[asterisk-biz] OT: Independent ISPs in the US (was:

Dovid B asterisk at dovid.net
Mon Jan 5 05:13:05 CST 2009


 > Trixter aka Bret McDanel wrote:
>
>> On Sun, 2009-01-04 at 18:09 -0500, Kristian Kielhofner wrote:
>>> On 1/4/09, Alex Balashov <abalashov at evaristesys.com> wrote:
>>>> I think if this gets traction you will see a lot of providers doing
>>>>  ultra-low bait-and-switch rates. Most cannot afford to be in a price
>>>>  race to the bottom.
>>>>
>>>   Agreed.
>>>
>>>   This current race to the bottom, while somewhat inevitable, is not
>>> necessarily a good thing for customers.
>>>
>>
>> to a point this is where the ISP market was just over 10 years ago in
>> the US.  Race to the bottom, then they discovered things like churn rate
>> costs, and all that.  They started charging set up fees, many providers
>> went under or were so strapped for cash they sold to the competition
>> that had the resources to float at/near cost and all that.
>>
>> When the dust settled there were far fewer providers, and any provider
>> with fewer than 3000 customers basically was gone.
>
> Speaking as someone whose professional background prior to getting into
> VoIP was in the small, independent ISP industry (US), I will observe
> that this is a very controversial subject.  The history of that industry
> is heavily tied up in the regulatory and legal climate, within which
> even relatively small shifts had tectonic effects in their creation and
> destruction of business models.
>
> The most immediate cause of the all-but-death of the independent ISP
> industry in the US is widely seen to be the FCC's reclassification of
> DSL as an information service that the ILECs have no obligation to lease
> wholesale components of at regulated rates to competing ISPs.  There
> were others, of course.
>
> There are two basic prevailing moods within that discourse, and it's
> worth taking a look at them to see what lessons can be taken away for
> the small VoIP world--the one most of us are participating in here on
> this list.
>
> Fundamentally, there were two structural "waves" on which the
> independent ISPs capitalised:
>
> 1) Early to mid 1990s -
>
> The first was the appearance of dial-up Internet access:  order PRIs,
> get a RAS box (Portmaster, TNT, TotalControl, etc.), set up a mail and
> web server, provide tech support, and pocket cash.  Then the ILECs - the
> folks who owned the physical copper plant and transport network from
> which all this value was being extracted in such a lucrative way -
> decided to get into that game themselves, on a much lower cost basis
> since they own the stuff.
>
> The price of monthly unlimited dialup crashed to under $10 as a result,
> and so simply offering it no longer amounted to any kind of value
> proposition in itself.
>
> Of course, the emergence of mass-market broadband was the other key
> reason why dialup was moribund and why the window of opportunity there
> was only a few years (the so-called modem boom).  By 2000 (that's an
> optimistic stretch), if you hadn't sold your formerly prosperous dial-up
> ISP and walked away, you were screwed.
>
> 2) Late 1990s to middle postmillenial 00s --
>
> The Telecommunications Act of 1996 opened the local exchange loop to
> competition.  Most people in the VoIP world know TA96 for having
> essentially created the legal phenomenon of the interconnected CLEC.
> What somewhat fewer people know is that TA96 also required that the
> ILECs lease certain parts of the ADSL broadband delivery infrastructure
> stack (DSLAM ports, ATM/Layer 2 backhaul and handoff, line sharing,
> provisioning, etc.) to competing ISPs at rates that were, until about
> 2005 (+/-), regulated and fixed to a certain extent.  So, big bad telco
> could provide DSL, but it also had to allow other ISPs to use their
> plant to provide DSL with room for a semi-decent margin in a relatively
> turn-key.
>
> (No such obligation was levied upon cable companies.  See:
> http://en.wikipedia.org/wiki/National_Cable_&_Telecommunications_Association_v._Brand_X_Internet_Services)
>
> While the ILECs dragged their heels on actually getting a lot of the
> infrastructure and B2B backoffice / provisioning stuff to make this work
> rolled out in the wake of the ruling, in the end it fundamentally opened
> up an arbitrage opportunity for small ISPs.  They could use ILEC
> facilities to provision DSL while delivering as little or as much
> value-added service differentiation as they wanted and still remain at
> least rudimentarily price-competitive, although of course the relatively
> thin margins scale better at the level of a multibillion dollar
> corporation than a local/regional ISP with a few hundred or a few
> thousand customers and cost basis was always a problem.
>
> This game ended with a 2005 FCC ruling that reclassified DSL and
> effectively ended tariff controls, allowing the ILECs to float the
> pricing for wholesale access to private commercial agreements and
> effectively price the independents out.  The ILECs weren't so uncouth as
> to simply deny access;  mostly, they just raised prices so that a lot of
> ISPs' wholesale loop costs were close to the price at which they
> retailed the product.
>
> The margins were pretty shabby to begin with, there was plenty of ILEC
> "slamming" of wholesalers' customers going on, and support costs and
> overhead were high.  So, among those ISPs that were left by 2005, there
> is a broad consensus that that's the day of the industry's death, but
> some will say the end of profitable dialup was really the end.
>
> ...
>
> As mentioned above, there are two dominant reactions to this situation
> in the community.  One is that the ILECs are corrupt, vicious predators
