ISPs - the business angle (or, Show Me The Money!)

OK, so we've been talking about small-scale ISPs for the past couple of articles. Trying to foster interest in people who think the whole ISP thing is intriguing, but were put off by the huge costs talked about in the various reports they saw. These figure are in the tens of crores of rupees. And who's got that kind of money ?

Guess what ? You don't need that kind of money. You could even end up shaving off between two and three orders of magnitude off those numbers. Let's take a look :

Let's assume you want to get your feet wet in the ISP business. See if it's a viable and interesting business proposition before you have too much of your money tied up in it. What is the minimum investment required to run a small ISP ? We will also assume that you want to make some money while havingt his question answered, i.e, this is not a "play" situation, but a full-fledged business, only scaled down to reasonable levels.

You will need: (all prices approximate)

Material Resources
An (Intel or compatible) server, the largest you can get. Rs200k
15 dial-in phone lines Rs450k
15 modems Rs150k
A multi-port card (16 ports) Rs25k
A 64 kbps leased line from VSNL Rs1000kp.a
A copy of Red Hat Linux 5.0 (say) as your server platform. This includes all the software you'll need to get your ISP up and going. Rs3.5k on CD-ROM

[Note: At this level, you will not need other network hardware such as routers or switches]


I am assuming that you will be involved full-time in this venture, at least until it gets going properly. If you're not a Unix wizard, (and would you be reading this if you were ? ;-)); you'll also need to hire somebody as a system administrator / webmaster. Also, this business cannot really be done properly as a single man operation. DO NOT ATTEMPT TO CUT CORNERS HERE. Your business living or dying will depend on the quality of the person you have on the front lines. He will also be your first line of defense for support. Such a person is worth his/her weight in U-235 (are you listening, Prime Minister ?) and will have to be paid accordingly. Plan on about 300k p.a.

Timelines and Rollouts

An important assumption (what, another one ?) is that the ISP policy is in place. You cannot attempt to become an ISP until you are "allowed" to do so. Sad, but there it is. I shall not even attempt to second-guess the government and the bureaucracy here. I think it's safe, though, to assume that nothing much will happen in this regard before the last quarter of 1998.

The other items can be had off the shelf. So, the only other thing which might take time is for you to find a good sysadmin / webmaster. Consider offering this individual a stake in the business as a method of retaining his / her interest. Believe me, it'll be worth it.

Annualised Costing

OK, let's see what your costs are so far :

In the first year, you'd be looking to spend about Rs.2000k to run an ISP with 15 dial-in lines. In keeping with the international norm of 10 customers per dial-in line, that makes 150 customers, which would certainly give you a sufficient cross-section to decide whether you want to be in this business or not. With some financial prudence and planning (advice on which is outside the scope of this article) you may just end up making a healthy profit out of this pilot as well...

Some other issues to consider

What if you oversell your connection?

Probably the most tempting option for a startup ISP who'd like to get some decent profits out of his system is to oversell the connection - that is, to exceed the recommendations listed in the previous section. (i.e, have, say, 25 or 30 dialin lines instead of 15, which was proposed as a reasonable maximum to provide some profit and some quality of service at the same time)

The argument is seductive: Many people are cheap. They'd rather have an inexpensive connection than one that worked perfectly. You (the start-up provider) are just one person, and you can't provide a perfect system in any case; you just don't have the capital for a T1 or a 24-hour staff. Could you play the ISP game anyway, by just selling an overstressed connection for less money than other providers?

The main problem with this game is that it's too easy to play. If you offer cheap service at cheap prices, there are bound to be people with more resources than you who can offer cheaper service at even cheaper rates. There will always be someone who can undercut you. Quality service, though, is very hard to come by in the Internet provider business. And we are now talking about a situation where an ISP, especially a small one, is vulnerable to complaints about quality of service (don't you just wish you were VSNL sometimes ?)

If you can please your customers by offering excellent service - even for more money than some of your competitors (of course you'll have competitors. Plan for it.) - you probably have a very good shot at gaining market share, even over very large companies. So you may want to at least consider the high road, not the low.

I'd like to address more aspects of this fascinating new area in future pieces. I need to know what you'd like to see me cover, though. Please keep the feedback coming. I can be reached at <>, and I promise you a reply. Thanks.

Udhay Shankar N <> is a Random Networking Enthusiast who collects interesting people.