Prove That You're Worth It

Members of the ISP-Investor list share tried and true ways to verify the size of a purchased ISP's subscriber base.

[November 27, 2001]

On the ISP-Investor list in November, AT inquired,

"Let's say one ISP agrees to purchase the other ISP's customer base for a set price as a whole. The purchaser wants to verify that the seller's customer base hasn't been misrepresented by cold calling random customers to verify their existence, but the seller will not divulge customer contact information before closing. What is customary in these types of transactions?"

DP recommended letting a third party call the seller's customers:

"Let the buyer choose an attorney, whose sole job is to take the entire customer list and randomly verify a preset percentage of those customers. If the buyer balks at that, then I would have to question his motivations in wanting to see the list. It's a win/win situation: the buyer verifies the authenticity of the list, and the seller can keep his account data private until the sale is completed. Plus, by involving an attorney who has agreed not to disclose the particulars of the individual accounts, you have someone who is risking his license to practice if he violates that agreement."

Others advised exploring other methods of resolving the issue:

[JN laughed] "Are you serious? You're going to pay $400 an hour for a lawyer to call customers and piss them off? Plus, you're giving your client list to someone that may or may not be on your team. Leaks happen in the FBI and the CIA: you think personnel can't be bought in a lawyer's office? There are bank records, deposits, etc., to prove the revenues are there. Your attorneys should be able to come to an agreement with some money in earnest and most in escrow. I'd bet that a decent lawyer could put a contractual agreement with enough specificity that there's no problem. People do it all the time."

[VL agreed] "There's no need for random calls. The seller claims he has 'x' number of active/paying subs: if he delivers less than 'x,' then there is a proportionate drop in price. It's the same with churn, usually 30-60 days. There are many variations on this that can be negotiated, but that's a good starting point: it saves a time-consuming audit, and dangerous calls to subscribers."

[RY offered] "I would look at the RADIUS logs and the customer deposits. The seller should be willing to provide copies of the deposit slips going into the bank, with the customer names blacked out. The RADIUS logs will tell you how many different customers were online: it takes a bit of data manipulation, but the results are pretty accurate. The number you get from your deposits should match up with the number you get from the customer deposits. Another way is to pay a certain percentage up front, with the remainder in escrow. The escrow is paid out when the buyer has had time to verify the count after the fact."

—End