Sizing Up Cheap ISPs

For the price of a McDonald's Value Meal, you can get Internet access for a month. But you get no guarantee it will be indigestion-free. A growing number of access providers offer dial-up Internet access for as little as $4.75 monthly--a rate that make even budget $10 ISPs look downright expensive.

Discount ISPs have been attracting a new breed of penny-pinching customers in this weak economy, says Lydia Leong, principal analyst at Gartner, a market research firm. Experts say that new ISP business models and the continued declining cost of underlying bandwidth make it easier for providers to offer dirt- cheap prices.

But with bargain basement deals come trade-offs such as less-than-stellar customer support, no e-mail or newsgroup features, and no storage for posting a home page. Another minus: Your super-cheap ISP may not survive on its razor-thin profit margins and could go out of business without warning.

The Discount Parade

Maybe you've seen these services, with their sub-$7 monthly, nationwide dial-up rates. Among them are 650Dialup and 550Access, the apparent bargain champ with a promotional rate of $4.75 monthly. Sometimes their names hint of their wares, as in the case of Access4Less and budget provider Qwickconnect. None of these ISPs require you to download software that displays ads to subsidize their service.

"The question isn't why are we so cheap," says John Smith, senior vice president of sales at 550Access. "The question is, why are other services so expensive?" 550Access regularly charges $5.50 monthly. However, the service limits you to 150 hours of surfing monthly, does not give you an e-mail address, and offers no Web server space. "Most of our customers just want basic access and don't need expensive bells and whistles," Smith says.

On the other hand, another cut-rate ISP, 650DialUp, includes a surprising number of perks with its service, despite its low fee. For a meager $6.50 monthly, 650DialUp includes five e-mail addresses, 5MB of server space, and free customer support through a toll-free around-the-clock phone number.

"The last line of defense in ISP competition is offering the best price," says Anthony Minessale, president and founder of the year-old 650DialUp, which he claims has 10,000 subscribers.

How They Stay Cheap

Like a growing number of other virtual ISPs, both 650DialUp and 550Access don't own the physical infrastructure of their business. Instead of operating modem banks for customers to dial into and bandwidth pipes that link customers to the Internet, 650DialUp buys wholesale Internet access and services from ISP turnkey resellers such as DialUpUSA.

DialUpUSA owns the back-end network, and ISPs like 650DialUp find customers, market their services, and handle billing. DialUpUSA charges $100 in startup fees, giving anyone the basic tools to become a bare-bones ISP.

DialUpUSA is one of many ISP-in-a-box companies hungry to sign on affiliates to resell their Internet access. Other ISP resellers are CISP.CC, Ikano, and StarNet's Megapop. Many of these companies ultimately buy Internet access from Internet backbone providers MCI, Qwest, and Level 3. Megapop says it supplies its own backbone access to the Internet.

The dirt-cheap ISPs play the odds to make money. 650DialUp, for example, charges a flat monthly rate based on an anticipated 150 hours of time online by one user, Minessale says. 650DialUp, in turn, gets billed by DailUpUSA for only the minutes its customers use. Minessale banks on the prospect that his customers will spend less time online than the full 150 hours allotted each month.

That's also why some ISPs put a strict cap on customers' time online. 650DialUp's terms-of-use policy warns that customers who exceed 200 hours of surfing in a given month could lose their membership.

"ISPs play it pretty close to the bone, but if they get the right formula they can make money," says Jeff DeMonaco, StarNet's president of marketing and sales. Many virtual ISPs have no marketing budget, have tiny staffs, and rarely offer more than e-mail tech support.

ISP Indigestion

Drawbacks to budget ISPs include the usage caps and some not-so-obvious fees. Some ISPs charge extra for online hours that exceed the monthly maximum. Discount ISPs also charge a one-time set-up fee. For example, Qwickconnect charges $8 for new customers to sign up.

Inexpensive ISPs save money by charging customers for telephone technical support, too, a service that more-expensive ISPs typically offer for free. And budget ISPs typically offer a limited selection of local dial-up numbers around the country.

"It comes down to whether your Internet connection drops and whether you can get in touch with tech support," says Mark Zadell, an Internet analyst with Blaylock and Partners.

In a call to test the reliability of 650DialUp's free tech support, PCWorld.com waited 30 minutes on a recent afternoon before abandoning its efforts to reach a technician. PCWorld.com didn't test 550Access's tech support, which charges $4 per phone call.

Another risk with budget ISPs is their reliability. Brandon Mullenberg, DialUpUSA president, says that about 20 of the startup ISPs that sign on with him annually shutter within a year.

You Get What You Pay For

"You need to figure on what you're getting for the money," says Mark Goldston, United Online chairman, president, and CEO. His two ISPs, Juno and NetZero charge $10 monthly for unlimited access. NetZero also offers a plan with 10 free hours of Internet access per month if you run its advertising software, which constantly displays ads.

"It's admirable that they are competing with price, but I'm not sure that these guys have viable long-term business plans," Goldston says.

EarthLink says that it will always compete with no-frills ISPs. "There will always be people who prefer to shop at Nordstrom instead of a warehouse club," says Jerry Grasso, EarthLink spokesperson.

For $22 a month for unlimited access, EarthLink throws in such extras as software to block spam and pop-up ads, 10MB of Web storage space, and eight e-mail addresses. "We are about giving consumers an optimum online experience, not the cheapest," Grasso says.

Advice for the Frugal

Before abandoning your $24-a-month America Online dial-up account for a cheaper alternative, it's best to do your homework on your potential future ISP.

Search newsgroups for customer feedback. Check out the ISP's rating with the Better Business Bureau, and carefully read the ISP's service contract to avoid hidden fees.

If you surf infrequently--perhaps going online primarily to check your Web-based e-mail accounts--a budget ISP may be a great fit. Think of them as the Yugos of ISPs--not pretty, but functional.