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Who'd Want To Be An ISP? 29 January 2002 Edition
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Are independent ISPs becoming an endangered species?

After all, it's just a few months ago that we saw one of NZ's oldest independent ISPs (Asia Online, formerly ICONZ) go belly-up.

Are we going to see more closures or failures in the ISP business?

Has the marketplace become so cut-throat and lacking in margins that only the big players such as XTRA and Telstra/Clear can survive?

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I mean to say -- who'd really want to be a small ISP anyway?

Right from the early days it wasn't hard to see that trying to run an ISP business in a country where the PSTN was owned by a monopoly, and the market for other essential data services were effectively ruled by a duopoly, would be damned hard work.

Of course this situation hasn't improved any with the arrival of DSL services which are, for 99 percent of the country, yet another monopoly owned by Telecom.

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It was always obvious that once Telecom itself got a sniff of the fact that there might be money to be made from these crazy kids and their computers, then they'd also get in on the ISP game.

Now you don't have to be a brain surgeon or rocket scientist to figure out that if the company which controls the local loop and has the lion's share of the bandwidth market is going to get into the game at a retail level then other, independent ISPs were going to have a very hard time of it.

Telecom and XTRA will tell you until they're blue in the face that XTRA gets no special treatment over and above any other ISP when it comes to PSTN access or data-circuits/bandwidth -- but do we believe them?.

The battle over 0800 numbers back in 1996 certainly cast more than a little doubt on the veracity of those claims.

A similar situation arose more recently when Telecom decided to force ISPs to use the 0867 system for dial-up accounts -- XTRA certainly seemed to be at an advantage compared to the independents.

As predicted, XTRA (largely due to having Telecom as its parent) has rapidly grown to become the country's dominant ISP, reaching its first 100,000 users in April 1998, and now claiming a massive 340,000 customers.

All of this has made life hard for the small independent ISPs -- of which there are far fewer now than there were six or seven years ago. The fact that so many are still in business is really quite amazing -- particularly in light of the "free ISP" situation we had a year or two ago.

And now we have another hassle for ISPs -- the consumer guarantees act.

According to reports, emails are to be classed as goods under the act, meaning that ISPs could find themselves caught in a rather unenviable situation.

As I understand it, the Consumer Guarantees Act (CGA) applies to goods and services primarily purchased for non-commercial purposes. It provides a range of protections against fraud and bad practice and many of these provisions can't be contracted out of.

By comparison, the laws pertaining to the sale of goods and services for commercial use are somewhat different and allow significantly more ability for its provisions to be waivered by terms and conditions explicitely added to the sale contract.

Now you can bet your bottom dollar that the providers of data and other services to ISPs will have carefully worded contracts that effectively reduce their liabilities to the bare minimum allowed by law. Since some of those services (such as access to the PSTN) are still a Telecom monopoly, ISPs will have no option but to accept such disclaimer-filled contracts.

However, the ISP may be in no position to pass on such disclaimers to its non-commercial customers. Not only is the retail Internet access marketplace a competitive one, but there's the higher level of implied consumer protection provided by the CGA.

When a domestic customer incurs a loss because one of their emails isn't delivered due to a fault with an ISP's supplier, a denial of service attack or whatever, the ISP may well find themselves well out of pocket in remedying those losses under the CGA. Unfortunately, they may not be able to recover anything from the party really at fault because they were forced to sign all those disclaimers and waivers in order to obtain the service in the first place.

But wait -- there's more.

If Telecom's market dominance and the CGA doesn't get you, the cost of complying with inevitable snooping legislation and fending off defamation suits will -- sooner or later. Although we've only got the O'Brien versus Brown case here in NZ and as far as I'm aware, the liabilities of ISPs has not yet been tested, a British case would suggest that they could be in the firing line sooner or later -- after all, much of our law seems to hold more parallel with Britain than the USA.

So -- how bleak is the future for the independent ISPs?

Well I figure that those who have survived up to this point are either incredibly tough and good at what they do -- or a division of Telecom NZ. Maybe we've lost the also-rans -- but I think I could find 101 better things to invest my retirement money in right now.

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