The Xchange-Choice Fit Gets Tighter

May 28, 2002
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GRAND RAPIDS — While many people unplugged their computers lest lightning fry them during recent heavy thunderstorms, and some families and firms went without power, phone service for at least one firm’s customers wasn’t fazed.

In part, that’s because of a group of 12 people working 24/7 in the old US Xchange Building who were keeping their eyes on things here … and simultaneously in Oshkosh, Fort Wayne, Akron, Pittsburgh, Hartford, Providence, Albany and Syracuse … plus the 19 other markets that Choice One Communications serves.

What goes on in the network operations center — which looks like a junior grade NASA mission control center — is that its staff constantly monitors all the company’s communications circuits while keeping a NexRad eye on all storms occurring east of the Mississippi and north of the Ohio River, plus all the other situations where acts of God or man threaten telephone service in the company’s 12-state service area.

And, as elsewhere, utility alarms are endemic across the northeast quadrant of the nation: an earthmover cuts a cable; a squirrel decides to lunch on copper; a switch circuit board emits a tiny curl of smoke and quits.

All of these mishaps show up on the monitors in the XXXXX floor center. But thanks to the multiple redundancy of telephone systems, nobody’s call is interrupted as crews go to work on whatever problems occurred.

And the network operations center is one of the important attractions that led Choice One to buy US Xchange last summer, thereby doubling its size

“Choice One didn’t have a NOC (network operations center),” said Ythan Lax, the firm’s director of corporate communications, “and we needed one, and we and US Xchange happened to have compatible computerization.”

And being able to depend upon such a center is a blessing, said Tari Lynn Barrera, Choice’s Grand Rapids market sales manager, “compared to the times when you had to be on hold with someone in Texas.”

Lax and Barrera met with the Business Journal recently to talk about the local office’s transition in becoming part of Choice One and about stability in an industry in which firms have been disappearing at a scary rate.

According to Lax, the acquisition of US Xchange by Choice One was a marriage of convenience and compatibility.

It certainly has not led to layoffs. Barrera explains that 250 more people work in the Grandville Avenue office building than was the case in August of last year when the acquisition took place. Moreover, what then was Choice One has since expanded its payroll by 400 people.

Lax explained that aside from bringing the operations monitoring center into the marriage, Xchange was a good acquisition for Choice for an entirely different reason. He explained that Choice is an integrated communications provider: that is, it provides telephone and data lines to small and medium-sized businesses. Clients may purchase one service or whatever combination, or bundling, of services they wish.

Lax notes that US Xchange was a voice-only operation, but said that its management already had taken the preliminary internal technical steps to begin data wiring, which is just how Choice likes it.

Lax explained that though a great die-off has occurred among startups in the data delivery industry, Choice One is fairly unusual in that it is an already-established telephone business that now is building its data network component. He said that is a much more stable situation than trying to market data delivery and nothing else as a startup.

Thus, he said Choice One’s new Grand Rapids market has a strong telephone footing from which it has begun offering digital subscriber data lines here and in Holland. The company also has just begun service in the Ann Arbor-Lansing markets and its developing markets in Indianapolis and Richmond.

And Barrera claims Choice One has something else going for it that is almost unique in the telecom industry: client retention specialists.

Referring again to being on hold waiting to speak to a Texas techie, Barrera said every client office has an account representative who is part of the initial custom design and who stays in touch for the long haul.

“The retention specialist is somebody you know, who’s been in on the relationship from the beginning, so that if you’ve got a problem you know exactly who to call. That’s a friendly voice there to help you.”

Lax said the Disembodied Help Desk Voice syndrome was one of the industry draw-backs that Choice’s founders set out to compete against when they established the firm in 1998. The company is headquartered in Rochester, N.Y.

One of the big problems they confront now, he said, is the large number of potential clients who become leery about the industry because of startups’ mortality rates.

“When another one goes out of business,” Lax said, “I hear some of our people say, ‘Well, good, that’s another competitor gone.’

“In this situation,” he said, “I don't agree. In an industry that’s had so many firms die, that kind of thing just adds to the appearance of instability,” he said. “That makes sales more difficult.”

That appearance of instability, he said, doesn’t apply to Choice One, which went public in February of 2000 (Nasdaq: CWON).

“We had an outstanding year,” he said. The firm reports exiting 2000 with cash and short-term investments totaling $213 million and with $83 million still available on its senior credit facility.

He said the fourth quarter — which was the first full quarter with results from US Xchange — was excellent for Choice One, with revenue of $29.5 million, a 38 percent jump over the preceding quarter.

Gross profits for the quarter were $7.6 million, more than double the gross for the third quarter. Administrative expenses were $31.8 million, up 26 percent from the third quarter, compared with the 38 percent growth in revenue.

By the end of the year, Choice One had 177,000-plus lines in service, of which 40,500 were new sales.

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