Net Gains

PIC-ing up the pieces after providers merge

by Hank Mishkoff (hank@webfeats.com)

Note: This article originally appeared in The Met on August 17, 1995.

The war got a little bit nasty last week, didn't it? I mean, it's getting hard to tell who controls what territory; and even though the new folks in charge said that it was okay to stay, it sure seemed like a lot of people were looking for a new place to live. And worst of all is the uncertainty of not knowing where the next shell is going to land or who is going to be the next casualty...

No, I'm not referring to the war in the Balkans. I'm talking about the battle for Internet subscribers right here in Dallas.

In case you missed it, the first shot in the local Net war was fired a couple of weeks ago when Netcom, the largest national ISP (Internet service provider), gobbled up PICnet, one of the leading local providers. And although Netcom promised to take good care of PICnet subscribers, a few other local ISP's quickly made offers ("like sharks in a feeding frenzy," was the way PICnet President Tom Heatherington described it) designed to lure away PICnet customers who might be dissatisfied with the change in ownership.

Although the size of the sample is probably too small to draw any firm conclusions, reaction to the deal in local Net newsgroups (particularly dfw.internet.providers) was generally unfavorable. Much of the concern stemmed from the fact that, like all other local providers, PICnet used to offer unlimited Internet access for a flat monthly charge; Netcom, on the other hand, includes 40 hours of "prime-time" access in their monthly rate, and assesses a $2 fee for every additional hour of usage. Other reservations were service-related: "I joined PICnet about eight months ago precisely to escape the horrible excuse for an ISP that is Netcom," one PICnet subscriber wailed. "A good local ISP beats one of the big national services hands down in almost every way."

As you might expect, PICnet and Netcom didn't see it that way. "Netcom did not become one of the largest ISP's in the world by offering less than quality service," PICnet's Heatherington pointed out; he added that only 2% of PICnet's customers are online more than 40 hours a month, anyway. And Jeannie Slone, Netcom's PR Manager, saw her company's size as an asset rather than a liability. "We get constant feedback from our nearly 170,000 customers," she told me. "This allows us to continually upgrade our software and services to make sure that they're exactly what our customers are looking for."

Heatherington was especially scornful of the local service providers who tried to take advantage of the situation. "Many of the small local ISP's making all the noise and spreading the rumors," he said, "will not survive the competitive pressures that are about to be unleashed by Microsoft, AT&T, Netcom, and others."

Which brings me back to where I started, and leads me to ask: Who's next? Was this just an isolated incident, with no repercussions among other local Internet providers? Or did this mark the first salvo in a bloody and escalating Internet war?

One local service provider (who shall remain nameless) predicted wholesale carnage, and soon. "There's going to be a major shakeout by the fourth quarter of this year," he said. "Some local ISP's will be absorbed by national companies; others will go out of business. It simply can't go on this way."

The "way" he's warning about is lack of profitability. "All of the ISP's are losing money," he claimed. "In fact, the only valid reason to go into the Internet service business is with a plan to build up a subscriber base and then sell to a big company. And not everyone's going to be able to do that," he added, candidly telling me that he had created an "exit plan" before he even signed up his first customer.

However, not all service providers look at it that way. In fact, when I mentioned in a local newsgroup that I had heard rumors that another local ISP had flirted with an arrangement with a major national corporation, the president of that ISP responded angrily. "I have made it plain from the beginning," he said, "that we are in this for the long haul." One of his employees also contacted me: "Public reaction to potential buyouts, mergers, etc. can often disrupt and endanger those prospects," he cautioned. "As this industry is a highly specialized and even scientific one," he added, in an almost poetic footnote, "the carcasses of many a fallen naive ISP litter the country."

So, is PICnet merely the first "casualty" of the Dallas Internet War? Are the carcasses of "naive ISP's" going to litter the downtown streets before the year is out? Should we all be making contingency plans for what we'll do if we wake up one morning and discover that we've become CyberRefugees?

I don't know about you, but if I see Peter Arnett rolling up in a CNN truck, I'm running for cover.

Cyberbiz August 31, 1995: Virtually Employed.

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