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In the current investment climate, a telecommunications executive has to be grateful for small blessings.
Among the dubious blessings for which John Kane now gives thanks are the strictures his investors have placed on his Englewood, Colo., company, Telseon Inc., which helped save it from the excesses that have led others to crash and burn. Telseon is that rare upstart telecom that can see the light of profits at the end of the tunnel.
With fierce attrition leading to closures and bankruptcies among competitors such as Sigma Networks Inc. and Sphera Optical Networks earlier this year, Telseon is one of the last focused metro Ethernet service providers that is still solvent. Its survival story is a saga of adaptation to both the vagaries of the telecoms market and tight-fisted investors. To expand its geographic reach, Kane and his team have had to creatively engineer cashless deals when they couldn't convince their backers to plow in new capital.
Telseon specializes in a niche market, providing Ethernet broadband networks between buildings or "campuses" in major metropolitan areas. Its networks form the links between telecoms that connect cities and the ultimate office users.
Telseon sells to other service providers, not to the end customers. Flanking it on one side are vertically integrated companies such as Level 3 Communications Inc. and XO Communications Inc., and local telecoms, which provide bundles of communications services. On the other side, companies such as Yipes Communications Inc., which filed for Chapter 11 bankruptcy in March, ventured into the "direct-to-enterprise" market, serving the end customer. But that entailed building a clientele of hundreds of thousands of customers to compensate for slender profit margins.
Under Kane, Telseon staked out its intermediary position as a service provider's service provider. "I like simplicity, and a horizontal model can be done fairly simply and cost effectively," Kane said. "The guy with the lowest cost wins. You can also focus better on making the model work. A lot of people have metro assets, but few have ubiquity."
Ubiquitous might be a bit of an exaggeration, but Telseon is in the most desirable markets, including New York, Los Angeles, Washington and Atlanta, making it an attractive partner to companies such as Level 3 and Dynegy. "We can sell to...