Internet Service Providers (ISPs) helped build the modern Internet , making them pillars of the online experience. But while ISPs rock, they do not rule. That's why the companies are hurting and their stocks have been stomped -- and ensuring open access to fatter pipes won't change this. Their moment for evolving into something more has passed, their evolution to date having left them with neither legs nor stamina, and little to offer competitively.
By Nico Detourn (TMF Nico)
December 13, 2000
A coalition of small-and-medium-sized Internet Service Providers (ISPs) is meeting with the Federal Trade Commission (FTC) this week to argue that the open access agreement between Time Warner (NYSE: TWX) and EarthLink (Nasdaq: ELNK) is an inadequate blueprint for their own open-access agreements with Time Warner, The Wall Street Journal reported.
That news comes even as the agreement apparently broke Time Warner's and America Online's (NYSE: AOL) impasse with the FTC, setting the stage for approval of their merger. The commission is expected to vote on -- and perhaps approve -- the deal tomorrow. (We covered that story in greater length this morning.)
Time Warner's early proposals left EarthLink crying foul , but the Journal said the nation's second-largest ISP now believes the final agreement makes a good "starting point" for other ISPs to negotiate their own open access deals with the cable company. With FTC approval of the AOL merger hanging in the balance, EarthLink's VP for law and public policy David Baker told the paper , "Time Warner had an incentive to negotiate a fair deal with us."
EarthLink, with almost 5 million subscribers, may be satisfied with its deal but others are less at ease. The Journal offers the example of a 3,000-customer Wisconsin ISP whose marketing director told the FTC that the wholesale rates demanded by AOL/Time Warner "cannot be offset" by other, non-subscription revenues. Lacking EarthLink's advertising and e-commerce revenue, smaller ISPs want their concerns addressed in the FTC's final decision on AOL/Time Warner.
While EarthLink may be over 1000 times the size of a typical ISP, its revenue from advertising, e-commerce, and other non-subscription sources still amounted to only 3% of the company's total during the third quarter . Recent subscriber growth has come mainly through acquisitions, and the company acknowledges it can't afford to compete for new customers with the likes of AOL and Microsoft (Nasdaq: MSFT) .
Clearly, for EarthLink and mom-and-pop ISPs alike, other factors are at play besides getting access to cable companies' high-speed networks.
Analysis, emotion, and reality
Much analysis and emotion has been spent on open access, on the appropriate conditions for the AOL-Time Warner merger, and on what constitutes a fair deal for the ISPs. The open access issue has been framed incorrectly, however, and even at this late date it remains unacknowledged that, long term, there may be no plausible arrangement that can save the ISPs.
Although open access has been framed in terms of ISPs being allowed to offer competitive services over another company's high-speed lines, the more important -- and more basic -- question is: What services do ISPs intend to offer? Email? Web searches? News? Message boards? Shopping and auctions? Software and streaming media on demand? Web hosting? A browser that spins the ISP's logo instead of Microsoft's and Netscape's?
Let's be honest. When it comes to these and other services, ISPs like EarthLink, Juno (Nasdaq: JWEB) , AT&T (NYSE: T) WorldNet, and even Excite@Home's (Nasdaq: ATHM) ISP when considered independent of the Excite properties, are redundant and, ultimately, irrelevant.
