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ISWest Leads Way as Local ISP Industry Consolidates

With its purchase of Woodland Hills-based DCN Internet, ISWest has taken another step in the consolidation of the local business-to-business Internet Service Provider market. Purchased for an undisclosed amount, DCN Internet is the sixth local competitor that Agoura Hills-based ISWest has acquired since 1997. Some of the now-defunct competitors included Westlake Village-based TSCO; Thousand Oaks-based InfoSpec; and Camarillo-based VCNet. Although DCN Internet’s client base will be taken over by ISWest, DCN’s wireless business, DCN Wireless will remain in operation. DCN Internet only employed a small handful of workers, who will be integrated into DCN Wireless. According to ISWest Chief Executive Officer Drew Kaplan, ISWest was attracted to DCN because of the great deal of overlap between the two companies. “The two companies had many similarities, such as both using SBC and Verizon as major Internet providers. There were a lot of overlapping costs that will be mitigated by merging their customers with ours,” Kaplan said. “Their customers will see lot of benefits. We have more technical support and have been in the business far longer than DCN had been. We also have a very seasoned staff here for potential troubleshooting.” In the tumultuous ISP market, ISWest seems to have positioned itself well in contrast to many of its competitors who are no longer in business. By balancing organic growth with acquisitions, ISWest expects revenues of $8.5 million for 2005, compared to $5.5 million in 2004. In 2003, the company was named to Deloitte & Touche LLP’s Los Angeles Technology Fast 50, a ranking of Los Angeles’ 50 fastest growing technology companies. The 20-employee company has added five employees in the last year and plans to add more in the coming months. Together the staff services over 3,000 businesses, representing approximately 20,000 user accounts. Profit motives Kaplan believes that ISWest was well-positioned to be near the top of the local ISP food chain because of its constant reliance on being profitable, unlike many of its peers who overextended themselves during the Internet bubble. “Slow and steady wins the race. We never got into that whole dot.com thing, where a lot of ISPs tried to add customer accounts even if it meant losing money. We went by a traditional business model,” Kaplan said. “We made sure that when we priced every deal that there was some profit margin in it. The competition wasn’t doing that. They gave away free installation, free equipment, and had the lowest price in town. From what I heard, their model was to put on as many customers and services as possible, because they planned on going public or selling out.” Phil Harvey, an editor for Light Reading, a daily news website focusing on the telecom industry, maintains that a great deal of consolidation is currently taking place among ISPs. “We’re seeing a lot of consolidation on the ISP front. A lot of business-to-business ISPs have only one or two really marquee clients. When you combine two or three of those companies, you get a nice customer base and enough network access to help,” Harvey said. “ISP’s are finding that they need to offer more than just bandwidth. The smarter ones are thinking that there’s safety in numbers. If they can get enough customers on board and cut their operational costs by merging companies then it’s a good deal.” Server services Indeed offering more than just bandwidth has been another one of the reasons why the company has survived and flourished. In addition to offering DSL access, T1 lines and other various high speed Internet connections, ISWest offers server co-location, which allows for businesses to store their servers at ISWest’s facilities. According to Kaplan, the nearest co-location facility is Burbank, which would give ISWest a competitive advantage in the area stretching from Santa Barbara to the West Valley. Not coincidentally, all of the competing business-to-business ISPs purchased by ISWest, once operated in this space. Ultimately, all parties knowledgeable in the ISP space agree that an old-fashioned focus on servicing the customer and having a successful business plan were the essentials to surviving the vicissitudes of the tech marketplace. “A lot of ISPs lost focus of why they were doing business in the first place. The whole reason why these guys exist is to give their customers some type of connection to the Internet and sell services on top,” Harvey said. “Instead many ISP CEOs tried to charm the pants off of venture capitalists. That should never be your goal. Additionally, they refused to recognize that there were just too many people doing the same thing that they were doing.” Understandably, Kaplan repeatedly asserted ISWest’s emphasis on customer service, touting the company’s support staff. “The trick is going to be to grow into a large company and to retain the focus on the customer that we’ve always had. It’s the customers that put food on our table. We love our customers and I think that it’s that attitude that we will definitely keep. It’s been our vision all along.” Mike Jackman, the executive director for the California ISP Association, claims that Kaplan’s high self-appraisal of his company is valid. “ISWest has an excellent reputation. They are a premier business-to-business ISP. They have been in the business for a long time and they are going to be there in the future,” Jackman said. “Picking an ISP is not just a day-to-day thing. Businesses want to know that they will have the same vendor for the long-term. And they believe that with ISWest.”

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