Dialing for Dollars

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This story appears in the December 1998 issue of Startups. Subscribe »

Q: I'd like to start my own long-distance business similar to services like 10-10-321. What equipment will I need?

A: Robert Rosenberg is president of The Insight Research Corp., a Parsippany, New Jersey, company that provides market research and analysis for the telecommunications industry.

You don't need a billion-dollar bankroll to buy your way into the long-distance game. Between 1994 and the end of 1997, the number of small, entrepreneurial firms entering the long-distance market from the resale end doubled to more than 1,000. Our research suggests smaller firms will continue to enter the game.

Telecommunications resellers don't invest billions to buy the underlying network. Instead, they profit by buying bulk quantities of telecommunications minutes from a carrier at a discount, then reselling those minutes to end users. The price the end user pays is higher than the price the reseller paid per minute, but less than the end user would pay to buy directly from the carrier.

There are several types of resellers. Aggregators gather multiple small customers into one, large pseudo-customer (the aggregator itself), then buy minutes from the underlying carrier. They are paid based on the percentage of the money they save end users. Many aggregators have either evolved into switchless resellers, merged or folded.

Switchless resellers, like aggregators, own no networks or equipment. Unlike aggregators, they act as service providers with their own identity, billing and customer service. They profit from the difference between wholesale and retail per-minute rates.

Low prices alone won't help you retain customers; you must also provide personalized service, customized bills and the ability to meld optimal packages from multiple carriers' services, as well as be willing to intercede for the customer with various suppliers.

Q: I want to become an Internet service provider (ISP). What equipment is required?

A: is co-founder of Best Internet Communications Inc., a Web-hosting and network connectivity company in Mountain View, California.

The two most common kinds of ISPs are dialup-access ISPs and Web-hosting ISPs. (Many ISPs do both.) Equipment requirements include at least two servers and Internet connectivity. Servers are typically medium-end PCs running UNIX with several high-capacity hard drives and lots of memory. Internet connectivity is typically a T1 leased line going to another ISP or an NSP (network service provider).

Servers cost about $3,000 each. The T1 typically costs $2,000 in startup fees and $1,200 per month in ongoing fees. A standard Ethernet LAN is usually sufficient for your internal network, especially if you have only a few machines.

Some small businesses try to use NT platforms, but this tends to be much more costly, and NT doesn't handle multiuser loads or security well. Still, it's something to research, because there's definitely an NT niche in the Web-hosting market.

To offer dialup access, you generally have to pull in another leased line called a PRI (primary rate interface) from the phone company and buy an RAS (remote access services) device such as a Livingston Portmaster 3 to handle incoming calls. This is your POP (point of presence). It entails a relatively high startup cost: The Portmaster with analog modems installed can cost $15,000; the phone company charges upwards of $40 per port, per month for dialup lines, and may also charge for the PRI itself; and startup fees can be $1,000 or more. To save, lease virtual POP services from companies instead of building your own.

Competition is serious among existing ISPs. There are a huge number of small ISPs and many national ISPs that cover large portions of the country. Successful small ISPs are run by people experienced in operating complex systems. If you don't have this expertise, hire someone who does.

Edition: December 2016

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