By Tara Seals

Posted: 02/2001

Rural, Small Town Agents Reap Benefits of
Competitive Growth
By Tara Seals

With the passage five years ago of the Telecommunications Act, smaller
indrural markets looked to be the fertile crescent of phone service. Hometown
America had been a largely untapped market, but the Telecom Act mandated its
opening to value-added and advanced services.

And agents who did business in these areas were in a position to reap what
competition would sow.

Today, the full promise of the fruited "teleplain" hasn’t been
realized yet. Low population density and a lack of services remain hurdles.
However, some creative agents have devised marketing strategies to bring out
hidden business prospects and to crack local markets. Breakthroughs in wireless
service and an upturn in carrier interest in Main Street USA also may mean more
agent opportunities are ripe for the harvesting.

The Obstacles

Perhaps the biggest obstacle in small or rural markets is generating volume,
according to Ben Humphreys Jr., president of master agency Comtel Communications
in Virginia.

"You’ve got to develop a sales force in a more metropolitan area, or
there’s no way you can get the critical mass numbers that you need to really
grow," says Humphreys, whose company bills close to $1 million per month.
"Our rural experience has dictated that if we want to scale the company, we
can’t do it in rural markets. It’s not the same as sending someone out to bang
on three doors and have visibility on $100K of revenue–it’s just not
there."

While a drop in loop pricing is opening some markets, Humphreys says few
CLECs, no DSL and expensive dedicated circuits prevent true growth.

"GTE’s [Corp., www.gte.com] own service
is a challenge," Humphreys says. "And in the rural markets a lot of
that business is voice-centric. So what you’re dealing with is declining
revenue. We’re getting some customers with specific data applications, but when
you look at being on a treadmill to turning your revenue from voice to data,
it’s got to be sooner than later, and you’re not going to get it in those rural
markets as it is."

Agent John Bova, president of the Select Telecom Group Inc. (www.selecttelecom.com),
mines opportunities from the data side and in larger customers. However, he
concentrates on the "Greater Capital District," near Albany, N.Y., and
says the options are limited.

Bova sees no advantage to selling in smaller markets. He explains the idea is
to gain experience and transition to more lucrative customer bases outside his
small-market area.

"I wanted to establish a solid base in this area because it’s where I
live," he explains. "And then I’ll move down to New York City to gain
more business, with glowing references out of the Capital District area."

His strategy is to concentrate more on data and collocation, moving away from
voice.

"The future from where I stand is the collocation of equipment with a
Level 3 [Communi- cations Inc., www.level3.com]
or Broadnet [Inc., www.broadnet.com],"
Bova explains. "Voice is beat to death. It’s a price issue now. When you
come in from the data side, you establish a relationship with the technical
person inside, form a bond, throw the voice in for free."

Working with larger companies means avoiding price wars, because those
companies are willing to pay a "respectable price" for bandwidth and a
Tier 1 Internet provider, Bova adds.

Making the Most of Relationships

The lack of advanced services, competition and thinner teledensity makes
working in rural markets challenging for the agent. However, some have leveraged
relationship sales to stay afloat.

Agent Doug Miller, owner of Doug Miller Promotions (www.dougmillerpromotions.com),
talks about the lack of services available in his town of Horseshoe Bay, a
remote area 50 miles west of the Austin, Texas, tech hub. The disparity between
television ads from the capital and the reality of life in the country
frustrates Miller.

"[Austin] has all the bells and whistles there. We see it on the TV
here," Miller says. "But that’s all we get to do is see it. We hear
about cable and wireless this and that, and everything is high speed, but were
out here in the dark ages."

Miller offers 1+ products and conferencing services. He says a large
opportunity exists to sell DSL and digital wireless, if they were available in
Horseshoe Bay.

Sprint PCS (www.sprintpcs.com)
recently began offering wireless service in the area, but the company would
require Miller to have a storefront to sell its services, he says. Before Sprint
informed him of its policy, he had sold 20 units in three weeks. He believes he
could sell much more.

Miller explains that his customer base is varied and presents more
opportunities than are visible at first. Many customers in the town of 5,000
people work out of their homes and do not have business listings. Some work
internationally, and one couple in town "does big software deals with major
players like Citibank."

Miller says some people like to find smaller towns to do business
"because they like to live here. Everything is a FedEx box away."

He finds his opportunities through direct mail and participation in community
business organizations. But referrals are the best way to find leads, he says.

"These are buddies, and they play golf and tennis together and one tells
the next," Miller says. "That’s really my best sales tool, and I do my
best job as I can find [opportunities]. I have to really knock myself out to
make it happen, because there are no numbers, there’s no volume of people."

Miller also adds value by selling nontelecom products.

"I’m a one-stop source for a lot of things that help them promote their
business," he says. "If those ideas are communications-based, that’s
great, but I also do some print. As I get the relationship going, I find out
they need a new flyer or a better way to communicate with the world. I have a
small quantity of customers that I do several things with."

Humphreys says the agent’s core competency for relationship selling is his
greatest asset in smaller communities.

