FWIW
Hope this comes thru readable
just some stuff mentions ELNK
Later Dean
Raging Bull's Weekly Cyberstock Interview
Company: Ziplink Inc. (ZIPL)
Wednesday's closing price: 20 1/4
Market capitalization: $258 million
52-week range: 8 1/4 - 23 7/8
Summary: Wholesale connectivity provider primarily
to free ISPs and Web appliance makers
CyberPresident: Christopher W. Jenkins, president
Free ISPs: Love them or hate them, they are here to
stay. Like waves crashing against a child's
sandcastle on the beach, they seem poised to erode
the market of fee-based Internet service providers
through sheer persistence. (Although top tier portals
like CMGI's (CMGI) AltaVista, ExciteAtHome's
(ATHM) Excite and Yahoo! (YHOO) make the free
ISP movement seem more like a giant e-tsunami
than a gradual shift in the tides.)
My recent speculation that free "branded" ISPs will
become as commonplace over the next 18 months
as free e-mail must be music to the ears of Ziplink
(ZIPL) President Chris Jenkins. Ziplink provides
wholesale connectivity services to small and
mid-sized ISPs, Web appliance manufacturers, and
the rapidly growing number of free ISPs. In other
words, Ziplink is in many ways part of the underlying
infrastructure that is enabling this proliferation of free
access.
Current Ziplink clients include Microsoft's (MSFT)
WebTV Networks and free access giant NetZero
(NZRO), as well 1stUp.com and Spinway.com,
which collectively power the free access offerings for
portals like AltaVista, Excite and BlueLight.com, a
venture of Kmart (KM) and Yahoo. One can rest
assured that similar deals with other well known
online and offline consumer brands are in the works.
While numerous backbone providers dwarf Ziplink in
size and scale, the company does enjoy support
from big-name minority investors like Williams
Communications (WCG) and Nortel Networks
(NT).
Not oblivious to a high-speed future, Ziplink has
prepared for its subscribers' eventual migration to
broadband access by cutting deals with digital
subscriber line providers like Covad
Communications (COVD), Rhythms
NetConnections (RHTM) and NorthPoint (NPNT).
We recently sat down with Jenkins to discuss how
he plans to stay competitive in a space littered with
much larger competitors as well as his thoughts on
the future of fee-based narrowband access providers.
Cyberstock: Why don't you start off by giving us a
quick overview of Ziplink?
Jenkins: Basically, what we do is we provide the
dial-up backbone that small and mid-sized ISPs
need, as well as what people like WebTV Networks
need for their set-top boxes, and almost more
importantly, the free ISPs.
Cyberstock: So essentially you're part of the
infrastructure that's powering this entire free ISP
movement?
Jenkins: We are one of four major players in that
space. Other major players include ICG
Communications (ICGX), Splitrock Services
(SPLT) and PSINet (PSIX). But yes, we are one of
the people who are sort of enabling it to happen,
because these guys couldn't do it if they didn't have
the dial-access backbones out there.
Cyberstock: Okay. Let's pretend that I'm CEO of the
next great "free ISP." Why do I choose Ziplink over
the three competitors that you just mentioned?
Jenkins: One of the reasons is the way that we
build our network. We use what we call a "super
POP" architecture, which means we put our
equipment in one location in each major metropolitan
area and bring all the calls back to that location. It
turns out that is a much more cost-effective way of
building a network certainly compared to the way
you built a network two years ago. We can actually
provide access at probably around 60% of what an
older network would be. It's really taking advantage
of the new technologies that have come out over the
last few years.
Cyberstock: So you're banking that more smaller
and regional ISPs as well as this new breed of
"virtual ISPs" will end up outsourcing their access?
Jenkins: Yes. They actually sort of both feed each
other. The small mid-sized ISPs, because of the free
guys out there, are finding it more difficult to raise
capital, which means they need to outsource. They
can't afford to buy the equipment. By the same
token, the free guys can't afford to buy the
equipment, because their model is marketing. They
don't want to be building infrastructure. So we win in
both cases and enable both to be successful.
Cyberstock: There is no doubt that the free ISP
model is picking up steam dramatically here in the
U.S. So, sure, you're going to have increasing levels
of business, but is this really a great business to be
in from a profitability standpoint?
Jenkins: Well, there are lots of models that have
been successful in that business. If you go back to
the telecom and long-distance models, companies
who were providing the wholesale access to people
like Excel Communications and some of those guys
did very well. There aren't many of them out there. I
only have three significant competitors. We look at
each other more as co-suppliers than competitors,
but there are multiple groups that want to provide it.
