Internet service providersthe companies that connect Internet users to the information superhighwaysay theyre now maneuvering through heavier competitive traffic here and anticipate some aggressive lane changes in the road ahead.
Not only is Internet technology changing at gigabit speeds, forcing Internet service providers (ISPs) to either stay with the pack or be forced off the road, so, too, are the ISPs themselves. More players are joining the race, some are merging or aligning themselves with more powerful competitors, and others are focusing on niche markets. A few businesses in this relatively young industry already have wrecked or stalled out beside the road.
By some estimates, the number of ISPs offering service in Spokane has grown sixfoldto about two dozenin the past four years.
James Moody, president of InterLink Services Inc., a Spokane ISP and web-services company, says that still more providers are coming into the area. I just keep seeing other ones starting up. I dont know how, theres only a limited number of customers in the area, says Moody, whos also chairman of a young ISP trade group here. I thought there wouldve been a shakeout already. But it doesnt seem to be happening because less than a handful have closed up.
Just in the past year, however, significant changes have occurred in the lineup of competitors here. Micron Internet Services, a unit of the big Boise-based electronics manufacturer, entered the Spokane market, touting its arrival here in radio ads. Seattle-based Fox Communications bought entry into the Spokane market by acquiring the residential dial-up service of InterLink, and Bellevue-based powerhouse Northwest Nexus Inc. came to town through its acquisition of Data Source LLC, which had made a name for itself by providing access to business customers and even other ISPs.
Meanwhile, a big Denver-based ISP group bought controlling interest in CompuTech, one of Spokanes oldest ISPs, and a Los Angeles company acquired Internet On-Ramp Inc., a Spokane ISP, and Optimal Systems Integrators, a Spokane computer networking company that also focuses on Internet connectivity.
Chad Skidmore, who had been a principal at Data Source and now is director of network engineering for Northwest Nexus, says the payoff of the increased competition has been that the cost of Internet dial-up service has remained relatively lowabout $20 a monthdespite investments by ISPs in expensive new technologies. Our costs are rising, but the general public wants prices to be going down. So we just have to operate on slimmer margins, Skidmore says.
To compete, some out-of-town players, such as Micron Internet Services, have chosen to establish what are called points of presence in the market without actually setting up offices here and hiring local staff. They do that by leasing space in telephone-company equipment rooms, where they set up modem banks and routing equipment that are monitored from afar.
Some Spokane companies, meanwhile, have bolstered their competitive strength by aligning or consolidating themselves with out-of-town companies with more expansive networks and financial resources, as was the case when a majority interest in CompuTech was sold to Denver-based Verio Group Inc., which also now controls a Bellevue ISP named NorthWestNet that offers service here.
Jeff Presley, president of whats now called Verio CompuTech, says that consolidations oftentimes provide the stability, business know-how, and financial muscle that some smaller ISPs need to compete. CompuTech, for instance, decided to team up with Verio Group because of that companys managerial expertise and financial backing, he says.
Presley contends that most smaller ISPs are run by the seat of their pants. They typically are started, he says, by technical peopleand sometimes theyre just out there. Verio has forced its ISPs to bring their house in order. They operate more like businesspeople and less like tech heads.
He adds that it makes sense for smaller ISPs to consolidate because its easier for software and hardware suppliers to deal with one Verio than with hundreds of ISPs, and consolidation enables the units of a larger ISP to share expertise.
In each region Verio has entered, it has acquired companies whose individual specialties would complement the whole, to create a fully faceted jewel, Presley says. For instance, he says that NorthWestNet specializes in providing Internet access to large businesses, but didnt offer any dial-up service. CompuTech offered dial-up serviceand brought that service to Verio Groups mix of service in Spokaneas well as higher-speed access to business customers.
David Schmidt, who co-founded Internet On-Ramp, predicts that more consolidation lies ahead. He expects that the ISP industry will evolve much as the cable-TV industry did, adding that at one time there were more than 3,000 cable companies across the U.S., but now a handful of big companies control about 85 percent of the market. Theyve gotten there by consolidating, he says.
Internet On-Ramp, another of Spokanes oldest ISPs, was acquired by Internet Ventures Inc., of Los Angeles, in 1995. Schmidt, who now serves as director of Internet Ventures technology group, says the Los Angeles parent company now owns roughly a dozen West Coast ISPs, as well as Spokanes Optimal Systems Integrators, which has been involved in what appears to be the newest wave in Internet connectivitythe use of cable-TV lines to provide Internet service. In such service, cable-TV subscribers can download Internet information over their cable-TV lines at speeds much faster than is possible with regular telephone lines, he says. Establishing such systems, which arent available in Spokane yet, but are expected to be available in Cheney soon, typically require the financial backing of a big company, says Schmidt.
That push toward the cutting edge, however, doesnt mean smaller independent ISPs will be left in the dust, say some in the industry here.
Verio CompuTechs Presley predicts that the ISP market soon will look like the Wal-Marts vs. the Joes Drug Stores. Regional or national companies will hold a majority of the buying power, but some consumers still will rather shop at a specialized, niche store, where theyll get a lot of handholding, he says.
Thats what Shawn Lewis, who co-founded Computer Fundamentals here, is betting on. That ISP and computer retailer, located at 1014 N. Pines, opened in December, and Lewis asserts that he isnt concerned about competition.
I dont really see us as having any competition, Lewis contends, adding that he and his partner, Tom Morgan, who are the ventures only employees, will set their business apart by bending over backwards for our customers.
Lewis says that he helped launch Computer Fundamentals because he was tired of being a consumer and dealing with people at other ISPs who made him feel overwhelmed or stupid.
Computer Fundamentals provides service both to residences and businesses, while other ISPs seem now to be distinguishing themselves by catering to one of those markets or the other.
InterLink, for instance, sold its residential dial-up service to Fox Communications so that it could focus on doing web-site development for corporations and offering Internet access solely to businesses.
Regardless of what niche ISPs choose to serve, though, Moody contends that theyll need to keep up with changes in technology. To be competitive, he says, ISPs must be able to offer dial-up speeds of 56 kilobits per second, since 56k modems now are becoming the standard.
Moody estimates that about half of the ISPs in Spokane can provide 56k-modem dial-up access, and he adds that to be able to do so requires a significant investment.
Technology is a killer. The small guy is able to creep along, but doesnt have the money to set aside for upgrades, says Northwest Nexus Skidmore. Many ISPs have gotten to that point where theyre either taking on additional debt in order to jump to the next level of service or theyre doing so by consolidating with similarly sized companies.
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