Uncharted Waters
ISPs begin exploring broadband terra incognitos
By Karen Brown
from the March 19, 2001 issue of Broadband Week
For traditional ISPs, broadband is a little like the New World was for European explorers: A place with equal parts of profit and danger, with a lot of unknown thrown in. To survive, they are well advised to pack along plenty of technology, marketing and partnership provisions. Plus there's the prospect, which many ISPs are complaining about, of poor service or high prices from the incumbent carriers they may rely on for wholesale broadband access.
But in the broadband age, the biggest risk may be not taking the trip at all.
It isn't just the same service with a high-speed connection, according to Mike Lunsford, executive vice president of broadband services at EarthLink. The third-largest U.S. ISP has been offering DSL for some time, offers cable modem service in some areas and is working actively to expand it through access deals forged with AOL Time Warner. It is also taking part in an open access trial with AT&T Broadband.
"For bigger ISPs it is harder to start up than starting from scratch or being a smaller ISP," Lunsford says. "We had to go back and remake part of our company basically--rebuild our system and rebuild our billing.
"That was a difficult process and we are probably 80 percent to 90 percent there," he adds.
With no actual pipe of its own, EarthLink has found partnerships crucial to doing broadband business--and it doesn't pay to be picky about the platforms. With DSL and cable modem platforms still a limited patchwork, partnering up with as many players as possible gives the widest possible coverage in a market, Lunsford says. "You have to make that commitment--a marketing commitment and the ability to serve as much of a market as possible," he says.
EarthLink already is looking at several alternative broadband strategies, including a partnership with Hughes Network Systems' DirecPC satellite Internet product and Metricom Inc.'s Ricochet high-speed wireless service. The ISP also is looking to add another DSL partner, as well as more cable and possibly fixed wireless partnerships.
"Everything we are working on is more focused on the product and making it more compelling to our product segments," Lunsford says.
When it comes to the technology, gaining a broadband arm does require an ISP to place points of presence on whatever available broadband pipe. But Lunsford says there is the opportunity to partner with competitive broadband providers and use their POPs in some areas--in effect mirroring the virtual ISP in the dialup world.
Because it got into the broadband game relatively early when there were fewer competitive providers, EarthLink has established more of its own DSL POPs. Lunsford adds it may be easier for other ISPs to get their links because network service providers such as Genuity Inc., WorldCom Inc.'s UUNet and Covad Communications Co. are on the scene to provide virtual level three connections.
One stop many broadband-minded ISPs are turning to for technical provisions is Convergent Networks, a supplier of Internet Protocol and soft switches for next-generation networks crucial to tapping broadband pipes.
Sally Bament, vice president of marketing for Convergent Networks, says many of her ISP customers come in looking for equipment to help them offer always on, high-speed service, but they are also looking at the option to add voice services. Bament says the trend appears to mirror that of incumbent carriers in trying to expand the number of services offered.
"We're seeing a lot of energy among carriers and ISPs looking to do similar things, but they are bundling voice with their data offerings," Bament says. "They are pretty quickly coming to that conclusion because they have to differentiate themselves in the market."
Soft switches, SS7 gateways and other IP-based products offered by Convergent are definitely on the shopping list for voice over broadband-minded ISPs, Bament says. Not only are soft switches much less expensive than traditional switches, they offer the option of getting into it using voice-over-IP and voice-over-DSL technologies.
"ISPs tend to be more forward thinking," Bament says. "They also don't have an inventory of Class 5 switches."
Despite the challenge, it is worth the time and money to invest in broadband access technology, according to Lydia Leong, an analyst for The Gartner Group.
"If you have the capital to get into the market right now that's a good thing," she says. "Little ISPs I actually don't have a whole lot of hope for. I think the little ISPs that survive are the ones that do offer a full range of services--do offer the broadband technologies and do offer clearly exceptional level of customer service. And they may charge a premium for that."
Indeed, as more competitors line up to offer DSL or cable modem service, service will become an issue as well. As more players enter, the attitude will shift from a "take what you can get" service to a "what service do you get," EarthLink's Lunsford says.
Customer service "is going to be huge," he says. "It will be 12 to 24 months before we get there, but it will be plug and play, where a customer can go down to a store and buy a DSL or a cable modem, go home and install it. At that point the only thing you can differentiate on is content or customer support."
At the same time, broadband ISPs will likely evolve from a "one size fits all" to more of a selected service offering, Lunsford predicts. Some ISPs will hawk basic service at a lower price, while others will tout deluxe service and added extras at a premium price.
"There's room for segmentation, and we as an industry take a very utility approach to customers...a customer is a customer is a customer," Lunsford says. "When you get into a full, knock down, drag out retail market, you'll see more segmentation start to take place."
With that in mind, EarthLink is starting to position itself as a top-quality service offering providing more features--such as roaming e-mail and expanded e-mail mailboxes--and beefed-up content. That also includes tech support for answering questions about every aspect of broadband service, from problems with a Microsoft Outlook program to instruction on how to set up a home networking system.
But not every ISP has to follow that model. "You don't have to offer superior service and support," Lunsford says. "Pick what you want and then go out and target that segment."
Leong also sees customer service coming into play, particularly in the more mature, competitive DSL market. For smaller ISPs it may be one strong point in facing the marketing and brand power of a giant such as AOL, Leong says.
"Little ISPs are really in a position where life is difficult for them right now," she says. "The ones that really have outstanding customer service will probably continue to prevail for some time because they can provide a more personal level of experience that say, an EarthLink or an AOL can't provide. But at the same time, they are competing against the hundreds of thousands or millions of customers that a bigger ISP brings with its better discounting. Their cost structures are just better and their coverage areas are better, and it is easier for them to brand and market."
Being a smaller ISP means facing big competitors and barriers to broadband technology.
"I would actually say that little ISPs are at a major strategic disadvantage, because the question is, if you are a smaller ISP, how do you differentiate yourself?" Leong says. "The only really big factor is customer service and, to a certain extent, quality of service--but when you are offering across the DSL plant or the cable plant a lot of the quality is no longer in your hands anyway."
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