ZDNet: Story: Why dial-up ISPs are heading for extinction
SO, IF THE CUSTOMERS continue to sign up, why are dial-up providers going broke?

In my opinion, this question can be answered in a single word: Napster. OK, it's really any peer-to-peer application, but Napster's popularity proved the concept.

In the past, even the most devoted Internet user would stay online for a stretch of 10 hours at the maximum. Eventually, nature, work, or family would call.

However, today's music trader sets up his machine as a server and/or a robot downloader that automatically redials every time the connection is dropped. Once this happens, the ISP's business model goes out the window.

The traditional business model for dial-up Internet access budgets one phone line and modem for every 10 customers. For a typical city, the ratio is usually more like five to seven users per modem line. Each phone line should generate between $100 to $140 per month against a cost of about $25 to $65 per month. Of course, the resulting amount isn't all profit--there are other back-end costs beyond the phone lines. Still, the phone lines make up the biggest expense of providing dial-up service.

IT'S EASY TO SEE how Napster ruins the model--instead of getting 10 or even five customers per phone line, there is only one! In Las Vegas, a modem line costs about $30 per month, so a user paying $19.95 will generates a LOSS of $10.05. Each and every month. No amount of volume will make this situation profitable.

Last January, we got a call asking about our price for "unlimited dial-up." I quoted a price of $19.95, and got a "thank you" in reply. Within minutes, there was another call with the same request. I immediately realized that yet another ISP had just folded, so I immediately changed our $19.95 dial-up offering from unlimited usage to 150 hours per month.

Over the next week, we got about 30 more calls from people who used to subscribe to the same defunct ISP. I asked a few of them why they were switching, and verified my earlier realization. I also found out that they had been paying just $8.95 for a 24/7 connection. Just those 30 callers must have generated a monthly loss of over $600 for that ISP.
http://www.zdnet.com/anchordesk/stories/story/0,10738,2863902,00.html