VOIP services

Bandwidth.com's SMB Story

A small North Carolina-based telecommunications company, Bandwidth.com , has been quietly but quickly growing by addressing a niche underserved by the big telcos: small and medium-sized businesses (SMBs).

Bandwidth.com sells broadband pipes and related services to businesses with 5 to 100 employees in all 50 U.S. states. CEO Henry Kaestner says the big telephone companies saw the SMB market as the “great unwashed masses" and largely ignored them throughout the 90s. “We were going to develop the systems necessary to give those customers the same kind of accountability and transparency that the Fortune 1000 companies were getting.”

Bandwidth.com, which employs 72 people, was recently named by Inc. Magazine as the 16th fastest growing private company in the U.S. Kaestner confirms Bandwidth.com had revenues of $15.3 million during 2005, a number Inc. says represents 2272.2 percent growth during the past three years.

By the looks of things, Bandwidth.com might make the list again next year. CEO Kaestner says his company is on track this year to more than double its 2005 revenues.

[As it happens, Light Reading's latest venture addresses the SMB market and is being launched today (Aug 28). It's a Website called SmallBizResource that aims to give technical and business advice to people with small offices and home offices -- the "SoHo" sector. Part of SBR's remit is to help its readers get up to speed on services targeting their particular needs, by publishing reviews and comparisons, and by getting SBR readers themselves to rate services and suppliers. Check out the new site by clicking here].

Bandwidth.com came together in 1999, began buying T1 through OC12 capacity from carriers around the country, then resold the services to SMBs. This freed customers from negotiating those service buys themselves, and gave them a one-stop-shop for connecting multiple offices around the country. (See Bandwidth Targets Enterprise.)

Verizon Communications Inc. (NYSE: VZ), for one, doesn’t deny the assertion that the big telcos haven't been completely in tune with the needs of SMBs. (See Cbeyond Reports 2004.) “There was a time there where we were in a race to get lines away from AT&T Inc. (NYSE: T) on the consumer side, so there was a spell where the small businesses were kind of left alone,” says Verizon small business spokesman Jim Smith.

Smith says this is changing. “For the last four or five years we have been rededicating ourselves to the market,” he claims. Smith says that, now that Verizon has merged with MCI LLC , it is reorganizing its relationships with the partners and agents that resell Verizon business services.

But big telcos apparently aren't focused enough on the SMB market to prevent niche players like Bandwidth.com and Cbeyond Communications (Nasdaq: CBEY) from thriving.

CBeyond held its IPO last November. (See Cisco-Backed Cbeyond Sees $73M.)

CBeyond spokesman Kurt Abkemeier says large carriers already are getting a sizable piece of the SMB pie through local sales of DSL and voice services -- "so it might not make sense for them to expand their sales force outside the local market."

Abkemeier also points out that small business is just one of many segments in which the large telcos play. "They may have bigger fish to fry, with battling the cable companies for video customers and competing with all the wireless carriers for wireless customers," he notes. “And that’s just fine with us."

Beginning in 1999, Bandwidth.com grew in steps from being a commissioned lead generator for phone companies to a bandwidth reseller to a wholesaler. Finally, with the addition of its own wholesale VOIP offering in 2004, Bandwidth.com became a facilities-based telecom provider in its own right. The company now owns a Sylantro Systems Corp. softswitch platform, which is collocated at a Level 3 Communications Inc. (NYSE: LVLT) facility in Atlanta. (See CompUSA, Sylantro Garnish VOIP for SMBs.)

The company also offers network monitoring and management services for its SMB customers, as well as security and device management services and, most recently, SIP trunking. (See Bandwidth.com Launches SIP Trunking.)

Bandwidth.com has so far taken no institutional investment money, Kaestner says, relying instead on some “friends and family” investment and a habit of reinvesting profits in the company. The company's most recent intake was a $4.75 million private investment round in September 2005. (See Bandwidth.com Raises $4.75M.)

On the subject of a future IPO, Kaestner says his company is in no great hurry. “It’s something we have in the back of our minds; at some point in time it's something we will take a good hard look at, but we haven’t really sat down and looked at the pros and cons yet.”

Kaestner was in the energy commodities trading business before co-founding Bandwidth.com. The company’s other founder, attorney and company president David Morken, co-founded the online tax filing service, efiling.com, in 1994, before getting into the telecommunications business.

— Mark Sullivan, Reporter, Light Reading

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