There has been never a better time to start a dialup ISP?if you can figure out how to make money?as there is a great deal of used equipment placed on the market by bankrupt ISPs.

by Max Smetannikov

A rash of ISP bankruptcies over the last four years has flooded the market with basic ISP gear priced at 20 percent to 40 percent of the original value. A Cisco 3660 router, an ISP classic, can be had for $5,000 as opposed to $15,000 brand new. A nicely configured Cisco 3640 router could go for $2,500 as opposed to $10,000. An access concentrator like a Postmaster 3 can go for $900, as opposed to $9,000 several years ago.

As prices for basic communications services have fallen dramatically (by up to 50 percent) over the last year and a half, an ISP can be launched for about $10,000, plus monthly business expenses.

"E-Bay is your friend," says Patrick Gilmore, who owned and ran an ISP in the early 1990s and currently works for Akamai.

A number of resellers of used gear have popped up recently, offering services specific to ISPs. T3 Systems is quickly making a name for itself as a good destination for used gear. And Portmasters.com is now the premier destination for used Lucent dialup concentrator gear.

To provide basic dialup and dedicated data services, an ISP startup needs a dialup concentrator, which allows modem calls to be received; a router for an Internet connection; and a server or two to run various must-have software applications (such as e-mail).

Most ISPs should, if possible, start with gear and services supporting at least 48 modems. Supporting less than this entails using gear that is not commercial grade. Supporting more would entail buying more T-1 lines from the phone company, which would be expensive.

Most ISPs also want to have a T-1 leased line or a PRI (ISDN) line going into the phone company to connect the ISP's equipment to the PSTN, and enable dialup and dedicated circuit users to connect to the ISP. The second half of the communications services puzzle is connecting the equipment to the Internet. While cheaper cable and DSL broadband options are usually available, veterans like Gilmore recommend against anything less than a T-1 for connecting to the Internet.

"I would not get cable or DSL. For some reason, all the fledgling ISPs I know think they can use their cable modem to run an ISP," said Gilmore. "First, the upload speeds are slow. Second, you cannot get the IPs you need. Third, the cable and DSL companies are looking for people running web servers on their links, and frequently (and randomly) filter things like port 80 inbound." (Port 80 is Internet traffic?filtering it out would effectively shut down the pipe.)

The choice between a T-1 or a PRI line is also important. Leasing a T-1 means the only service an ISP will be able to support is dialup. Leasing a PRI means an ISP can turn around and sell BRIs (i.e., ISDN lines configured for individual use) as a small business service?a consideration in areas where there is no broadband.

Concentrate, concentrate. . .
Either way, at the center of an ISP setup lies a piece of equipment called a remote access concentrator. Two top brands in that space used to be Livingstone and Ascend, both since taken over and discontinued by Lucent. Livingston's flagship product used to be Portmaster, and Ascend is known for Max TNT. In the post-Lucent acquisition world, the box to buy is Portmaster, especially for a small ISP.

"I believe Portmasters.com bought the source code rights from Lucent and plans to turn that software into open source, which will be a good thing for the community," said John Brown, chief executive of Chagres Technologies, a consultancy whose services include helping launch ISPs. In other words, Portmaster should have ongoing support and software upgrades, while Ascend may not.

When you get your hands on a Portmaster, you'll see why 48 is a good number of modem ports for a startup ISP. One of the most popular models, Portmaster 3, supports up to two T1s or PRIs. One T1 supports 24 ports, and one PRI line supports 23 ports, thus an ISP that deploys a full Portmaster 3 will support 48 or 46 dialup modems. Brown estimates than an average oversubscription ratio in the industry is seven to 10 users to a modem port. Thus one Portmaster 3 can support up to about 480 dialup users.

The route to service
The next big purchase is a router to connect to the Internet. Cisco is the dominant vendor in this department, and models starting with Cisco 3640 typically offer enough horsepower even as the ISP starts growing.

Any decent ISP needs a server to host specialized software. Brown, a great believer in reliability, recommends four separate machines for each application, since each is core to ISP operations. Technically, all can run off one server.

The applications are: an authentication server, an e-mail server, a DNS server, and a dedicated firewall (the firewall is considered optional by some).

The router should have between 256MB and 512MB of physical RAM, 20GB or more disk space, an Ethernet NIC, reasonable video cards, and an oversized case for better cooling. Unless you buy Linux (FreeBSD is a free alternative), all other software is typically free (you risk being shunned by fellow ISPs if you buy Windows).

Popular choices of free software are BIND for DNS, QMail for e-mail, and RADIUS for authentication.

Many ISPs also get into webhosting, since the only piece of software they really need to offer the service is a Web server and the most popular, Apache's HTTP server, is free.

One Portmaster, one router, and one server will set you back $900, $2,500, and $1,000, respectively, for a grand total of $4,400. Prices for T-1s vary, but deals abound. Washington D.C.-based Broadband.com recently advertised a nation-wide deal for a full T1 with a free Cisco 3640 for $948/month. Add slack for additional costs?redundant servers, PRIs, and such?and $10,000 in startup costs looks like a reasonable proposition.

Throw in some more money for security, and your only problems are finding customers and making money.

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Rural Internet No Longer So Off the Grid
By Bernhard Warner

LONDON (Reuters) - Attention country bumpkins, vacationers and beach bums: competing broadband Internet access alternatives are extending high-speed online connections deeper into the hinterland.

Increasingly, vacationers are able to log in to check e-mails and send last-minute updates to business presentations from the ski chalet, the boat moored off shore and even the camper van.

