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Small ISPs growing numbers, not profits

"Mom and pop" ISPs are growing in numbers and reach, according to a new study, but profits may not be enough to keep the firms around for the long-term.

Despite rapid consolidation in the Internet access market, small local service providers continue to increase their numbers and customer reach, according to a new market study.

The U.S. market for Internet service providers (ISPs) will reach $23.6 billion by the end of 1999, up about 68 percent from 1998, according to a new study by market research firm Cahners In-Stat.

The number of small "mom and pop" ISPs has also increased over the last year, despite a consolidation trend that has seen national companies like MindSpring and Verio snap up independent local and regional service providers.

But as the number of firms have increased, small ISPs still haven't been able to secure a better position in the market, noted Cahners analyst Rick Miller.

"They are expending rapidly, but that's not necessarily good news," he said. "They're still not making much money."

A new and growing trend has seen non-profit and local organizations purchase wholesale bandwidth from ISPs and provide services for members at little or no profit. While these types of offerings have increased the numbers of smaller ISPs, the businesses may not last over the long-term, Miller said.

Miller noted that large national ISPs such as EarthLink and MindSpring are increasingly focusing on new services, such as Web hosting and start-up content, as well as the possibilities of broadband access. These large ISPs will likely stay on top of the market but may face some consolidation within their own ranks, he said.

"Those who really capitalize on value-added services should do quite well," he said.

Other analysts have noted that smaller ISPs will likely have trouble making a profitable transition into a broadband world dominated by cable and telephone company-affiliated service providers.