The incredible shrinking ISP?: Study predicts consolidation of the ISP ranks

The number of Internet service providers will decline tremendously in the next several years, according to the Gartner Group, a Stamford, Conn.-based research firm. In 1996, the 4500 existing ISPs earned between $2.5 and $3 billion, but the firm expects the competition from the local, regional and long-distance carriers to drive more than three-fourths of the market out ofexistence in the next five years.

"We expect that five years ahead, the local exchange carriers, the [Bell] regional holding companies and their traditional long-distance carriers will replace about 90% of the current ISPs as the primary Internet service providers to the business and consumer areas," said Eric Paulak, senior analyst with Gartner's networking group.

ISPs that want to stay competitive as Internet communication continues to grow will need to keep up with their peers, Paulak said.

However, staying competitive will become more difficult as large carriers flex their financial muscle. For example, in the 18 months since entering the market, AT&T has become the largest independent ISP, with almost 1 million subscribers.

AT&T credits its fast growth to building on its brand image and providing reliable service, said an AT&T WorldNet spokesman, adding that the ISP was able to leverage its large existing customer base.

Although AT&T expects more customer growth in the future, it doesn't expect the number of ISPs to decline to the extent that Paulak predicts.

"There will be a few large ISPs but hundreds of smaller, local ISPs that offer a variety of services," the spokesman said.

Paulak also sees strength in some of the smaller ISPs.

"We think some of the small ISPs are going to be the ones that survive," Paulak said. "The top end of this market is where we are seeing some of the consolidation. We see some consolidation on the small end as well, but some of the most viable ISPs out there are the ones that concentrate on local or regional markets."

Access itself is a commodity item, Paulak said, making it difficult for companies that can't offer the lowest price. Those companies need to offer more than access, including Web hosting for consumers and businesses.

Paulak also recommends that local ISPs focus on providing customers with local content because that's something customers can't get from national ISPs. To provide that material, local ISPs are teaming up with radio and TV stations as well as newspapers to provide bulletin board services to their customers.

Local ISPs targeting businesses could also find income opportunities in providing remote monitoring, security services and local virtual private networks.

The Gartner Group study also predicts the rise of "gigaPOPs"--a next generation routing and switching infrastructure, designed to ease congestion, that will offer low-speed Internet protocol routing capabilities similar to today's environment, but which would also incorporate an asynchronous transfer mode-based switching core that would scale to 2.4 Gb/s and higher. The Gartner Group predicts that the top 20% of U.S. metropolitan markets will have direct gigaPOP access to the Internet by 2002.

According to the study, gigaPOPs will be a benefit of the Internet 2 project to build a 2.4 Gb/s academic and research network. ISPs participating in Internet 2--including MCI, AGIS and Merit--will use their underwritten research and development efforts to introduce "Internet 2-like" services to the commercial world.

In a recent on-line poll of more than 25,000 consumers, HomePC magazine found that IBM Internet Connection received the highest ratings for reliability, technical support, connection speed, fees, e-mail delivery and space provided for personal Web pages. The survey also found that 72% of respondents have needed to call tech support--60% of whom were immediately put on hold--and two-thirds reported being disconnected from their Internet service provider an average of six times a month for no apparent reason.

Here's the survey's ranking of the 11 most popular ISPs:

1 IBM Internet Connection 2 Mindspring Enterprises 3 Concentric Network 4 EarthLink Network 5 AT&T WorldNet 6 GTE Internet Solutions 7 Netcom Online Communication Services 8 Prodigy 9 Microsoft Network 10 CompuServe Interactive 11 America Online