Local Internet companies show bigger not always better
02:02 p.m Mar 11, 1998 Eastern
LOS ANGELES (Reuters)- With the big players in the Internet access business
cutting prices or taking other steps to attract subscribers, you'd expect small
companies to head for the hills.
Such is not the case. In fact, a recent report says local Internet service providers,
or ISPs, are faring better than their national counterparts.
In a recent survey of 55 ISPs conducted by Forrester Research, the Cambridge,
Mass., Internet industry researcher, 77 percent of the local providers said they
were profitable, compared with 7 percent of national providers.
But good times for local ISPs may be short-lived. Forrester also predicted that in
five years, when high-speed Internet access through cable modem and digital
telephone line is available, local ISPs will account for only 15 percent of all Internet
users, dropping from 31 percent today.
A closer look at three local ISPs shows how these mainly small, privately held
businesses are succeeding in the face of formidable competition, and why they
believe they can continue to do well despite the odds.
Start with InReach Internet (http://www.inreach.com), a Stockton, Calif., company
with 20,000 residential Internet customers spread throughout the state.
Like its national competitors, InReach charges a flat $19.95 a month for unlimited
access. But unlike America Online (http://www.aol.com), AT&T WorldNet
(http://www.att.com/worldnet/) and others, InReach never waives set-up fees or
gives away a free month to new customers, both moves company officials say help
keep it in the black. Officials declined to disclose earnings or revenue, but said
subscriber revenue is climbing 10 percent a month.
Another reason InReach is successful: employees are more committed than
workers at larger companies, according to David Diskin, a company product
manager.
''If you look at PacBell or AT&T, so many employees don't care about the ISP
service because they don't have a vested interest in it,'' Diskin said.
Until now, InReach has grown by sticking to the residential Internet access
business, but the company is hedging its bets by branching out to provide Web
hosting, dial-up and other services for business customers. The company also
resells bandwidth to 30 smaller California ISPs, a business that could become ''a
huge revenue stream for us,'' Diskin said.
Where most small ISPs still rely on word of mouth to bring in new customers, some
more savvy -- and well-off -- companies run advertising and direct-mail programs
similar to campaigns from national ISPs.
Teleport Internet Services (http://www.teleport.com), a Portland, Ore., provider
with 27,000 customers and undisclosed profits on annual revenue of about $6
million, began advertising for the first time in December.
''We did it cautiously because if we had a problem, we'd hear from our customers
that we're just like AOL,'' said Teleport President James Deibele.
Unlike large corporations that can finance money-losing Internet operations with
earnings from other businesses, local ISPs can't grab market share with low prices
then hope profits will follow, Deibele said. Instead, small providers have to spend
enough on marketing and technology to attract new customers but not enough to
bankrupt the company, he said.
But Deibele isn't worrying too much about bigger competitors, given the slow start
they're off to in his area.
''Right now when the cable companies install a cable modem they send two people
out, the computer guy and the cable guy, and that's not cost effective,'' Deibele
said. ''Phone companies talk about new and improved phone lines, but the phone
companies don't have enough people to do the old stuff, so where are they going to
get the people to do the new stuff?''
Officials at InterAccess Co. (http://www.interaccess.com), a Chicago area ISP
with about 19,000 dial-up Internet customers, believe customer service sets them
apart from the dozens of competitors in the city, including major players such as
Ameritech (http://www.ameritech.com).
''We have 50 people answering phones out of a company of 75 or 80. That's been a
distinguishing characteristic for us from our early days, when competitors had one
or two and we had 4 or 5,'' said Eric Gautschi, InterAccess marketing
communications director.
As part of its customer service, InterAccess quickly supported both 3Com's ''x2''
and Rockwell's ''K56flex'' 56 Kbps modems after subscribers asked for them, and
was one of the first ISPs to offer high-speed service to business customers.
Such responsiveness should help InterAccess grow to $10.5 million in revenue this
year, a 50 percent increase over 1997, Gautschi said. The company has been
profitable since 1994 though Gautschi would not be more specific.
''People have been predicting the downfall of small ISPs since the day we went
into business,'' Gautschi said. ''We believe we'll be around for the long haul because
we're small and local and can be very responsive to customer needs.''
''A lot of large national companies and telephone companies are used to a whole
different world where they owned the market, where they had a monopoly,'' he
added. ''They didn't have to be clever and quick. But unless they completely
remake themselves to be like small ISPs, and that's a tall order, they're the ones
looking for trouble.''
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