Small Internet providers fading

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: April 29, 2012 - 11:36 AM

Competitors for high-speed DSL service are disappearing because big carrier CenturyLink no longer has to share its network.

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Bil MacLeslie, president of Internet service provider ipHouse of Minneapolis, in his home office in rural Stillwater. He was recently told by CenturyLink that he will no longer be able to get his own company’s Internet service at his home.

Photo: Marlin Levison, Star Tribune

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Bil MacLeslie can't get his own company's Internet service at home anymore.

Last month, MacLeslie got a notice from telephone company CenturyLink. It said that his rural Stillwater home was being cut off from his provider of high-speed DSL Internet access service, ipHouse in Minneapolis. The notice told MacLeslie, the president of ipHouse, that if he wanted to continue using DSL, his new service provider would be CenturyLink.

MacLeslie wasn't surprised. The same gradual erosion of his firm's Internet access business has played out since 2005, when the Federal Communications Commission (FCC) ruled that telephone companies such as CenturyLink (then Qwest) no longer had to let independent DSL (digital subscriber line) Internet service providers use their networks.

"Qwest or CenturyLink would upgrade its network in a neighborhood or a geographic area, then migrate those DSL customers to their own service," MacLeslie said.

Before the FCC decision, independents could pay to use Qwest's existing phone network to reach their residential and business customers with DSL Internet access service. The underlying technology was provided by Qwest, but the service was managed by the independent providers, which generated profit margins sufficient to support their businesses.

But seven years after the FCC decision, there are far fewer choices for DSL service in the Twin Cities. The 47 independent DSL providers available in 2005 have dwindled to about a dozen. The survivors have shifted their emphasis to other areas as their DSL customer bases continue to decline due to lopsided competition from CenturyLink.

Some customers are not happy about the way telecommunications policy has worked out.

"It matters to me that there is no competition," said Bill Kalseim, who lives near MacLeslie in rural Stillwater and received a similar notice from CenturyLink that his ipHouse service was being cut off.

"I had a choice of DSL providers before, and now I don't." Kalseim said.

CenturyLink says it's not the bad guy in this scenario. The company says it's obeying the FCC ruling, which was made in response to telephone industry complaints that it couldn't compete with cable TV Internet service if it had to let dozens of smaller competitors use its networks. In addition, CenturyLink says it has given the independent Internet service providers literally years to adjust to their new circumstances.

"Since 2005, the Internet service providers have known we were going to make changes," said Molly Clemen, CenturyLink's market development manager for the Twin Cities.

As a result, it should have come as no surprise that the gradual upgrading of CenturyLink's network has replaced the old technology the Internet service providers used with newer technology that's incompatible with the independent providers.

CenturyLink's customers have actually benefited from the change, Clemen said.

"I think we are faster to market in delivering higher speeds," Clemen said, partly because CenturyLink no longer has to develop separate technology to make sure the independent providers can connect to its network.

More Internet options

CenturyLink argues that it's not eliminating consumer choice for high-speed Internet access, since there are alternatives to DSL. Those include 4G cellular networks, cable TV company Comcast or, for Minneapolis residents, the city Wi-Fi network.

Even today, CenturyLink hasn't completely shut the door on the independent Internet providers in those areas where it hasn't yet upgraded its network. But the business arrangement CenturyLink now offers the independents appears to be less attractive than it was seven years ago.

Today the independent Internet service providers are allowed to offer only the slowest DSL speeds -- no faster than 7 million bits per second, or 7 megabits, of download speed -- under the traditional arrangement in which the independent manages the service.

In order to offer faster DSL speeds, up to 40 megabits, independents must agree to let CenturyLink manage the service, which lowers the independent's profit margin and, in the eyes of several independents, makes offering the faster DSL service unfeasible.

Some have quit the Internet access business rather than try to compete with such disadvantages.

"It was a dying business because we could only sell old technology," said Stuart DeVaan, CEO of Implex.net in Minneapolis. "That's not competitive with Comcast or CenturyLink."

CenturyLink's offer to provide higher speeds if Implex.net would let CenturyLink be the Internet access provider wasn't attractive, he said. "It was a lower profit margin if we resold their service."

As a result, Implex.net quit offering DSL Internet access two years ago, even though it still had 275 business and consumer customers, he said.

Visi Inc. of Eden Prairie, which started out in the mid-1990s as an Internet service provider and still has about 2,500 DSL customers in the Twin Cities, has decided to emphasize other, business-oriented services.

"If we relied solely on being an Internet service provider, we couldn't pay the bills," said Bill Megan, president of TDS Hosted and Managed Services, an arm of Visi's parent company in Madison, Wis. "It's not a growth business."

US Internet of Minnetonka also continues to offer DSL Internet access at lower speeds, but it's no longer the focus of the company. Instead, US Internet branched out into a new venture by building and operating the Minneapolis Wi-Fi network.

"If you are a traditional Internet service provider from the mid-'90s that relies on someone else's network, you're at a serious disadvantage," said Travis Carter, technology vice president at US Internet. "With the Wi-Fi network, we can control our own destiny."

Steve Alexander • 612-673-4553

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