Internode is one of the few ISPs that can lay claim to pioneering the Internet in Australia. In fact, a few of its staff actually built it. Internode technical director Simon Hacket was one of the propeller-heads who built the AARNet (Australian Academic and Research Network). AARNet was the pre-commercial IP backbone built between Australia's universities in 1988. Hacket, while working in the networking and communications section of Adelaide University, deployed the necessary infrastructure to link the campus to AARNet. He believes he imported the first Cisco router into Australia, now buried in his backyard. "This was before the commercial sector or the government had any idea what the Internet was," he said.
Ironically, AARNet was purchased by Telstra to form the core of Telstra Internet in 1995, and all the techies who had built the network began establishing ISPs and buying back the bandwidth. In 1995, Hacket established Adelaide's Internode Systems, an ISP now servicing around 6000 subscribers. This accounts for only a quarter of the Internode business - the other 75 per cent of revenue comes from deploying high-bandwidth links to organisations, such as the South Australian Government, through its subsidiary company, a telecommunications carrier called Agile.
Internode employs 35 staff, focusing on a small number of high-value customers. "We offer a high degree of technical skills and deliver high-quality business outcomes," said Hacket. "In other words, we are quite deliberately not the cheapest people."
Hacket boasts that until last year, the ISP has never had to engage in any marketing because the quality of its service attracts customers through word of mouth. He is confident medium-sized ISPs like Internode will survive, as they do not suffer from the lack of purchasing power small ISPs face or the struggle for differentiation among the large ISPs.
"It's a sweet spot here in the middle - we have just enough purchasing power, but also a help-desk that actually likes talking to customers," he said.iHugiHug began in New Zealand as an all-family affair. Tim and Nick Wood started selling wholesale bandwidth to other ISPs and then moved on to finance iHug as an Internet service provider. In 1994, iHug would be launched as the first Kiwi ISP to offer a flat rate connection with no additional data charges. Just over four years ago they brought this same model to Australia.iHug managing director Ben Foote suggests it was this willingness to stick its neck out with a new model that attracted the young, tech-savvy subscribers that iHug survives on. It now has over 50,000 subscribers and 58 staff in Australia.
Foote said from the outset, iHug wanted to focus its Australian operations on the eastern seaboard. It quickly created points of presence in Sydney, Melbourne and Brisbane, before acquiring Adelaide ISP iWeb and Wollongong ISP OneEarth, each with 3000 subscribers, to extend its reach.
The company has grown to such a size that now it has to focus on bundling voice and data services to match it with the large telecommunications players. iHug has launched a phone service for national and long-distance calls to bundle with its Internet access products. It also offers value-added services such as domain registration, as well as DSL and satellite connectivity. "We have a good range of up-sell and cross-sell products," said Foote.iiNetMichael Malone started iiNet in his garage in 1993. Within a matter of years iiNet became a company that now turns over in excess of $10 million a year. iiNet was the first dial-up ISP in Western Australia. It grew extensively in its first six years before listing on the Australian Stock Exchange in 1999. It now employs over 150 staff and services over 50,000 subscribers, primarily in Western Australia.
Malone, now managing director of the ASX-listed ISP, believes there was one decision he made that set his business apart from his competitors. Rather than hiring technical staff as the ISP grew, Malone hired people out of the hospitality and tourism industries. His theory is people in hospitality and tourism treat customer service as a career - it is what they are trained in and what they enjoy doing. Malone believes there is no great difficulty in teaching enthusiastic people the necessary technical skills on-site.
"This has ended up working very well," he said. "The positivity such staff promote in the workplace carries through to the customers."
The standard value-added services for ISPs such as hosting and domain name services help to raise their revenue per customer. Yet iiNet has also launched a subsidiary company named Chime, a licensed telecommunications carrier that wholesales bandwidth to other ISPs.
Founder and managing director Greg Holloway originally ran online bulletin boards on Fidonet, the 1980's version of what is now the Connexus Internet. As the TCP/IP protocol evolved in the 1990s, Holloway established Connexus as an ISP, one of the first in Melbourne.
Today Connexus Internet employs 12 staff, has points of presence in most capital cities and has over 10,000 subscribers.
Despite the price pressures being forced onto small and medium-sized ISPs, Holloway is confident by focusing on providing high-quality services to those customers prepared to pay for them Connexus will remain a profitable business for some time.
Greg Holloway is not interested in being acquired. "We have lots of long-term potential that is not currently recognised in the market," he said. "We have the technical know-how to take care of DSL services for our clients."
Holloway considers DSL services to be the pot of gold at the end of the rainbow for Internet service providers. He is quickly moving to skill up the Connexus business into a provider of value-added services around DSL access to the business user. These managed services include the implementation of virtual private networks for telecommuting users and remote back-up services.
"We want to get a reputation for our DSL products and the value-adds around them," he said. "We are hoping DSL will generate a new wave of IT spending. It removes the speed barrier to the real value-added services."
Telstra's various technical and business issues are not helping those ISPs rushing to take advantage of DSL. Yet Holloway believes the main hurdle for ISPs planning to make their mark with high-speed connectivity is convincing business customers to shed their investments in ISDN or upgrade from dial-up.
"It's going to take some time," he said. "Businesses have existing systems in place and there is a big learning curve for them to take."
One of the solutions, according to Holloway, is to work closely with the IT channel to get the benefits and the message of DSL out into the market.