Today Wisconsin, Tomorrow the World

Baldwin Louie — Mon, 11 Oct 1999 15:00:00 -0700

To get to Wautoma, Wis., from the nearest major city - Oshkosh - you take Highway 21 through the quiet, manicured little town of Omro. You keep going through Red Granite, "Home of the State Rock" (the town's spring-fed, red-granite quarry is one of Wisconsin's best swimming spots), and head straight past the big houses and cottages along the shore of Silver Lake. At 154 E. Main St., in downtown Wautoma, in front of a green house with a slanted, creaking porch, is a hand-painted sign that reads "Wisconsin Rural Internet Parking"; an arrow points to a garage behind the house.

This is it: world headquarters of the aptly named Wisconsin Rural Internet, offering Internet access to residents in the small towns set in the rolling green forests and farmland of central Wisconsin. Inside, Mike Gustin and his mother, Diane Gustin, occupy desks in a bare-walled space that would otherwise be the dining room. Their operation may not look like much, but for as many as 37 percent of Americans, according to J.D. Power and Associates (dossier), the only way to get Internet access is from one of the thousands of mom-and-pop shops like this one.

At 25, Gustin fits the stereotype of Net entrepreneur. He's young, driven, a longtime computer buff. Only the surroundings don't fit. He's never been to Silicon Valley and has no interest in going. He doesn't want outside capital, he doesn't need well-connected partners, and he doesn't see any reason to move away from his hometown. And yet he's convinced that Wisconsin Rural Internet can become a national ISP. That's right: Wisconsin Rural Internet - which has been continually (and profitably) providing Internet access to fewer than 10,000 people in and around Wautoma for four years - is going to take on the big boys.

Mike Gustin made the plunge into the world of Internet access in 1995. He was a history student at Lakeland College in Sheboygan, Wis. Computers were just a hobby. It was his mother who first got the family involved in the Internet, when she signed her real estate office up with America Online (dossier). She didn't realize at the time that, as in most rural areas, Wautoma had no local access numbers for any of the national ISPs. A month after the office went online, Diane Gustin recalls, "we got an absolutely enormous long-distance bill, with $300 worth of charges for AOL."

Mike had just been accepted to graduate school at Notre Dame, and was planning to become a lawyer, but he started thinking he might become an ISP instead. "There was an obvious opportunity there," he says. "I was like, How hard can it be to start a Net business?"

To find out, he called an ISP in Sheboygan and quizzed the proprietor on the ins and outs of the business. Convinced he could pull it off, Gustin took out a small bank loan, bought 10 external 14.4 modems, an Acer (2306) 100MHz Pentium PC, a Livingston Portmaster modem pool, a $50 manual, and downloaded a free copy of the Linux operating system. He's been an ISP ever since.

Wisconsin Rural Internet is typical of the ISPs you'll find in small towns all over the United States. If you call during business hours, odds are Mike will answer the phone. If you have tech-support questions, he'll be the one who responds. Billing questions go to employee No. 2, Diane, who spent 20 years in real estate before joining Mike full time in April (though she still sells houses on the side). They just hired a third full-time employee to handle graphic design and field technical questions about Macs.

Still, the opportunities in Wautoma, population 2,400, will always be small. The whole of Waushara County has only about 20,000 residents. During summer months, Gustin says, that may swell to 80,000, as people come north to vacation in cottages or cabins on one of the 96 lakes in the county. Wisconsin Rural Internet's churn rate is 6 percent to 8 percent, which is relatively high.

"We lose a lot to people moving," he says. "There's a lot of snowbirds, you know, retired people who spend six to eight months here but winter somewhere else." Gustin says his subscriber base, which is spread over several counties, has never topped 10,000.

Despite the fact that Internet access is the longest-standing online business, it has never seen major consolidation. Counter to predictions, the industry was never trimmed to a handful of major players. Even America Online, with far and away the largest subscriber base - 19 million - is losing market share. According to Boardwatch magazine, which keeps a directory of ISPs in the U.S. and Canada, there was a 36 percent leap in ISPs between last October and July. Gustin says there were roughly 800 ISPs in the country when he launched. There are now more than 7,000.

Most of that number are small ISPs like Wisconsin Rural. There are at least three ISPs with a similar operating model competing with Gustin in his immediate service area alone. There are at least several dozen more that offer service in the local 920 area code. But even with all this competition, there are some corners of the U.S. that simply can't - and likely never will - get local dialup Internet access.

Gustin's biggest headache has been dealing with local phone companies for access lines. "When we first went to the phone companies, nobody had even heard of 56Kbps," he says. "And when we said we'd need hundreds of phone lines, they just laughed. They've only gotten worse with time."

That attitude has been a hindrance, but it's also one reason why national players have ignored markets like Wautoma. "I don't anticipate the big guys moving in here, maybe ever," Gustin says. "It's just not worth their time, especially since they have to go through the boneheads at GTE (GTK) and Ameritech to get access."

