Aiming to cut "tens of millions of dollars" in expenses, Prodigy cast off its money-losing networking operation Monday and hired Texas-based SplitRock Services to handle all of its future connections. Members can expect faster access speeds when the transition is complete by the end of the year.
"This was definitely the smart thing to do," Prodigy spokesman Mike Darcy said. "One of the areas that was always going to be a money loser for us was the network."
Back in the late '80s when Prodigy first took shape, he explained, online services had no choice but to construct their own networks. There was simply no other way to bring people online. "As the industry has evolved, and as the Internet evolved, all of a sudden we had different options out there," Darcy said.
Capitalizing on those options, Prodigy will now concentrate on its strengths - Net access, data transmission - and stop pumping money into maintenance of an expensive backbone network. The company has about 1 million members, who will be able to access the service at 56 Kbps from about 500 dialup points when the switch is complete.
The rapid growth of the Web is changing the way online services operate. The Microsoft Network is moving away from its own backbone, while America Online is still investing heavily in its proprietary network. CompuServe, now with a For Sale sign on the door, may pawn off its network to one buyer and its online service to another.
Chris Le Tocq, an analyst at Dataquest, said it no longer makes economic sense for smaller Internet service providers to own their own networks. "It's very competitive in the networking business today," he noted. "For Prodigy, getting out makes sense. For AOL, there's a certain critical mass. They still gain benefits from having members dial their own numbers."
Privately held Prodigy was purchased by an investment group called International Wireless in June 1996. The new owners have since sought ways to trim the company's overhead, and the networking side of the business was an obvious target.
SplitRock will oversee day-to-day management of Prodigy's access points. The company says its burgeoning digital network means Prodigy subscribers "will have the Internet industry's fastest and most reliable access to the Web."
"Everyone's a winner from this mutually beneficial agreement," Prodigy CEO Paul DeLacey said. "Prodigy wins by reducing costs and focusing its financial and people resources on building and operating the world's first 'Super ISP.' SplitRock wins by securing Prodigy as an anchor client to grow its name and reputation in the network services arena."
Prodigy said about 50 of its employees previously responsible for network operations have been offered new jobs with SplitRock. It said no firings or relocations were expected as a result of the changeover. Financial details of the deal were not revealed.
