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David vs. Goliath

BellSouth takes its place on the bully pulpit

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By Joel Moses

Until recently, the local Internet scene was dominated by a group of young, energetic companies that made up in exuberance what they lacked in funding. Just as the Internet started to generate consumer interest, these companies took major risks by riding the leading edge of a new and tenuous business. All too happy to play David taking on corporate Goliaths, these little Internet service providers (ISPs) leaped into the fray with an almost frenetic glee.

Now, however, these small companies have become fully respectable, profit-generating enterprises, and their newly earned credibility is reflected in subtle changes that have overtaken business operations. Where once the dress code was T-shirt casual, suits and ties have now become standard apparel; chief financial officers have replaced copies of their off-the-shelf accounting software. In short, the Davids are beginning to look a lot like the Goliaths—and the Goliaths are beginning to take notice.

This week, BellSouth announced its plans to enter the Internet service market in Nashville. The details of its top Internet access package are fairly standard: $19.95 per month for unlimited access, a rate similar to that of many other providers in town. Local ISPs were not surprised when they heard BellSouth had become a competitor; they’d been expecting the company to break into the Internet business after the Telecommunications Act of 1996 eased restrictions on what markets the Baby Bell could enter.

“We knew it was coming,” says EdgeNet’s Bob Neal. “It wasn’t unexpected, and we feel we’re ready for them. I told them I’d buy [a BellSouth representative] a box of Band-Aids, because we’d be butting heads now and then.”

U.S. Internet’s Alesa Rottersman agrees. “We’re prepared.... [Earlier this year] when AT&T broke into the access market, the business didn’t dry up for us. That taught us that a knee-jerk reaction is not the thing to do.”

It isn’t as if a knee-jerk reaction wouldn’t be justified. A company with revenues close to $2 billion, BellSouth could buy and sell every local access provider in Nashville. And to complicate matters, every local ISP is forced to do business with BellSouth.

Internet providers need phone lines—lots of them. A typical setup may require more than 120 incoming phone lines, and each of these lines is usually purchased from, who else, BellSouth. Other companies offer competing phone service in Nashville, but for Internet providers, switching would be next to impossible.

“Even though there are other companies out there offering phone service, there are still a few services we require that only BellSouth can give us,” says Telalink’s Tim Moses. “So even though there’s technically not a monopoly in this market anymore, there’s still a monopoly.”

Despite a front-page story to the contrary in The Tennessean, EdgeNet says it has no plans to switch its phone service away from BellSouth. Neal admits, however, that the company has “investigated its options.” The company does so on a regular basis. “Sure, we looked at other companies. We did even before [BellSouth] became a competitor.... We still have a lot of friends over there.”

Several ISPs have privately voiced concerns that, since local Internet companies conduct their installations through BellSouth, the company may try to steal clients. For instance, if EdgeNet were to order a T1 line for one of its customers, BellSouth may try to contact that person and sell him its own Internet service.

BellSouth spokesman David May denies that the company would try to shaft local ISPs. After all, he notes, the phone company values them as clients too. “We have very specific separations between divisions of our business,” May says. “Some of those separations are put there by law.... We would not do anything to violate the trust of our clients. We just don’t do business that way.”

Local ISP Telalink says, however, that BellSouth may be playing hardball despite itself. Last week, the company scheduled a breakfast to launch its Internet product and distributed invitations to businesses and the press. Tim Moses says his faith in the company was jarred a bit when he asked to be invited to the announcement and was turned down cold.

What’s more, Moses says, “Our own sales rep sent out e-mail inviting our clients to come to this thing.” If BellSouth doesn’t want to disturb relations with its clients, Moses argues, then the company “shouldn’t use the salesperson we deal with to go after our own clients. It’s tacky.”

BellSouth defends its decision not to invite Telalink to the announcement. “They just weren’t the target audience,” May explains. “We didn’t invite everybody, just our biggest customers and interested members of the press.”

Beyond all the discord surrounding the announcement, most local ISPs foresee few changes in their own service. They believe they can offer faster access and better support than a company many times their size. “We’ve worked hard to develop a range of products and services,” says Neal. “And we’re certain we can beat BellSouth on technical support. We also offer several connection options that BellSouth won’t be offering. We’ll just let the customer decide what’s best.”

BellSouth’s residential Internet service will be offered in the Nashville market around the beginning of October. In the meantime, just remember that when David meets Goliath, a few stones are likely to be hurled.

Joel Moses can be reached via e-mail at joel@moses.com.

Joel Moses can be reached via e-mail at joel@moses.com.

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