Log On America went bankrupt after alleging that EarthLink had failed to pay for acquired subscribers, so who was willing to pay for the infrastructure? A company accustomed to buying failed ISPs in New England.

by Alex Goldman ISP-Planet Associate Editor [July 10, 2003]

When Log On America (once listed on the NASDAQ as LOAX) liquidated, it first tried to sell its subscribers to EarthLink. The company eventually managed to sell its infrastructure (and its phone subscribers) to United Systems Access, an acquirer of ISPs and a provider under the USA Internet brand. Based in a town made famous by the Bush family, Kennebunk, Maine, the company has been growing through organic growth and through acquisition at a time when assets are available at a reduced price.

In the case of Log on America, the main infrastructure asset was a network operations center built with venture capital (i.e., using equipment so expensive that it was only possible to build it during the boom). USA also obtained some URLs and intellectual property.

Jonathan Ross Gilbert, executive vice president and chief marketing offices, explains, "we've spent the last three years primarily growing through the acquisition of bankrupt or ailing firms, or young unprofitable companies."

The company focuses on serving small business and residential customers with telephone, dialup, and some DSL. After an acquisition, the company will often divest pieces that it feels are not part of its core competency.

Gilbert says most ISPs should not try to do residential DSL. "Setting up DSL or having someone set up DSL in their home is a different process [than dialup]. These companies try to be something to everyone. We suggest that ISPs find a niche and focus their energies on that niche."

Most acquired companies have many problems. Gilbert says, "it's rare in deal we look at that it's just one problem. It's a combination of technical issues, business processes, and marketing."

He notes that most ISPs blame customer care, but even there, problems can have many causes. "People say, 'customer care is a disaster,' but the reason is often because of flawed operational processes. None of this is brilliant; it's just the basics. If price + service = retention, then you have to take nebulous concepts and break them down into sub elements. Price is just price, but service is complicated. Sub elements include physical service such as do I have a dial tone and can I log on, network reliability, network capacity (busy signals), and network authentication."

"Another area, a huge one that many get wrong, is billing accuracy. This has two components. There's billing errors and billing confusion—it's important to separate them. A customer's perception is reality. If your bills are accurate, that's not important if your customer is upset. If you've got a usage-based plan where a customer pays $9.95 if they don't go over a certain number of hours, and they are surprised by a bigger bill than usual, they get upset. Their perception is that there was a billing error. You need customer education, and you also need to have good presentation."

"There can also be problems with provision and bill generation. You want to manage incoming calls to the call center."

In Maine's rural markets, Gilbert says that residential DSL service is impossible. "There are no densely concentrated groups of DSL customers in rural areas. You need to go to affluent suburbs (or affluent inner city areas) where people can afford it, and even then, you're competing with the cable company, which can undercut you on price by using their cable service to subsidize the Internet service. If you're an ISP, you're kind of screwed."

Instead, Gilbert is looking for a simple business model. "We look at ISP operations as cash flow purchases. You want several thousand dialup customers paying by credit card on a monthly basis. We'll strip out residential DSL and other crazy businesses lines. We now have a captive audience to which we can cross sell bundled phone service. Operations is not just about general management; it's about blending Computer Science with hard-nosed operations management."

—End