High-speed connections have also reignited in some the dream of turning the country home into an office, particularly as the technologies improve and costs fall.

Whether it be through an electrical power line, satellites orbiting the heavens, wireless (news - web sites) transmitters on a grassy hill -- or a combination of the three -- scores of firms are trying to crack the remote broadband market.

"I doubt if I'll ever see (high-speed Web access via phone) in my neighborhood and my local cable company is in bankruptcy," said Carl Zetie, a Forrester Research analyst who works from his home office in rural Waterford Glenn, Virginia. He's a couple of hours outside of Washington, D.C., in the northeast corner of the state.

Last year, Zetie installed a short, 30-centimeter directional antenna on his roof that points to a wireless broadband cell tower located two miles away. He can now surf the Web at one million bits per second; 20 times as fast as a conventional dial-up Internet access via standard phone lines.

DOES THE ANSWER LIE IN THE HEAVENS?

A thicket of technological snags prevent conventional cable and DSL broadband providers from ever entering most out-of-the-way communities, leaving between 5 percent to 10 percent of all homes and businesses in North America and Europe no choice but to seek an alternative, analysts say.

The cost and complexity of satellite-based Internet connections are falling. One provider, Europe Online (http://www.europeonline.com), offers satellite service for European customers, charging 150 euros for a year's worth of access. A satellite dish runs an extra 100 to 300 euros. It provides so-called digital subscriber line (DSL) access at speeds roughly ten times a standard phone-line Web connection.

Yet satellite still has its limitations. Users complain the service cuts out during periods of heavy rain and snow, and, in North America at least, an impeded view of the southern sky's orbit path can cause service interruptions.

"Satellite systems are good provided you understand their limitations," said David Farmer, project manager of One North East, a tax-payer-funded U.K. nonprofit organization with a mission to get England's rural Northeast on the broadband train.

One Northeast (http://www.n-e-life.com/broadband/) has used satellite and short-range wireless network technologies to bring broadband access to 15 towns and 12 rural outposts, including a local country pub, in the northern English counties of Northumberland and Durham.

WIRELESS IN THE WOODS

The next big wave is wireless technologies, analysts say. Wireless LANs and Wi-Fi hotspots are being set up to bring fast 'Net access to everywhere from Texas motorhome parks to yachting marinas along Italy's ultra-glamorous Amalfi Coast.

Italian start-up, Nocable S.P.A. (http://www.nocable.it), expects to introduce wireless Internet service by the end of this year in 100 coastal resorts in Southern Italy. It plans to charge nine euros per hour, enabling Europe's power brokers to check stock quotes from yachts via phone or computer links.

Bob Grose, host of a BBC television home remodeling program, teamed up with a friend, Gordon Adgey, to establish Buckfastleigh Broadband last year to bring high-speed Net access to the idyllic Devon countryside in southwest England.

"The whole thing was born out of frustration. We could see the whole broadband thing kicking off in London and didn't want to be left out," Adgey said. Adgey and Grose are looking to sign-up 100 of their neighbors, who can expect to pay 40 pounds per month -- a point at which they believe the operation should break even, he says.

It's not just mom-and-pop organizations hoping to bridge the last mile. A host of electric utilities are again buzzing with plans to offer high-speed Internet connections through wall sockets, a technology that analysts say is still a ways off.

The United Power Line Council (http://www.uplc.utc.org) in the United States and Scottish and Southern Energy (SSE.L) are plugging the technology's simplicity. Where available. the connection hooks up directly into a wall socket to bring one million bit a second surfing speeds.

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ISP Sample Financials
In starting an ISP, the basic tasks you will want to consider are:

* Securing funding for the project
* Acquiring the equipment needed
* Contracting for a backbone (Internet) connection
* Contracting for telephone services (unless using wireless only)
* Installing, configuring, and testing all equipment
* Marketing and managing your ISP

How much revenue can an ISP generate?

Based on the success of other ISPs, in a city with 250,000 people an ISP with a fairly agressive advertising campaign should have 6,250 subscribers within 6 to 12 months. At this level, a 9-to-1 ratio (nine subscribers for every phone line) should provide a premium service with no busy signals. With this ratio, 696 phone lines will be needed (6250 subscribers divided by 9, rounded to the nearest 24 lines). At a subscription rate of $20 per month the revenue figures look like this:

Revenue
- from 6250 subscriptions $125,000
- from 500 domains hosted $10,000 $135,000
Telephone expense ($17,400)
(696 digital lines at $25 per line)
Backbone expense ($4,000)
Building rent or mortgage ($5,000)
Salaries ($30,000)
Payroll taxes ($2,295)
Advertising budget, per month ($19,500)
Miscellaneous monthly expenses ($13,500)
Equipment depreciation (based on ~$600k of equipment) ($16,666) ($108,361)
$26,639
Gross margin per month $319,668 annually
19.7% gross margin

The above values are consistent with our knowledge and experience, but every city and situation will be different.

A similar table can be found on the web site of another networking equipment manufacturer (Cisco). Their figures for an ISP in 1999 with 100,000 56k subscribers at $22 per month (plus a $25 installation fee) and 1000 high-speed (e.g., wireless) subscribers at $3000 per month (plus $2000 installation fee) look like this:

Revenue, first year $66,900,000
Total expenses, first year ($53,759,889)
$13,140,111
Gross margin dollars at end of first year $1,095,009 monthly
19.6% gross margin

These figures show about the same overall profitability.

Excerpt courtesy of ISP Ltd.

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