The challenge faced by dial-up ISPs such as EarthLink isn't that their Internet connections use an obsolete technology, as advocates of alternate technologies would like to believe. It's that offering those connections represents the bulk of their business. This makes product differentiation more difficult and increasingly unbrandable, invisible, and irrelevant.
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Reuters and other news services have reported that No. 2 ISP EarthLink (Nasdaq: ELNK) said Time Warner is demanding the ability to set prices for EarthLink's service and also wants a large chunk of its advertising revenues. Time Warner is "trying to impose on us financial terms that would make it difficult, if not impossible, for us to offer Internet service," said EarthLink VP Dave Baker.
Those are rather dire words for a veep to make about his own company. A Time Warner spokesperson, meanwhile, said the company was "committed to working creatively with EarthLink and others in the ISP community" and that conversations to date should not be taken as final propositions.
Riding on all this, of course, is approval of the AOL/Time Warner merger, a fact that hasn't escaped the attention of EarthLink's Baker. "Now is the time and now is the forum to ensure that if this merger is going to be approved that real, verifiable and enforceable open access be part of that," he told Reuters.
Also riding on this is the ability of companies like EarthLink to accommodate structural industry changes. But is open access, however it is ultimately defined and enforced, enough?
Technology platforms and business models
The evolution of the online medium from dial-up to other relatively closed platforms is not bringing about the end of the dial-up platform so much as it is exposing the weaknesses of the business models built on that platform. This distinction between technology platforms and business models can easily get lost, but it's a crucial one.
The challenge faced by predominantly dial-up providers isn't that the Internet connections they offer use an obsolete technology, as advocates of alternate technologies would like to believe. It's that those connections represent the bulk of the business, a fact to which specific platforms and technologies are secondary. It makes product differentiation more difficult and increasingly unbrandable, invisible, and irrelevant.
In the old dial-up world -- to speak in the past tense -- where you could plug any modem into any phone jack and dial any ISP for an Internet connection, the ISPs could still manage to differentiate themselves, even if only on the basis of price or a reputation for reliability. During that era, ISPs also had the opportunity to become more to their customers than an e-mail address and a passive pipe to the Internet.
Yet for all their success in rising to the top of the heap behind AOL, not even EarthLink and MindSpring (before EarthLink bought it) managed to parlay their high customer satisfaction ratings into anything more than monthly access fees from users who, after logging on, rarely thought about their ISPs unless the connection flaked out. As with utilities, the rule of thumb in Internet access is that the ISP loved most is the ISP noticed least.
Traction and extinction
This lack of deeper user involvement and business traction in the ISP model would have led to its extinction even if broadband and other non-dial-up access modes had somehow never happened. But they did happen.
Today, faced with the need to keep its customers and grow its business in the face of a superior but closed infrastructure, the ISPs may lack sufficient leverage when negotiating for access. But even if this is addressed by open access regulation, as is likely, a more fundamental problem would remain.
Under even the fairest open access terms, transplanting an ISP's brand and customer base to the cable platform would not alone increase the service's basic competitiveness on a like-platform basis -- i.e., relative to other services coming over that same pipe. So, while it can be argued as a matter of principle that the cable system should be opened so other companies can fairly compete and offer more consumer choice, the issue is hollow at the core.
As a practical matter, the problem the ISPs face isn't in not being allowed to competitively offer branded high-speed access over closed systems controlled by AOL-Time Warner, or by AT&T (NYSE: T) and the cable ISP it controls through Excite@Home (Nasdaq: ATHM). It's that they have been unable to effectively compete with media and content companies such as Yahoo! (Nasdaq: YHOO), Lycos (Nasdaq: LCOS), the "original" Excite, and AOL in providing higher-margin, non-access services worth blinking and clicking at, even over the open telco system during dial-up's heyday.
The hard, historical reality of the ISP is that it hasn't evolved into more than an ISP. There are no regulations the feds can impose, or terms that the cablecos could offer, that would change that in any meaningful way.
Your Turn:
Are open access rules the answer for EarthLink and other ISPs, or do they face other challenges? Share your thoughts on the EarthLink discussion board.
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