"You’ve got to be a consultative sales person or organization,"
Humphreys says, "and you’ve got to keep your costs down, because it’s tough
in a rural market to generate revenue. My advice is to stay small, deliver
value-added services through your offering, and become these people’s outsourced
telecom man."

"Nobody should forget that’s why the model of the independent agent will
always be around," he adds. "They want us to be able to sit down to
breakfast at the Rotary Club. That’s how I grew Comtel. I canvassed a 16-county
area to grow this business, and each county probably had 10,000 or 15,000
people, but they all had a bank, they all had a hardware store, they all had an
insurance agency."

John Acomb of Telecommunications Group (www.telecommunicationsgroup.com),
a master agency in Beloit, Wis., cultivates his relationships by keeping an
agent on the street in every community he sells.

"One of the things that we have learned is that if we have to define an
individual in the community that is known in the community, a retiree or
stay-at-home mother who will do this part-time and be paid as a straight
commission salesperson, that works well," Acomb says.

Getting Creative

While small markets are fraught with growth obstacles, some agents still see
enormous opportunity, and they have taken matters into their own hands.

Acomb began a program in Wisconsin and northern Illinois called "ChamberTel,"
which focuses on the chambers of commerce in communities with populations of
more than 5,000 people.

Using volume discounts, Telecommunications Group sets up partnerships with
the local chambers to provide low-cost long-distance service as an added benefit
of chamber membership.

"We often find that we’re able to save them an amount of money which is
in fact greater than their annual chamber dues," says Acomb. "So we
have in effect given them a free chamber membership. And a portion of our
commission gets sent back to the chamber so they have an additional revenue
stream. We work right out of the chamber offices and set up appointments, and
visit directly with the chamber members."

"In the big cities, the chambers are less open to a ChamberTel
idea," Acomb adds. "That’s in part because there are so many people
who are competing on everything, that they’re gun shy about appearing to take
sides."

He says he finds that in smaller communities businesses are more loyal, take
delight in membership and pay more attention.

Glenice Miller, operations manager for the Iowa Falls, Iowa, division of
master agency iloka (www.iloka.com), takes
the concept further.

She began selling Centrex 21–a local product that provides services such as
three-way calling and caller ID–in the mid-’90s. Partnering with Qwest
Communications International Inc. (www.qwest.com),
Miller would approach small county seats to put the county and city governments,
hospitals, the school system and any colleges on the service to minimize costs.

"We went to every county seat and sold them that product, bringing them
up to a standard they had never been to before," she says. "Well, it’s
pretty easy now to go back and upgrade them."

Taking the same aggregation principle, iloka convinced providers to upgrade
equipment and provide circuits based on demand. It now sells state-to-state
frame relay to banks and dedicated circuits to a burgeoning ISP community.

"A company like Qwest generally doesn’t typically go in and have an
interact PoP there, therefore it opens it right up for small ISPs to start.
Small ISPs are becoming huge," Miller says. "Out in the rural areas,
ISPs have to put in their own networks because they really can’t get the Qwest
product. Within two years, we’ve gone from maybe 60 local measured service lines
to DS-3s and OC-3s."

Master agent Vince Bradley, president, founder and CEO of World Telecom Group
(www.commerceconsultingcorp.com),
takes a similar tack. He advises his rural subagents who are "stranded with
no services" to gather data on the potential advanced business they can
close. He then negotiates with the carrier on the subagent’s behalf.

"We’ve actually seen some of our carriers attempt to open those markets
up as a result of the data," Bradley says. "An $800 local loop is
cost-prohibitive. But if you get the entire town on a DS-3 and you backhaul it,
that changes the economies of scale. Some of our carriers are opening up their
minds because we have agents that have excellent penetration in those
areas."

Bradley says that collocating to unbundle the local loop is expensive for
providers, meaning that dedicated T1 delivery may be the better option.

Agents, he says, should put together 20 good-sized accounts, or 50 small
10-line accounts that are interested in getting competitive local access and
data services to convince carriers to extend services.

"Once you’re there with the loop, that’s probably the most value-added
service anyone could provide to them," he says. "It becomes very
lucrative for the agent, with local and data services."

The Cooperative Aspect

For some agents, small and rural telephone cooperatives are the answer on how
to bring advanced services to the table.

The sheer cost of building the infrastructure has meant slow going for
underserved markets. Despite a steep price tag, many local telephone exchanges
are willing to go the last mile to deliver broadband in the name of economic
development.

A recent survey by the National Exchange Carrier Association (NECA, www.neca.org)
shows that 65 percent of rural lines within its membership base will be
broadband-capable by the end of 2002.

According to Victor Glass, NECA’s director of demand forecasting and rate
development and the author of the study, the total investment necessary to
upgrade facilities and install long local loop lines approaches $11 million.

"Small and rural telephone companies filled the void," says Paul
Shultz, director of communications for the National Telephone Cooperative
Association (NTCA, www.ntca.org). "Small
telephone companies are really progressive. They have state-of-the-art
facilities, and they are advanced. They also have a tradition of customer
service because they are an integral part of their community."

