news articles

GOOD GUYS WEAR BLACK

by David Schober

Picture Donny Smith in a black Stetson and a duster. If you've met the CEO of Owatonna, Minn.-based CLEC Jaguar Communications, it shouldn't be hard. It's what he wears at every trade show.

But he's not talking about the hat just now; he wants this story to be about his new CLEC, not his nickname, “Marlboro Man.” Instead, he'll tell you of Jaguar's plan to bring IP-based services to residents in 40 towns in southern Minnesota by the end of the year. Though it sounds ambitious, the company's talking about 40 very small towns — all with populations somewhere between 400 and 25,000 people. Most are weighing in on the lower end. Jaguar plans to build a network based on Integral Access' PurePacket systems, which will allow voice and data services over a single DSL line.

Smith raised cash for his company by selling his previous venture, a successful ISP called Local Link USA, in December 1999. But it's not all about money for Smith. Sure, Local Link had 21 profitable quarters out of 22 while Smith ran it — but there's more to life than that, namely helping out small towns like the one he lives in. He started the CLEC for the same reasons he started his ISP: “It's because in the rural areas we saw an untapped market,” he says. “There's nobody else going after them, and the phone companies aren't going to do it.”

For evidence that the phone companies — Qwest Communications in the case of Jaguar's home territory — aren't taking care of small towns, Smith says you only have to look at the equipment sitting in the COs. “[The industry's] talking about 5E switches. A lot of these towns have 1As,” Smith says. “[The RBOCs] are looking at investing as little in these towns as possible and getting out as soon as possible.” Smith doesn't mind this at all.

Qwest and the rest are avoiding rural upgrades because they have too many other things to worry about in more populated and more profitable areas. Its small size lets Jaguar focus on market penetration. Rolling out DSL is easier for Jaguar than it is for those big city CLEC because there's usually only one CO, which allows it to attack both the business and residential market cheaply. Jaguar turns a profit by charging around $70 for a couple of voice lines and an Internet connection.

Also, there aren't the same DSL distance problems that degrade signals for most carriers. The distances are so short that it doesn't really matter if the copper is in bad shape. Smith: “If you go to a town that has a few thousand people, that's how many people you have access to. Towns are usually small enough to have everyone on one CO. It's usually only something like 2000 feet across town, and you can get a pretty good connection even on pretty poor wire.”

Another note on profitability in small towns: People tend to keep the service they buy. Smith: “Small towns do business with the people in the small towns. We buy our services from the hardware store, not from the Home Depot. [Because of that loyalty], our ISP had a very low churn rate. If you wave a nickel under the nose of someone living in a small town, they're not going to switch services for that.”

That's the story with his company. Now back to the black hat: Smith wore it to his first trade show, and people started calling him the Marlboro Man because of the cowboy look and a serious nicotine habit. He quit smoking, but the Stetson's staying.