Twelve months from now, the demise of Intelenet Inc. may be remembered more for what it signaled than the damage it caused.
According to several sources, Intelenet is the first of dozens of local Internet service providers that will go bust while panning for gold in cyberspace.On May 30, Intelenet Inc. went out of business overnight, selling some assets to a competitor and shutting down its offices. It had provided dial-up and dedicated-line Internet connections and Web services.
Bewildered customers found Internet connections and Web pages severed from hours to a week, which caused some significant business losses. In a dozen cases, Intelenet saddled customers with debts to US WEST. In others, it walked away with money from people who'd prepaid for Internet access.
"I don't think Intelenet is unusual. It just happens to be one of the first and one of the more high profile," said Kevin McBride, the attorney Intelenet hired to close its business. "In my prediction, in 12 to 18 months there is going to be a shakeout. There may be three or four big companies that survive and take care of their clients."
As interest in the Internet sizzled in recent years, three types of entrepreneurs emerged to help people get connected: online companies like America Online, national or regional Internet service providers like Netcom and corner-store outfits like Intelenet.
Last May, Computer Credible magazine highlighted 14 Internet service providers, both national and local, along the Wasatch Front. Now there are at least 30, said publisher Rick Simi.
Many of the companies operateon razor thin margins, McBride said. Simply put, Intelenet wasn't making any money, he said.
"Internet access is extremely underpriced," he said. "It's a no-margin business."
Pete Ashdown, owner of 3-year-old Xmission, watched the stampede to the cyberspace frontier.
"It's a misperception that it's a gold rush," he said. "I think more often than not it's a struggle."
Many Internet service startups are backed by investors who hire expensive management teams and highly paid technicians without focusing on the infrastructure needs.
John Adamson, who founded Intelenet, sold his interest in the company last December after it became clear the company's investor wouldn't "put the money in and do it right."
"It takes a lot of starving to get to where people can pay good wages and do things we think are important," Ashdown said. "For the first year and half of Xmission, I ran it by myself and paid myself barely enough to pay my rent."
Most Internet service providers count on other business beside 'Net connections - such as Web page design and service - to keep them going. But a market twister looms on the horizon.
Just as superstore chains squashed out neighborhood grocery and book stores, communication conglomerates like US WEST, TCI and AT&T are likely to blow out small Internet startups.
They'll offer cheaper connections that are as reliable as your telephone or television and broader service, such as video and audio, through cable modems.
The small Internet service providers that survive will do so by catering to a loyal and specialized clientele, just as independent bookstores do.
Ashdown expects to be one of them. He went into survival mode about nine months ago when demand for service was so great it threatened the quality of service the company could provide.
Ashdown set up a waiting list for individual accounts. Any home user who wants to bypass the list has to pay $50 sign up fee, which provides funds for Xmission to expand its hardware as needed to handle growth.
"It reduced the growth rate to the point we could concentrate on the business market," Ashdown said. That's where the profit margins are fatter.
Meanwhile, Intelenet customers are still reeling from the company's collapse.
"Legislation needs to be passed to prevent this from happening," said Larry McFarland, owner of Zinc Software of Pleasant Grove. "When US WEST and an (Internet service provider) have the ability to prevent service outages, they should be required to do so."
Another aspect of the Intelenet saga irked some customers: They had little choice but to sign on with Vyzynz International, the company that bought most of Intelenet's equipment, to restore service the quickest.
Vyzynz President Justin Reber maintains Intelenet customers could chose to go elsewhere and that the company has done all possible to help them.
The Utah Information Technologies Association Web page was on Intelenet's system. The association, like many other customers, signed up with Vyzynz International, so it could access its Web page and e-mail messages.
Executive Director Peter Geneareux agrees the episode has been "very unsettling." Then he dons his diplomat's hat.
"It's a new and relatively immature industry and has many opportunities to improve its relations with its customers," Geneareux said.