Riverstone Heads to Sacto
SureWest has more than 140,000 residential and business customers in the Sacramento, Calif. area. The new Ethernet-based metro area network that has been built using Riverstone’s gear targets businesses and government offices throughout the area, providing services like virtual private networks (VPNs) and virtual private LANs since June of this year.
While SureWest is certainly no Verizon Communications Inc. (NYSE: VZ) or SBC Communications Inc. (NYSE: SBC), each of which supports millions of customers, the deal highlights a segment of the service provider market that has been largely overlooked in the past several years.
Much of the focus on the telecom market has centered around competitive local exchange carriers vs. larger incumbent players. Conventional wisdom holds that CLECs are hurting, while incumbents are now highly coveted for their deep pockets.
But there are also roughly 1,300 independent operators in the United States today. This class of carriers was originally created back in 1934 to ensure that rural Americans would have access to quality telephone services at reasonable rates. In some cases, previously rural areas on now quite populated.
Generally these companies serve one or more small communities, providing telephone and data services to a wide range of customers. Some serve as few as 100 customers, while others, like SureWest, serve several thousand customers. Alltel Corp. one of the largest independent providers in the Little Rock, Ark., region has nearly one million customers.
Many of these independent telcos have introduced new telecommunications technology, including the first automatic switching system and the first installation of a digital switching office. Fiber optic cable and digital switching equipment are common even among the smallest independents. SureWest, for example, was one of the first providers in its region to offer Ethernet service to small and medium-sized businesses.
“They're small but very innovative technologically," says Lynda Starr, vice president of U.S. carrier research for Probe Research Inc. "Part of it is probably because they don’t get bogged down with all the processes and regulatory barriers.”
Many of the larger independent providers are also financially strong, compared to the rest of the service provider market. SureWest has remained relatively debt free since its inception as a small telephone company back in 1914, says Dave Kamp, a company spokesperson. The company has practiced what it calls managed growth. It recently spent $12 million to acquire WINfirst, a fiber-to-the-home provider, which had spent $400 million building out its infrastructure.
“We’ve bucked the negative trends of the telecom industry,” says Kamp. “We started out as a small telephone company and we’ve layered on new services and offerings through the years. But the key has been that we haven’t gotten too big for our britches.”
Like other independents, the carrier also receives federal subsidies for serving rural areas. Typically, larger RBOCs don’t compete with independents because the areas they serve are so sparsely populated that it’s economically unfeasible for RBOCs to do business there. The same is true for emerging CLECs, which often go to areas where the population density is greater. Even so, SureWest competes with bigger carriers like AT&T Corp. (NYSE: T) and Pacific Bell, a subsidiary of SBC. Now that the provider is also offering a bundled digital cable, high-speed data, and phone service package, it also competes against Comcast Corp. (Nasdaq: CMCSA, CMCSK).
But there seems to be plenty of business to go around in the Sacramento area. The region is one of the fastest growing metropolitan areas in the country, according to the 2000 U.S. Census.
“The IOCs have always been a market you couldn’t ignore,” says Kevin J. Sheehan, vice president of marketing for Hatteras Networks, an Ethernet-over-copper access startup. “They’re very competitive with the cable operators, because they also offer the triple play: voice, video, and data.”
— Marguerite Reardon, Senior Editor, Light Reading
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