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BusinessWest, January 2002

Top Entreprenuer of 2001

Equal Access Finds Success by
Making Connections

By George O'Brien

When asked to talk about his company’s many success stories in 2001, Dan Kelley invariably comments instead on what might have been. Maybe it’s the aggressive, impatient entrepreneur in him. His company, Equal Access Networks (EAN), which brings reliable, affordable broadband services to rural areas via wireless networks, has taken its proven model into a number of new markets, including Franklin County, Central Connecticut, and several areas of New Hampshire. Meanwhile, existing networks, especially the highly touted Berkshire Connect project, are yielding higher revenues than were originally projected.

Still, 2001 has in many ways been a frustrating year for the company, Kelley told BusinessWest. Stymied by the collapse of the venture capital market, which has turned a decidedly cold shoulder to the telecommunications industry, EAN is well behind the growth models in its own business plan.
But Kelley and partner Doug Norton are aware that when talking about success in the technology sector, everything is relative. A quick look at the long list of companies that have disappeared from the landscape or found themselves in bankruptcy forces them to wax philosophical.

They can even look back at the collapse of a $40 million round of venture capital funding as a blessing in disguise, of sorts.

That’s because if they had received that capital, it is likely that they would be in more markets than they could handle, said Kelley. Like too many telecommunications companies that are either dead or dying, EAN could have wound up running out of money and closing its doors.

So while EAN is no doubt a victim of the skittish venture capital markets, it can nonetheless look back on 2001 as a time of growth — not as much as the company wanted, certainly — and progress in the broader goal of developing working, profitable models of their unique concept.

And this should serve the company well as it rides out the “hurricane,” as Norton calls the ongoing struggles of the technology sector and the difficulty in obtaining venture capital. EAN has identified at least two dozen additional markets on the East Coast — each with the potential to generate at least $1 million in revenue annually — and will be ready to move forward on them when the storm breaks.
Demand for the product is great, said Kelley, and it will continue to grow as business owners, economic development leaders, and state and national elected officials recognize that broadband access is essential in the years to come.

For developing their winning model, one that is having a profound economic impact on such areas as the Berkshires, as well as for their ability to achieve success in an industry littered with dot-gones — Kelley and Norton have been named BusinessWest’s Top Entrepreneurs for 2001.

Small Bytes

If 1999 was the year for Kelley and Norton to put their concept on the blackboard, and 2000 was the year to show it could work — and be profitable — then 2001 was the year to take the ball and run with it.
At least that’s the way it was outlined in the company’s business plan.

But the collapse of the technology sector and the prolonged hibernation of the capital markets have forced some revisions to the script.

Indeed, 2001 became a year to press forward, said Kelley, and essentially live within the company’s means. Growth plans had to be scaled down, certainly, but not abandoned entirely. As he said, this revamped approach was probably good for a company that could easily have bitten off more than it could chew.

EAN was formed with the goal of meeting a growing need in a world of rapidly advancing technology — removing barriers between those who have access to broadband voice, data, video, and Internet service and those who don’t.

The concept of building bridges between the haves and have nots was put to Kelley and Norton in 1999 by former Telitcom director Geoffrey Little (now EAN’s director of sales and marketing), who was looking for a way to bring reliable broadband service to the Berkshires.

After ruling out fiber as an option (at $475,000 a mile, the cost of bringing it to the remote Berkshires was deemed prohibitive), Kelley, former general manager at Brooks Fiber and a self-described entrepreneurial risk-taker, and Norton, an engineer with GTE before he started his own consulting company, hit upon a viable option.

That alternative is wireless technology, and it is enabling EAN to bring broadband access and telecommunications services available in Springfield — which sits on the fiber-optic crossroads of long-haul carriers such as AT&T, MCI, Sprint, and others — to more remote areas.

Here’s how it works. After determining a minimum level of demand from potential customers, the company builds a network whereby broadband voice, data, and video signals are relayed from the company’s headquarters in the Technology Park at STCC to remote sites via towers such as those on Mount Tom and Mount Greylock
.
EAN works in partnership with Worcester-based carrier Global Crossing Ltd. and is looking at other partnerships with established carriers such as AT&T, Worldcom, and Sprint.

EAN derives revenues by taking a share of the rates paid to carriers by users. While the markets being developed vary in size, they generate about $100,000 per month, or about $1 million each year, Kelley said.

The business model for the concept is rather simple: pool, or aggregate, demand and then provide the supply. The key is to assemble the demand first, because the cost of building a network is considerable. Each market is centered around a hub — usually one or more large businesses or an industrial park — and then radiates out to a 30-mile radius.

