Internet Service Provider (ISP) - Proliferation And Consolidation

PROLIFERATION AND CONSOLIDATION

According to Boardwatch, the number of ISPs increased from about 1,400 in early 1996 to 3,000 at the beginning of 1997. By mid-1997 there were an estimated 4,000 ISPs in the United States and Canada. Many of them were small operations that served consumers and small businesses in local markets by leasing and reselling the Internet services of larger ISPs. To stay in business smaller ISPs merged with the telephone companies to provide customers with a single source for a range of telecommunications services. Earthlink Network Inc. emerged as one of the largest national ISPs serving consumers, with 320,000 customers. Its strategy was to acquire smaller ISPs and make them part of the Earthlink network while letting them retain their local identities. Earthlink provided the smaller ISPs with Earthlink startup CDs, then handled the billing and services and paid the ISPs for the new customers.

Consolidation among ISPs and telephone companies began in earnest in 1997. Long-distance carrier WorldCom Inc. acquired UUNET's parent company MFS Communications Co. for $12 billion, giving WorldCom the second-largest Internet backbone in the United States. GTE Corp., the largest U.S. provider of regional telephone service, acquired Internet backbone operator BBN Corp. for $616 million. Digex Inc., an early ISP, was acquired by another ISP, Intermedia Communications, for $150 million.

ISPs also formed alliances to network and share their customers with other ISPs, so that users who traveled abroad could save on long-distance connect charges. Peering arrangements were established between ISPs who agreed to carry each other's traffic. By 1998 it was more common for bandwidth wholesalers who operated their own networks, such as UUNET and PSINet, to sell access to their shared-use modem pools and other equipment to local ISPs. That made it easier for start-up ISPs to go into business without investing in equipment, while fast-growing ISPs could lease infrastructure from a larger provider.UUNET and other providers also offered turnkey ISP services to smaller telecommunications companies and others interested in entering the ISP market.