Gustin thinks there is still room to expand locally - "We haven't tapped out the market here by any means," he says - but the Internet King of Wautoma is starting to feel a little claustrophobic on his current turf. So Gustin plans to launch a national ISP, available in 500 cities, this month.

It's hard to imagine someone working out of a small house in Wisconsin taking on the world. But Gustin is a study in contrasts. He's wildly ambitious, driven and determined, but he's also committed to the slow pace of life in Wautoma, which calls itself "the Christmas Tree Capital of the World."

Sure, the nightlife is minimal, but Gustin says he enjoys waterskiing, downhill skiing and golf, taking full advantage of what the region has to offer. And his relative isolation has not separated him from trends in the industry. He even jumped on the free-PC bandwagon two months ago, when he heard that national ISPs like Prodigy (PRGY) were giving away free computers to subscribers. He now runs a side business called WI Computers, offering a free PC to anyone who signs up for four years of Internet service.

Gustin says he's learned the importance of customer service. "To be honest, before some other competition came into the local picture, I was very dissatisfied with service," says Linda Richards of Oshkosh, who has subscribed to Wisconsin Rural Internet for three years despite early reservations. "It was very hard to get tech help, feedback or even a phone answer when calling. They were somewhat rude when they first started. In fact, had it not been such a pain to switch, I would have. But competition has made them do a 180-degree turnabout and I find them to be very prompt with their service in all aspects. E-mails and phone [calls] are answered with a courteous reply."

So what makes Gustin think he can take his small-town business national? The short answer is: because we're living in the age of the virtual ISP. Bandwidth is becoming cheap and plentiful, and Gustin thinks he can buy access from national backbone provider MCI WorldCom at a low-enough rate to offer Internet access at a competitive price. He's still toying with a name (Wisconsin Rural Internet probably won't play well in New York), and says he's leaning toward GL National, short for Gustin-Lyle National, drawn from family names.

Gustin has been looking for a way to expand for some time now. A few months ago he considered providing fixed wireless Internet access in the Chicago area. That ambitious plan would have put him up against national providers like Sprint (dossier) and MCI WorldCom. He says it wasn't the competition - or even the capital and staff requirements - that changed his mind. "The market just wasn't mature enough," he says, shrugging.

Gustin's dream of a national ISP is bold. Many in the industry would sneer at his ambition.

"We've looked at going national, too," says Larry Weidig, owner of Excel.net, an ISP in Sheboygan with a subscriber base roughly the size of Gustin's. "The thing that scares me is that you wind up outsourcing your entire network. Financially, you could still make a profit, but you'd really have to squeeze hard to make money. I think it's easier when you control your network and can guarantee better service."

"He'll be bankrupt in a month," scoffs a sales representative at one national ISP, of Gustin.

But Gustin brushes off any suggestion that he's bitten off more than he can chew. "It's not a gamble at all," he says. "I've gone over the numbers. We can - no, we will - make money at this. The only thing I'm really worried about is advertising. I've been doing this long enough to understand that you have to do the advertising right."

In his local market, Gustin has produced a cable commercial and radio ads, and placed print ads in seven or eight local papers. He plans to advertise his national service in Milwaukee before he targets other metro areas, largely because that's the nearest big market. He's announcing himself to the world with banner ads on sites like AltaVista, Yahoo (YHOO) and CNET.

"He can do it," says Adam Portnoy, CEO of Surfree, a recently launched national ISP in San Francisco. "Anyone who can plunk down the 50-grand for a contract with a national backbone provider can get started. The key is to tell people he's there. The marketing costs are the key."

Gustin knows that going national will make his operation infinitely more complex. He plans to lease space in a nearby office complex and expects to hire a handful of new engineers and customer-support people. "My biggest hesitation is over whether I'll be able to hire reliable technicians," he says. "You need to pay to attract talent. I'm hoping there's some good people who are sick of city life. We've got a relaxing, Green Acres thing going here."

Perhaps his biggest challenge will be his site redesign. "As an access provider they're fine," says one Wisconsin Rural Internet user. "In terms of added services like chat rooms, local content, etcetera, they don't seem to provide anything. Compared to AOL, it just doesn't stack up."

Wisconsin Rural Internet's current site does include Internet links, as well as links to some local points of interest - three of them related to Diane Gustin's real estate business. Mike Gustin promises that with the addition of a full-time graphic designer, his new site will be much more professional and inclusive.

His initial goal is 500,000 subscribers. Several people have approached Gustin with offers to buy him out, but he's turned them down. He hopes to build a business that he can someday pass on to his kids. He wants to have it both ways - enjoying the comforts of his small town, while expanding beyond its limitations.

"I just didn't want to get stagnant," Gustin concludes. "Besides, it's getting to be easier to be a national provider than to do it locally. You don't have to deal with the local phone companies, you don't have to go out and troubleshoot the network yourself, and you don't have to educate the end user about why they need the Internet. Besides," he laughs, "there's probably less competition."

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Today Wisconsin, Tomorrow the World