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Market a tight squeeze for new ISPs

The ISP market is reaching its saturation point.

The giant telecommunications companies haven't scared off all newcomers to the Internet service provider market, but industry analysts are wondering how many recent ISP entries, or even established companies, will survive the intense competition.

Today alone, two more players, GTE and ZipLink, announced that they will enter the nationwide ISP market, going up against long-time providers like Netcom and PSINet, as well as new telco entrants AT&T, MCI, and Sprint.

GTE had previously provided Internet access to customers in the Dallas-Ft.Worth, Minneapolis-St. Paul, and Tampa, Florida, areas, but expanded its service to 46 states today, while ZipLink acquired Rupert Murdoch's iGuide to get its hands on 27 Internet access lines in a handful of major cities.

The nationwide total of ISPs now tops 3,000, according to the The List, a Web site that keeps track of ISPs. That number is up from fewer than 1,000 just six months ago, according to market research firm The Gartner Group. All of the ISPs are under extreme pricing pressure and are searching for a way to differentiate themselves from the crowd; many are looking to provide unique content or Web-hosting services as part of the typical $19.95 monthly fee to stand out from the crowd.

But some think they are wasting their time. As dial-up access becomes a commodity, consumers will be hard pressed to see any differentiation between ISPs no matter how many groovy Web sites they sponsor and the market will inevitably thin.

"This summer will be the topping-out point, and we will begin to see a decline in the number of ISPs by fall," said Eric Paulak, a research analyst at Gartner. "I expect that about 90 percent of current ISPs will be gone in the next five years."

That will still leave plenty of ISPs to go around--more than 600, Paulak estimates. AT&T and MCI are sure to be among the survivors along with a handful of small local providers. The good news for those that make it is that ISP profits are growing at a 30 percent clip, with revenues expected to top $1 billion this year.

Related stories:
GTE, UUNet offer national Net access
ZipLink wants piece of ISP market
ISPs find niche with Net-savvy users