Monday, May 21, 2007

Lessons of Integra Telecom

Integra Telecom acquired Eschelon Telecom to hit revenue of $700M. (Integra acquired Electric Lightwave Inc. in 2006 as well -- not organic growth :) While there are a few Super CLEC's who are approaching $1B in revenue - that doesn't necessarily translate into a profitable company with a future. "Even today, some surviving CLECs are losing money, mostly because of debt service." [source]

Here's what Integra did right (according to In the Biz Journal article):

"Integra has proven that its business model was built to last, said Bolland, who invested in the company's first big round -- $211 million in 2000. "They did what they said they'd do," Bolland said. "They focused, they operated well, and they consistently made their numbers." Integra concentrated from the start on selling a careful selection of telecom and Internet services to small and medium-sized businesses. The company chose its new markets carefully, too. "They aren't spread out all over the place, with low penetration in each market," said Bolland. "They have high penetration, and that density makes them efficient." Telecom companies must acquire a certain number of customers in any market before they start making money there, due to the costs of building and maintaining a network. Beyond that threshold number, "every dollar of revenue is a high contributor to earnings," Bolland said. Both of Integra's recent acquisitions reflect the company's focus on the small to medium business market, the importance of owning critical pieces of one's network, and the company's insistence on a high level of customer service. Integra's early decision to lay its own fiber cable reduced its reliance on leasing fiber capacity from companies like Qwest or Verizon. That kept its operating costs lower than those of many competitors. This strategy was given a quantum boost with last year's purchase of ELI. Suddenly, Integra has plenty of its own fiber capacity, eliminating a good chunk of its operating costs. The company also acquired ELI's customers, generally larger companies spending more per month on high bandwidth services."

Plan and execute - stay the course. It wasn't everything to everybody with a huge catalog of services. Like GE, it chose where it could be the best.

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