In starting an ISP, the basic tasks you will want to consider are:
1.Securing funding for the project
2.Acquiring the equipment needed
3.Contracting for a backbone (Internet) connection
4.Contracting for telephone services (unless using wireless only)
5.Installing, configuring, and testing all equipment
6.Marketing and managing your ISP
Securing Funding
In order to secure funding, you're going to have to create a business plan and determine how much revenue and profit your ISP can generate. I used to have some numbers here that were helpful guidelines five years ago, but the market has grown so much since then that I don't know what the statistics are. I think we can safely assume that the Internet is here to stay, will soon be as common as a telephone, and has eyebrow-raising potential in the Features department.
In case they are helpful, here is my old analysis of the market from five years ago:
In a city with 250,000 people, an ISP with a fairly agressive advertising campaign could end up with 6,250 subscribers. At this level, a 9-to-1 ratio (nine subscribers for every phone line) should provide a premium service with no busy signals. With this ratio, 696 phone lines will be needed (6250 subscribers divided by 9, rounded to the nearest 24 lines). At a subscription rate of $20 per month the revenue figures look like this:
Revenue
- from 6250 subscriptions
- from 500 domains hosted $125,000
$10,000 $135,000
Telephone expense
(696 digital lines at $25 per line) ($17,400)
Backbone expense ($4,000)
Building rent or mortgage ($5,000)
Salaries ($30,000)
Payroll taxes ($2,295)
Advertising budget, per month ($19,500)
Miscellaneous monthly expenses ($13,500)
Equipment depreciation
(based on ~$600k of equipment) ($16,666) ($108,361)
Gross margin per month $26,639
$319,668 annually
19.7% gross margin
The above values are consistent with our knowledge and experience, but every city and situation will be different.
A similar table can be found on the web site of another networking equipment manufacturer (Cisco). Their figures for an ISP in 1999 with 100,000 56k subscribers at $22 per month (plus a $25 installation fee) and 1000 high-speed (e.g., wireless) subscribers at $3000 per month (plus $2000 installation fee) look like this:
Revenue, first year $66,900,000
Total expenses, first year ($53,759,889)
Gross margin dollars at end of first year $13,140,111
$1,095,009 monthly
19.6% gross margin
These figures show about the same overall profitability. Of course, the critical job of marketing your services to prospective customers is key to obtaining any profit, but this document does not discuss marketing. You're on your own there.
Technical summary of an ISP
This portion of the guide is a summary or overview of the technical topics and equipment involved in running an ISP business for people who are unfamiliar with, but want to know a little bit about, the technical aspects of this business. You will not find in-depth information here, but a superficial summary of topics that is intended to convey a basic understanding of “how it all fits together” (so to speak) rather than in-depth operational knowledge.
In the 1990s the majority of ISPs were hobbyists and techno-geeks (yours truly included). There was much less money to be made then, and it was not until the business community started getting involved and demanding that the Internet become more “user friendly” that things really took off.
As everyone knows, today's Internet service business scene is no longer dominated by the home-town ISPs that were common a decade ago. Most of them were bought, went bust, or have grown into big businesses. Even so, there are still some markets (e.g., rural Canada and Africa) which are not yet saturated with providers, and of course there is always a clever new idea waiting to be dreamt up by somebody.
Technical Steps to Starting
The technical steps to starting an ISP business are:
1.Connect two or more computers together in a network.
2.Install the software needed to provide the Internet services you wish to provide.
3.Establish a method of billing and collecting revenue (anything from manually typing bills to an automated credit card billing software package).
4.Connect your server network to the Internet and to your subscribers.
The technical steps to starting an ISP business are:
1.Connect two or more computers together in a network.
2.Install the software needed to provide the Internet services you wish to provide.
3.Establish a method of billing and collecting revenue (anything from manually typing bills to an automated credit card billing software package).
4.Connect your server network to the Internet and to your subscribers.
Financial Steps to Starting
1.Secure funding for the project
2.Purchase the equipment needed
3.Contract for a backbone (Internet) connection
4.Contract for telephone services if providing dial-up service
5.Contract for tower (or other distribution point) rental if providing wireless service
6.Install, configure, and test all equipment
7.Market and manage your ISP
1.Secure funding for the project
2.Purchase the equipment needed
3.Contract for a backbone (Internet) connection
4.Contract for telephone services if providing dial-up service
5.Contract for tower (or other distribution point) rental if providing wireless service
6.Install, configure, and test all equipment
7.Market and manage your ISP
Securing Funding
Raising capital will normally require a business plan, some experience to back your plan (either your own experience of that of others in your group), and an investment of your own. You could, of course, also refinance your house or use lines of credit to get the operation started as long as the interest rate is reasonable.
Both Canada and the USA have initiatives to bring broadband Internet to rural communities. News from Steven Harper on 30 July 2009 for Canadians can be found here. Citizens of the USA can find similar information here.
http://www.pm.gc.ca/eng/media.asp?category=1&id=2702
http://www.usda.gov/rus/telecom/broadband.htm
Virtual ISP (VISP)
Searching the web you will find dozens of Virtual ISPs (VISPs) who would like you to resell their service. The most common scenario is that, for a monthly fee, you get a certain number of accounts that you can sell along with some disk space to divide among your clients. Another method is that the ISP gives you a discount on their fees, then you charge your customers a higher rate.
At first this seems like a pretty good idea. Virtual ISPs will try to convince you that this is the best way to go. They will probably paint an overly dramatic picture of the headaches you will have without their help. However, you will realize that using a Virtual ISP has drawbacks that will severely limit your growth and will not result in anywhere near the profits of owning your own ISP. If you think about it, they are asking you to become their sales agent without pay, office, benefits, nor management - a free employee.
It seems like you are getting free use of their equipment to build a customer base, but what happens if you ever have a “falling out” with the VISP? Perhaps the VISP raises their rates too high, or decides to stop providing service in your area. What would happen to your customers?
Perhaps you are considering starting as a Virtual ISP and then purchasing your own equipment later. The same situation exists if you ever decide to change to another VISP. Your customers have their computers programmed to access the Virtual ISP, so how do you make such a change? If you have a thousand customers and it takes an average of twenty minutes per customer to guide them through changing their settings to a new VISP, that is 332 man-hours of work. Perhaps it will take 30 or 40 minutes per customer. And in any major change in business, you are certain to lose some percentage of your customers in the process.
Operating your ISP through a VISP means that a significant number of factors which directly influence the success of your ISP business will be completely out of your control. You will be depending on the Virtual ISP to respond to your needs and problems as your customers make requests of you. If a subscriber calls and says, “I can't log in” or “I am having trouble getting my mail” (two of the most common problems), what do you do?
•If the servers are under your control, you can determine the source of the problem quickly, often times in less than a minute.
•If you have to call a Virtual ISP, you will probably spend 30 minutes or more on the phone trying to accomplish what could have been done in under a minute.
The situation is similar for domain hosting, account changes, and numerous other day-to-day tasks.
Virtual ISPs obviously make a profit on the services they wish to sell you. Owning your equipment puts that profit in your bank account instead of theirs.
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