Setting up an Internet Service Provider? As others have already said, forget about it. The market is already saturated, the potential profit margins aren't worth it and the general public have a tendency to go with companies they know well, or see adverts for all over the place. Even if you had a fantastic service with 110% uptime, negative response times for support queries and a free computer for every customer, you're unlikely to get a foothold in the market. Becoming an ISP means working with the general public, and no one likes that.
Of course, all of that is assuming you have the knowledge, expertise and pockets deep enough to start up a venture. You're going to need a lot of equipment, transit/peering and, most likely, a load of expensive software. You'll need branding, advertising, deals with hardware suppliers (ADSL filters, modems, support agreements etc.), people to man the customer support desk and drive around the country installing equipment for hapless users. You're talking
millions of pounds of up-front investment, and it will take years (if at all) to recoup that investment and start turning a profit. You don't set up an ISP as a hobby (unless we're talking about a VISP, but as has already been stated that route is not even worth the time taken to research it).
Web hosting and managed services are another matter. You could sign up for a reseller account with any number of existing hosts and start turning a profit in a matter of months. There's plenty of potential to grow; you can advance on to a dedicated server, then two, three... and before you know it you'll have a private suite at Redbus Harbour Exchange. However, the market is still saturated (you will need to work hard, and find a niche to get customers), you will still need to provide support, deal with hapless customers and will need to take financial leaps of faith (investing in a dedicated server, for instance). Better still would be managed services, as Garp mentioned. £7k/year is a hell of a lot of money for a dedicated server, operating system and support - and that's precisely the point. Businesses will be willing to pay for piece of mind (although I digress, if you're thinking of moving into managed services you will need to know your stuff from back-to-front, be willing to pitch services to businesses etc. That is the whole point of managed services, after all!), and fortunately there is still money to be made there.
You
can start a web hosting operation as a hobby (
not a managed hosting company, obviously), but remember that your customers will not be treating it as such. Just whatever you do, don't go into game server hosting. Rude, demanding teenagers with unrealistic requests funded by their parents credit cards are not fun