scheduled for a September rollout in Columbus, Ohio, and Syracuse, N.Y., followed shortly by High Speed Access and United Online, the soon-to-be-completed merger of Juno Online Services and NetZero.

Smaller ISPs worry AOL Time Warner will not go beyond legislative mandates in sharing its network. Although the company says it plans to exceed the regulated minimum and that it is in negotiations with a dozen or so ISPs, some of the 7000 ISPs across the country are obviously going to be missed.

“They're trying to kill the independent ISP, and they want us to roll up and die,” said Scott McCollough, regulatory counsel for the Texas Internet Service Providers Association.

Some analysts claim even if granted open access, many ISPs wouldn't exercise their right to operate over AOL Time Warner's cable lines. The capital and technological savvy necessary to enter a broadband agreement is something many smaller ISPs do not have.

Supporting this position, Time Warner said despite its ongoing open access issue before the FCC, only a “fair number” of ISPs have approached the company about broadband access. And AOL Time Warner is not forcing the issue.

“The ones that are interested probably have already contacted us, and I don't think a public outreach process is necessary,” a Time Warner spokesman said.

Multiple systems operators (MSOs) do not need to look far for reasons to resist open access. With back office integration troubles, and installation and service issues, the related headaches can be throbbing.

Because of the wide-scale administrative resources needed to negotiate, monitor and implement hardware, large providers also cannot afford relationships with thousands of small ISPs if they cannot deliver large customer numbers.

“It's not unreasonable to say, ‘Here's the minimum amount of business we need to know you can bring us before we invest our staffs time in working with you,’” said Charles Ardai, president and CEO of Juno Online Services.

More important is self-preservation. The fact that MSOs and RBOCs are not throwing their network doors open is not necessarily an insidious conspiracy to keep smaller players down, said Rob Carlson, analyst for Current Analysis.

“It's an inherent desire on the part of businesses to control their competitive advantage,” he said.

Ardai, whose company AOL Time Warner anointed to help fulfill its FTC mandate, agreed. “Whether the behemoth is a huge cable company or a huge phone company, the relative negotiating leverage is the same,” he said. “I don't see any kind of Machiavellian maneuvering; they're just big companies.

We're going to have to make some filings [at the FCC] to kick up some dust. --Ron Yokubaitis, Texas.net

Under Chairman Michael Powell, the current FCC is less likely to push “forced access,” as it is termed by the cable industry. One MSO attorney said operators would open up their networks when it made sound business sense but would rather do it on their own than have regulators force their hand.

AT&T Broadband Executive Vice President of broadband services and Chief Technology Officer Greg Braden backed that notion.

“We would rather have an open choice environment all through commercial agreement vs. regulatory or legislative mandate,” he said at July's Internet World Chicago. “The cornerstone to that thought is that the business relationship between us and an ISP has to make fundamental, good business sense for both parties.”

While cable high-speed Internet access is widely expected to continue as the front-runner in residential markets, other options such as DSL, fixed wireless and satellite will play a part in pushing independent ISPs to the brink. In the meantime, dial-up will continue to be the dominant Internet access method for several years, but independent ISPs must find ways to achieve faster access to survive, Carlson said.

Although doubtful AOL Time Warner will go beyond the mandated ISP minimum, Texas.net Chairman and CEO Ron Yokubaitis claimed he would continue to push for open access on the cable front despite unsuccessful DSL negotiations with RBOCs.

“We're going to have to make some filings [at the FCC] to kick up some dust,” he said.