The Wireless Way

Another trend that brings hope to rural agents is wireless broadband. The
technology can connect subscribers from remote, mountainous or rugged areas with
fewer infrastructure requirements than wireline services.

In its report, "World Rural and Underserved Telephony Markets:
Understanding the Perils and Potential of the Vast and Untapped," Frost
& Sullivan (www.frost.com) notes that
underserved areas worldwide loom as greenfield growth targets. The firm projects
65 million fixed wireless and satellite lines in these markets by 2004. In
addition to a smaller infrastructure commitment, the study says, wireless
technologies have the added benefit of improved reliability, since they are not
subject to the environmental stresses that wireline faces.

Agent Pat White, with Dialtone 2000 Inc., is beta testing a wireless Internet
access marketed through the DISH Network (www.dishnetwork.com),
Microsoft Corp. (www.microsoft.com) and
RadioShack Corp. (www.radioshack.com).
The StarBand Communications Inc. (www.starband.com)
service features a download at about 15 times that of a 56K modem, while the
upload is three times faster.

"Our markets don’t get DSL usually, and even some of the larger areas
don’t have it," White says. "There are some very large businesses,
what we consider large, and they’re located in the middle of nowhere. Satellite
in these areas is probably going to be an option for broadband."

Providers Set Sights on Smaller Markets

The level of interest in smaller and remote markets has made providers take
notice. Some larger companies are moving out of the "NFL" cities in
search of cheaper business expenses and more loyal employees. More people also
are moving away from the urban life to telecommute or make use of mobile office
tools. The market is there, and agents will be integral to the growth, providers
say.

Eighteen-month-old New Edge Networks Inc. (www.newedgenetworks.com)
targets 300 U.S. markets with populations between 20,000 people to 300,000
people. President, CEO and co-founder Dan Moffet recalls the difficulty in
raising capital.

"They said, ‘Who really wants this stuff in the small markets, and will
people really buy it in Walla Walla, Wash., and Brainerd, Minn.?’" he says.
"We knew the take rates in those areas were comparable with the metro
markets, and we knew the economics for broadband proved out central office by
central office.

"We don’t think we can be as local as the local person in the
market," Moffet acknowledges. "Given our plan, pretty geographically
dispersed, it would be pretty hard for us to put our own direct people in all
these locations. These [agents] are part of the local community. They go to
coffee with these folks. They see them every day."

Fenix Enterprises (www.fenixenterprises.com)
CEO Osmo Hautanen says his company will launch a provider called Ekanet this
year. A subsidiary of Union Pacific Corp. (www.up.com),
Fenix will leverage Union Pacific’s 33,000 miles of railroad right-of-way,
point-to-point microwave network and 1,400 fixed wireless towers with Ekanet to
deliver high-speed Internet access, broadband interactive TV, DSL, VoIP and
wireless communications in Tier 2 to Tier 5 cities. It also may create an agent
channel.

Hautanen says only 5 percent of U.S. businesses have broadband access, and 60
percent of businesses are located in lower tier markets, which could result in a
growing pent-up demand for better services.

"Community is going to play a major role there," Hautanen says.
"It’s going to be crucial in the development of smaller cities to have
broadband access. It’s hard to develop your city if you don’t have it. … Where
you’re going to need direct distribution for business, you partner with people
that are selling telecom services locally and have them be your distribution
arm."

Sandy Spencer, Qwest’s western regional vice president for the Business
Partner Program, agrees that agents and other local partners are significant in
small markets.

"In secondary markets, it’s difficult to find the level of talent and
have direct employees," he says. "So we partner with folks that lots
of times have very strong relationships in these communities. They are involved
with these people on all kinds of levels in consulting them on phone systems,
Internet access, web pages, and sometimes they’re web integrators."

Qwest has 50 local partners in the 14-state former US WEST territory. Spencer
says the carrier plans to focus more in smaller markets.

"In those markets, we’re finding lots of businesses that want to
relocate away from the noise and the traffic and the pollution, and be out in
rural America," he says. "And the thing that these people need is
bandwidth. So these people have lived out there and they’ve sold phone systems,
access, Centrex 21, typical RBOC product offerings, and now with our merger, we
can have them selling hosting solutions, Internet connectivity and local access
products. The pressure [to introduce next-generation services and technologies]
is everywhere."

Fiber-based convergent communications wholesaler Pathnet (www.pathnet.net)
operates in 26 small U.S. markets. It hired the Yankee Group (www.yankeegroup.com)
to examine demand for advanced services in outlying areas. The results show the
market will grow from $10 billion to $30 billion by 2004.

Patti Kelly, Pathnet’s vice president of marketing, says successful marketing
in individual communities will take a local presence to maintain the economies
of a wholesaler.

"We are starting to build our first agent program," she says.
"One of the other barriers besides economics and geography is the actual
cost to a given company of trying to have an active direct sales campaign. I
went to Durango, Colo., and Farmington, N.M., to speak at a local community
college Telecom 101 seminar. They are so hungry for advanced services, they’re
starving for bandwidth down there."

Tara Seals is Agency Channel editor for PHONE+ Magazine.