> whose collusion with the Bush FCC and the Administration's connections
> to megacorporate telecom lobbyists suffocated a valuable and important
> business model.  A lot of the ISP owners sit around and gripe still
> about how the assholes at AT&T did this to them and Verizon that.
>
> There is the additional - and very justifiable - cause for resentment
> that has to do with the fact that the ILECs' buildout of their networks
> and physical plant over the last century has been anything but the
> purely private endeavour that they attempt to characterise it as when
> arguing that there is no reason they should be required to lease it to
> competitors on advantageous terms.  On the contrary, they have been the
> beneficiaries of billions in grants, subsidies, funds (stuff like USF),
> state-sanctioned legal advantages (i.e. easements, rights-of-way,
> leases), revolving-door nepotism in government regulatory bodies,
> monopolism, and so on.  The argument here is that in this respect, the
> last mile of the PSTN operated by the telcos is more of a public utility
> - like the road system - than a fixture of adventurous and innovative
> private investment;  thus, the least they should do is be forced to open
> it up to competition on favourable terms.
>
> On the other side of the coin, it could be reasonably said that TA96 was
> conceived as a modernisation initiative to incentivise the build-out of
> competing *physical* *networks*, with the idea that increased
> competition will drive down prices and spur innovation in broadband and
> other telecommunications services.  Instead, most of these small
> independent ISPs latched onto easy money in the form of legally
> supported arbitrage/resale opportunities without actually building
> anything of substance themselves, with a few notable exceptions (mostly
> from wireless-ISP-in-the-boonies land).  POPs and RAS boxes and circuit
> orders out the yazoo, but no parallel fiber transport cores, FTTH, etc,
> etc, etc.  In other words, the "meat" of the service.  Instead, most of
> them put faith in the small business mystique (your small, friendly
> local company that knows you by name and gets you superior customer
> service as compared to scripted, outsourced/offshored call-center
> monkeys from the Bells and cable MSOs) as a marketing technique.
>
> Instead, they just resold Bell facility while they could.  And in the
> end the market rationalised away this inefficiency (with a little help
> from some regulatory bodies) and gave them the finger.  It turns out,
> according to this account of the situation, that the companies best
> equipped to provide pricing efficiency and value in consumer-grade
> broadband are the ones that literally own the network (or at least 90%
> of it)  it's all framed over.
>
> There are survivors, of course;  folks that hang on providing
> higher-margin business services (whatever the justification for $150/mo
> "business DSL" that is the exact same product as residential, some
> businesses are willing to buy into it), value-added service
>
> Anyway, it's obvious that the VoIP ITSP business is not like this in
> many ways.  What keeps VoIP wholesale PSTN O/T providers going isn't so
> much that they are taking advantage of a legally mandated arbitrage
> lever as that most of the big carriers that offer this stuff wholesale
> don't want to deal with small amounts of traffic.  But there's always
> pressure to "cut out the middle man," and as these carriers roll out
> newer and improved SIP trunking products, the pricing efficiency and
> dimensional flexibility of that offering (as it relates to volume
> commitments) will increase.
>
> In the end, what you are offering as a wholesale O/T provider is going
> to become commoditised and come down to price.  More and more people are
> going to simply find a way to go around you and go to your suppliers.
> Domestic LD in the US has already collapsed to the point where I fail to
> see how anyone can make any margin off customers that have even a little
> bit of commercially viable volume (100,000+ minutes) to the table and
> actually know how to shop for deals.  And no market opportunity that
> relies on people simply not knowing how to get what you're getting will
> last forever;  you have to add real value.  Some of that can be achieved
> through neat rating engines and nice OSS/BSS systems and other business
> process-related value propositions, but at the end of the day, when the
> gap in quality narrows, people are going to want to go straight to the
> farmer to buy their wheat.
>
> -- Alex
>
> -- 
> Alex Balashov
> Evariste Systems
> Web    : http://www.evaristesys.com/
> Tel    : (+1) (678) 954-0670
> Direct : (+1) (678) 954-0671
> Mobile : (+1) (678) 237-1775
>
>


Alex,
Thanks for the small lesso in telecom. I think the minute market is shot. 
It's like what the web hosting business used to be. If I charged $120.00 a 
month for a server and my customer found one for $115.00 they would leave 
right away. What I have found (as I am sure many others have) is that there 
are plenty of customers out there that are looking for service and they are 
willing to pay for it.  While I am not the cheapest out there I give 
customers what they need and they are willing to pay for it. By sevice I 
mean A)Customer service/support B)Give them what ever they need. If they 
need a customly built dialer they have one in a few days. Most of the time 
when they buy equipment from you (e.g. dailer, PBX etc.) they are willing to 
get the minutes from you even if it is a bit more if they see that the 
service is good. At the end of the day people need reliability. 





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