Using the highly successful Berkshires project as a model, the company has initiated several other networks in the Northeast.

For example, EAN is currently aggregating a market in Central Connecticut, one that will use two large industrial parks in the Meriden/Wallingford area as its hub.

The company is also working on two networks in New Hampshire, one in the Portsmouth area and another which will essentially cover the northern parts of the state, which have been hit hard by the recession, especially by massive layoffs in the paper industry.

While the Portsmouth network follows the typical demand/revenue pattern set by the company, the so-called North Country initiative is different in that it does not have an easily identifiable hub. The project was proposed by the state’s governor as a way to help spur economic development in a region that had been decimated by job losses, and targets comparatively small communities.

“Initially, demand didn’t justify the cost on that project,” said Kelley. “But the governor managed to aggregate some additional large customers, and we were able to reach our minimum monthly revenue commitments.”

EAN is also working to put together a network in the New Bedford/Fall River area of Massachusetts, a region now known in some economic development circles as the “South Coast.” That project started with the city of Fall River as a hub and has been stalled as local leaders, as well as Sen. John Kerry, try to expand its footprint, Kelley said.

The South Coast area has struggled to attract new businesses in recent years, he explained, and development leaders believe that reliable, affordable, broadband access could greatly assist economic development efforts. EAN is frustrated with the delays in getting the project off the ground because it has already spent money to build the network and isn’t generating any revenues yet — “that’s not good for my balance sheet,” said Kelley — but ultimately wants the project done right.

“There is a process that we need to follow with our partners,” he explained. “If it’s done right, it works for all of us. If it’s not done right, it doesn’t work for anyone.”

Despite the company’s territorial advances, it has seen far less growth than was anticipated when the year began.

Capital Ideas

A year ago, Kelley told BusinessWest that he would like to be in at least 15 and perhaps as many as 18 markets by the end of 2001. But the flow of venture capital, especially to technology companies, has slowed to a trickle, he explained, and that has limited EAN’s growth potential.

A planned $40 million round of financing didn’t materialize, he said, and many other venture capital firms have listened with interest to details of the company’s business model, nodded their heads in unison at the viability of the concept, but stopped short when it came to writing the check.

“People who were receptive to our business plan before have now become more engrossed in their portfolios,” said Kelley. “It’s not that people aren’t interested — they are — the best way to put it would be to say that funding sources have gone into paralysis ... they’re unable or unwilling to move.”

Norton told BusinessWest that unless one has sat across the table from venture capitalists in the past 12-18 months, it is hard to grasp the level of frustration that entrepreneurs like himself experience.

“They all say pretty much the same thing,” he explained. “They like the concept, they say it’s proven, that it demonstrates success, and has a good cash-flow model, and then they say but ....”
What follows the ‘but’ varies, he said, but generally venture capitalists say they’re not funding telecom companies anymore.

“They say their portfolio’s bleeding and that they need to concentrate on that,” he continued. “There’s still a big scare on telecommunications companies.”

When will the scare be over? Kelley said analysts with the market research firm the Yankee Group have told him that the ice could break in the second quarter of this year, and these are the most optimistic projections that he has heard.

One key for the company is to be in solid shape when the money does flow again, said Norton. Many telecommunications companies have failed because they used venture capital to invest in new equipment and infrastructure but couldn’t match their aggressive expansion with revenues. And when they went to look for more capital, their poor revenue performance froze them out of additional funding. Trapped in this situation, companies have few options other than closing the doors or filing for bankruptcy.

Forced by tight capital markets to be conservative, EAN is in good fiscal shape, said Norton. It is easily able to meet its debt obligations, and its cash flow continues to improve. This solid condition should catch the eye of the venture capitalists.

And while waiting for the venture capital picture to improve, he said, the company will continue to identify potential new markets and look for ways to expand existing models to enhance revenues.

The New Hampshire project, known as North Country Connect, could easily be expanded to include the Burlington, Vt. area, and then perhaps the Portland, Maine region. The Central Connecticut project, meanwhile, could easily be extended into Rhode Island.

Meanwhile, the company will turn its sights to larger cities and their suburbs. EAN has identified more than two dozen potential networks in cities like Boston, Philadelphia, and Washington, D.C., he said.

The two partners met with Federal Communications Commission Chairman Michael Powell on Jan. 2 to plug their model, if not necessarily their company, and to ask the federal government not to throw money at the issue of broadband access, but to let market forces prevail.

Powell, like most others, likes the concept, said Kelley, and is interested in finding ways to use it in more markets.

“He understands the importance of access,” he said. “Everyone wants access ... we just have to find ways to make it available.”