Let's take 1stUp.com as one example. 1stUp.com is
now powering some 50 free ISPs and we are
providing access to all of those 50 free ISPs.
Cyberstock: Could you explain a little bit more
about how your relationships work with a company
like 1stUp and Spinway.com?
Jenkins: Typically they pay us on an hourly basis
for every hour that their customer is connected. We
are insensitive to whether a person uses it one hour
or 50 hours. We get compensated for the time they
are online. Essentially, what happens is that the
customer calls into our network and we pass the
customer information over to 1stUp.com or
Spinway.com's billing service, and they verify the
customer information and say, "Let that guy onto the
Internet," and then we do. That's the end of the
story. The customer's traffic passes over our
network, and we pass information back to
Spinway.com about how much they've used.
Cyberstock: What about larger access players like
Concentric (CNCX), GTE (GTE) and MCI
Worldcom's (WCOM) UUnet? Are they already
attacking this free ISP business as well?
Jenkins: They are doing it. The difference is how
much of the country these companies have decided
to cover. We cover about 65% of the U.S.
population. Someone like a Concentric would
probably be closer to 80% or 85%. The problem is
that coming up with that extra 15% is incredibly
expensive to do. So, what you do is effectively
increase your average cost across all users. If you
are Concentric and you're targeting a customer as
PIS and GTE is, then you have to do that. Unless
you decide to segment your pricing structure - and
at this point none of them have - you're really at a
very significant cost disadvantage. You also have
some significant challenges in managing a network
of that size.
Cyberstock: Can you talk a little bit about the
network expansion delays that you recently
experienced with Williams Communications that
caused you to issue an earnings warning in
December and to miss analysts' revenue
expectations?
Jenkins: First off, if you look at our Web page where
we disclose the number of new installations, we
seem to be in much better shape on the Williams
side of the equation. Williams had underestimated
the amount of time it was going to take them to build
co-location facilities. They seem to be getting that
part of their business much more in shape. We
would anticipate that to be a relatively short-term
event.
Cyberstock: One of the biggest knocks I keep
hearing about free ISPs is that they lack the high
level of customer service that a pay provider like
EarthLink (ELNKD) provides. What are your
thoughts on this?
Jenkins: First of all, they understand that is an
issue and what they're doing is playing hardball in
their contracts with people like me. They're requiring
very high service level guarantees. Now a lot of those
don't start to bite until a few months after now,
because they understand that they all launched in
the last 90 to 120 days. We're having our feet held to
the fire, and we expect to be in the position to deliver
the type of service that these guys need to have to
be able to compete against some of the major
players. My competitors or co-suppliers are people
like ICG and Splitrock, which run quality networks for
other people as well. I believe any kind of service
shortfall - I think they're isolated at this point - will be
very short-lived. If that's how some of the big guys
are planning on hanging their marketing hats, then
they're going to have a big problem come
summertime.
Cyberstock: Do you think that even as soon as four
to six months from now that the pay ISPs will start
to see a stagnation of their customer base if they
stay with their current pricing models?
Jenkins: The market is going to segment. There are
people who buy it for e-commerce. There are people
who buy it for casual e-mail or casual usage. Then
there's people who buy it for gaming and the people
who buy it as power users. The people charging 20
bucks better be in the last two categories, because
if they're in the e-commerce or e-mail segment,
they're not going to be able to charge $20. I just
don't think that's going to be able to hold. I'll use this
example as an illustration - you pay $20 to your ISP,
but you don't pay $20 to walk into a shopping mall.
Cyberstock: Right. Exactly.
Jenkins: That difference better equalize. I can tell
you when it's going to equalize. It will equalize in the
summer months, because in the summer months
people don't go on the Internet as much and any
quality issues at that point with the free guys will
disappear. It will give people like myself a catch-up
period to build our networks out. So that's when
you'll start to see a bite into the pay providers.
Cyberstock: Do you think the free ISP movement
played a role in the recent merger of America
Online (AOL) with Time Warner (TWX)?
Jenkins: I absolutely do. If I was Steve Case and I
had my currency right now, I would be buying as
many people as I possibly could, because as soon
as your growth curve slows down, you're currency is
worth nothing.
Cyberstock: Okay, sounds like an interesting
thought to end this on. Thanks for your time.
Jenkins: Sure. Bye.
Editor's note: Raging Bull is a wholly owned
subsidiary of AltaVista Co., which is majority-owned
by CMGI Inc.
COMMENTS: We want to hear from you. Please
e-mail any comments or feedback to the editor of
the Cyberstock Elite, Matt Ragas, at
matt@ragingbull.com. Matt is available to the press
for comments on Internet stocks upon request. |
