INTERNET SERVICE PROVIDERS.

L.A. companies ranked by number of subscribers

EXECUTIVE SUMMARY

RANKING the leaders in the fast-changing Los Angeles Internet service provider market is, as in past years, a tough proposition.

The market is morphing almost daily, driven by consumer demand for broadband and competition from national players.

While they might not be riding the wave of broadband, most local dial-up ISPs have doubled their subscriber bases since last year, reflecting the explosion of the online population nationwide.

Competition for those subscribers has intensified. ISPs like NetZero Inc. and other startups continue to offer free access in exchange for demographic information, and more-established national players like Microsoft Corp. are luring subscribers by offering $400 rebates on personal computers.

Investors and analysts typically divide the national ISP market into two tiers: America Online Inc. and everybody else. In terms of subscribers, the L.A. ISP market can be similarly divided into two tiers: NetZero and everybody else.

The Westlake Village-based provider claims to have more than 5 million subscribers, towering above second-place Zyan Communications, with its 430,000 subscribers.

THE PACESETTER

NETZERO

WITH its 5 million subscribers, NetZero Inc. reigns supreme on the list of local Internet service providers for the second year in a row. And, to its credit, it is one of the only free ISPs still standing after the Internet shakeout.

Founded in 1998, NetZero offers subscribers free Internet access, e-mail and navigational tools. In exchange, customers grant NetZero permission to track their demographic information and online behavior, which the ISP in turn sells to advertisers. Advertisers place targeted promotions on NetZero's "ZeroPort," a permanent window that doubles as a navigational tool and banner advertisement.

While NetZero has survived the Internet shakeout, the resultant industry-wide decline in advertising sales has hurt the free ISP, whose business model is largely dependent on advertising sales.

For the third quarter ended Sept. 30, NetZero reported a net loss of $28.9 million, roughly double its net loss of $14.9 million in last year's third quarter. That accelerated loss came despite NetZero more than doubling its revenue to $16.5 million from $7.7 million in the year-earlier period.

"The advertising market that we live in is not a great place right now, but it's a very temporary situation," said NetZero CEO Mark Goldston. "The good companies like NetZero will power through it."

Goldston was quick to point out that the company has $220 million in cash on its balance sheet and that it is "exceptionally well funded to execute the business model."

NetZero is also launching new ventures to supplement ad revenue.

In April, cellular technology developer Qualcomm Inc. paid $144 million for a 10 percent stake in NetZero. Together, the two companies are planning to develop a fee-based wireless service aimed at laptops and handheld devices.

"The good news is that our growth continues to be phenomenal, and customer satisfaction levels are at an all-time high," Goldston said.

As for the ongoing merger talks between competitor America Online Inc. and Time Warner Inc., Goldston said he hopes the giants merge.

"A strong AOL is good for the Internet," he said. "The consumer has two very strong choices: pay and get AOL's content or get a superior, high-quality connection through NetZero."