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 		 1. The Current Environment
 
 
The (Wanna-Be) Goliaths: Online Service Providers 
The most popular mode of Internet access is through an online service provider, such as America Online, Microsoft Network, or Prodigy. Online services offer proprietary content and features that aren't available on the general Internet.
 
 		 The Davids: Small Local ISPs 
Small local ISP's supply a majority share of businesses' internet access contracts: more than 60% of the overall market. Throughout the computer industry, the current trend is toward consolidation of market share. Many observers believed firms such as MCI, UUNet, AT&T and Microsoft would dominate the ISP business among corporations. However, this has not proven to be the case. The biggest ISP, AOL has a mere 11% of the business market.
 
 
 
 
 
 
 
 
 
 
 
 
 		 The value of ISPs  

The market includes a variety of Internet access businesses: 

  • Backbone providers: DIGEX and Touch Tone America, through its GetNetIntl. subsidiary; 
  • National consumer ISPs such as MindSpring, IDT, Earthlink; 
  • Wholesale access suppliers: PSINet and BBN Planet;
  • On-line services with Web access: AOL, CompuServe;

    • Local ISP's: Rocky Mountain Internet, Online System Services; and 
  • Hybrids like NETCOM that do a little of everything.
  • The index even includes two international companies: OzMail, an Austrailian ISP (Nasdaq), and Canada's Istar (Toronto). 
Beginning in mid 1995 and ending in early 1996, ISP stocks plummeted. Analysts predicted an industry shakeout in which only the large telecoms such as AT&T, MCI and the RBOCs would 
survive. UUNET, the strongest of the three, barely survived by being bought out, first to MFS and then WorldCom.  Alternately, investors in NETCOM and PSINet have yet to recover their investments. 

Early last year, the markets calmed down.  A few well-managed ISPs, such as IDT , MindSpring, and Earthlink, went public. They did however, issue IPO's out at much lower valuations, underwritten by solid investment banks.  These IPOs are now trading at about their offering price. 
 
Considerations for ISP finance are threefold: 
  1. 1) The ISP industry shows no signs of domination by major telcos. Publicly-traded ISPs grew revenue at roughly 250% over the last year. 
  2. 2) The ISP industry is segmenting into various zones:  retail, wholesale, consumer, corporate and backbone businesses. 
  3. 3) This is a time of mergers and buyouts. MindSpring bought PSINet's consumer business and has completed over six purchases in Florida alone.  Verio raised $80 million to enter locally managed ISPs and build a backbone. Even RMI is doing it: it acquired the subscribers of Online Network Enterprises (Boulder, CO) in exchange for cash and common stock. The industry is making operations more efficient while trying to develop new services like web site hosting and even telephone servce. 
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