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Technology, bureaucracy obstruct ISPs' dreams for profits

The Internet in Slovakia is expanding at an incredible rate. It was only a year and a half ago that one could connect to a handful of companies for Internet access. Since then, a veritable explosion has taken place in the business of Internet Service Provision. From Banská Bystrica to Žilina, Internet Service Providers (ISPs) have been cropping up like mushrooms after a heavy rain.
In Bratislava alone, one can connect to the Internet at over 30 different locations. In all, 47 cities and towns throughout Slovakia now have Internet access via commercial ISPs. This translates to a total of over 150 access points for Slovakia. But, as with all things, this rapid expansion is accompanied by its own version of growing pains such as earning a profit and having technology that can handle the quick expansion of internet use.


Courtesy of IBM

The Internet in Slovakia is expanding at an incredible rate. It was only a year and a half ago that one could connect to a handful of companies for Internet access. Since then, a veritable explosion has taken place in the business of Internet Service Provision. From Banská Bystrica to Žilina, Internet Service Providers (ISPs) have been cropping up like mushrooms after a heavy rain.

In Bratislava alone, one can connect to the Internet at over 30 different locations. In all, 47 cities and towns throughout Slovakia now have Internet access via commercial ISPs. This translates to a total of over 150 access points for Slovakia. But, as with all things, this rapid expansion is accompanied by its own version of growing pains such as earning a profit and having technology that can handle the quick expansion of internet use.

Earning a profit providing Internet access on a commercial level made complicated by the fact that a large investment of capital is required to cover the costs of equipment, telephone line installation and Internet hookup. Most of this expenditure might not be recovered for many years. What makes matters worse is that competition is fierce and prices border on cut-throat. In this business, breaking even is all most companies may hope for.

EUnet, the first commercial ISP in Slovakia is one of these companies. They have been in the Internet business since 1989 when they started providing e-mail service within Bratislava. It was only in 1995 when they became a commercial entity and started providing full Internet access via a 64 kilobit connection. Today they are one of the bigger players on the ISP stage, with 11 access points throughout Slovakia. Their connection to the Internet is now almost ten times faster than when they started, and they plan to move to one megabit by the end of this year which will give their users the speed everyone craves for.

EUnet's presence on the Slovak market means that they are not just trying to break even. "Our strategy is not to invest lots of money and wait that sometime (in the future) maybe it will become profitable," said Ivan Lesčak, Technical Director of EUnet. "We try to keep the company at the level where we have enough for expenses."

Tibor Stacho, director at Napri Košice, acknowledged that reaching a profit is hard to come by. "Though we have 40-50 new customers a month," he said, "Profit will come, some day." František Balogh, the director of trade at Internet Systems, believes profit is tied to what happens on the Slovak market. "If Slovakia experiences what the world has where the number of users has doubled," said Balogh. "Then personally I think our company will be profitable in the next two to three years."

Eunet targets businesses because they can pay a higher price for quality service. "We are concentrating on businesses [as customers] because at this time, there are lots of providers who set a price [for Internet connection] that goes beyond their expenses - they just want to place themselves on the market," said Lesčak. "When you get an 'unlimited' Internet connection for almost nothing (400 Sk), these companies cannot make it profitable at this level."

Other Internet providers don't necessarily agree with Leščak's assessment, contending that the Slovak market is too small to target one area. "The Slovak market is very young," said Balogh. "I don't think there is a company that would say we only want businesses." Still, Leščak said that the way most ISPs price their packages - aiming to have everyone be able to afford to hook up - will not lead to profits.

He asserted that as with the U.S. long-distance phone company Sprint, which just recently announced that they will discontinue their "unlimited flat rate," ISPs have to watch their pricing schemes. "Internet Providers [in Slovakia] are now finding out that the so called 'unlimited' connection is causing a loss because some people are able to stay online for hours, and they also give away their username and password to other people [who log onto the same account]", said Lesčak.

As a result, a weeding-out process will take place, where the smaller, cash-strapped companies will be bought out by the larger ones. Pricing policy will change to reflect expenses, as is already happening in the West.

This may be easy for Leščak to say as the leading ISP, but other ISPs have to set up competitive pricing. "We set our prices according to how other ISPs set theirs," said Stacho about Napri Košice's prices. And according to Balogh Internet Systems charges prices in-line with the West.

A full cup

Another challenge faced by ISPs is one of expansion. "A request for new phone lines or data circuits has to pass through quite a lot of bureaucratic red tape," admitted Lesčak. "It's not like it used to be that you wait for one year for phone lines. We can now get phone lines in 3 or 4 months."

EUnet's solution to this obstacle was to purchase their own company exchange - a fully digital exchange connected directly to Slovak Telecom. This way, they can increase the amount of telephone lines without having to wait. This innovative, yet not inexpensive, solution also provides them with the confidence that any connection problems experienced by their customers are not likely to be on their own end.

Balogh said that Internet Systems doesn't have a problem with phone lines as long as they plan ahead. He also said that their users haven't complained about getting cut off.

Still, the telecommunications infrastructure is yet another issue of contention. While the lines are fine for voice communication, most of them are subpar with data transfer. "The network is being expanded and the digitalization of the telephone network continues, but it is still not enough," said Lesčak.

Especially when Slovak Telecom wants to increase the number of lines at a location where there are no free wires, explained Lesčak. "They install a device called a 'PCM' which compresses 4 phone lines to one pair of wires," he said.

"Of course, this lowers the quality. For voice service this is enough, but for modems you cannot achieve speeds higher than 9600 baud (bits per second). And for today's Internet, this is usually not enough."

Connecting to outside lines can be a real hassle. "We have the biggest problems connecting to foreign lines," said Stacho. "We have to solve this fast."

These challenges evidently, seem not to be enough to prevent new companies from entering the ISP marketplace. The Internet bandwagon is running at full steam, and the trend at this point seems to be to jump on.

As more businesses and individuals hookup to the Internet, the demand for Internet access and services will be greater than ever. In due time, Bill Gates's dream of "a computer in every home" will become a reality. Until then it will be an exciting ride, as companies jostle for market share and price themselves out of business.

As Lesčak put it: "Technology is running really fast and on one side, sometimes big money can be made, but on the other side, you can lose [your shirt]."

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