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Is your ISP financially viable?

Mar 24, 20043 mins
Internet Service ProvidersNetworking

* Issues you face if your ISP is sold or changes business strategy

How can network executives assess the financial viability of one ISP when the whole industry is in trouble? That’s the question I posed to David Rohde, a senior analyst with TechCaliber Consulting, a Washington D.C., firm that helps corporate network managers negotiate telecom services contracts.

“Virtually all the ISPs have financial problems…so you have to worry about all ISPs,” Rohde says. “The question is whether or not [Internet services] are a core business function such that the company itself or whoever buys it will honor the same terms and conditions for customers.”

Rohde says the basic problem corporate buyers face with ISPs is considering what might happen if the ISP fails and goes into bankruptcy.

When other telecommunications carriers have gone into bankruptcy, they usually do not change the terms and conditions of contracts with their customers, Rohde says. But when ISPs are bought by other ISPs, the new owners often eliminate good terms and conditions.

“With ISPs, it’s been repeatedly shown that a purchase comes with a bankruptcy filing, and the new carrier gets the right to change terms,” Rohde says, adding that this phenomenon has happened with ISPs and Web hosting companies.

Rohde says that this threat of changing terms and conditions is less likely with the top tier global ISPs such as AT&T and MCI.

“It doesn’t look like MCI is going to sell UUNET as part of its reorganization,” Rohde says. “It doesn’t look like AT&T is going to sell its IP network because it’s a core business function even if the overall company is not financially wonderful.”

Similarly, Sprint is “financially viable if not financially wonderful,” Rohde says. “They don’t have any risk of going under the way MCI did.”

Still, Rohde says that all ISPs including AT&T, MCI and Sprint are in cost-cutting mode that could affect corporate customers.  He recommends that corporate customers negotiate protections against changes to their contract terms and account teams.

“All of these companies are at risk of being sold,” he says.

The good news, Rohde says, is that most of the ISPs that are at risk of filing for Chapter 11 bankruptcy have already done so. To protect against other ISPs that might file for bankruptcy in the future, he recommends keeping contracts short – 2 years or less – and dollar commitments low.

In general, Rohde finds that U.S.-owned ISPs are less of a financial risk than those owned by foreign governments because they are less influenced by political change.  ISPs that are owned by foreign governments are not going to go into Chapter 11, but they might change their strategy based on “the politics of that country,” he says.

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