Local Connection: Socket’s Phone Service Growth Outpacing Internet Service

Source: Columbia Business Times
Date: Saturday, April 8, 2006

By Jim Muench

This may be the Internet age, but for Socket, old-fashioned communication technology has become the biggest draw. Demand for the Columbia communications company’s local telephone services for businesses has grown faster than its Internet service.

While Socket Internet’s gross sales grew 1,852 percent over five years, Socket Telecom’s business grew 1,930 percent over one year, from 2004 to 2005, Socket CEO George Pfenenger said.

“The Socket telecom side, the local telephone service, is far outpacing what we did on the Internet side,” he said. “We’re maintaining and even growing the Internet side, but it’s just that the telecom side is growing faster than the Internet side ever did.”

Socket now plans to offer local phone service for residential customers, aiming for a product rollout later this year and initially focusing on home-based businesses, said Carson Coffman, Socket vice president of marketing and sales.

“One of the most difficult things is making people realize, after having things one way for so long, that they actually have a choice for their local phone service,” Pfenenger said. “This is something truly different that what people are used to.”

When it officially launched local telephone service to Missouri business customers in 2004 after three years of preparation, Socket became one of many Competitive Local Exchange Companies, or CLECs, which compete for local service with Incumbent Local Exchange Companies. In Columbia , Centurytel is the incumbent provider. Missouri is a patchwork quilt of major providers such as SBC, CenturyTel/Spectra, and Sprint United — which will soon become Embarq — as well as many smaller companies providing service to the state’s major cities and rural areas.

The Missouri Public Service Commission reports that requests for basic local telecommunications service increased 7.4 percent in 2005. Although the Telecommunication Act of 1996 opened the market to local competition, four-fifths of the local telecommunications market in Missouri is still controlled by four companies, the major incumbents. According to the FCC, 42 percent of Missouri zip codes have no CLECs, such as Socket.

“With incumbents, it’s not like they’re inviting you in or anything,” Pfenenger said, noting that Socket has been successful nevertheless. “Unlike other competitive local phone companies that have come and, most of them, gone, we are not overlooking the rural areas. While we can offer service in St. Louis , Kansas City and Springfield , our focus is on the smaller Mexicos , Moberlys, Kirksvilles and Boonvilles, as well as Columbia and Jefferson City . In many of those areas, we are the first company to have come in to compete, and it’s the first time a lot of the areas have had competition in over 100 years.”

Since 1996, many CLECs have started up, but most have not survived. St. Louis and Kansas City have had 10 or more competing local phone providers for at least five years, said Carson Coffman, Socket vice president of marketing and sales. Socket is one of the few CLECs providing substantial competition to ILECs in 100 local telephone markets across the state. In addition, Voice Over Internet Protocol, or VOIP, companies such as Vonage have also become competitors for local phone service.

“A lot of that comes back to the business model; we’re creating a long-term business,” Coffman said. “A lot of these early competitors went out, got a lot of financing in the bubble days and tried to run really fast. In a market like St. Louis , you can really hit it fast, get real aggressive with pricing and everything else, and that really wasn’t something we were looking at.”

Pfenenger and Coffman take a long-term view, they said.

“Generally, with the venture-backed companies, they don’t get into it without knowing a little bit about what the exit strategy is going to look like,” Pfenenger said. “They may have a two-year or three-year window where they’re just blowin’ and goin’ and then they know they’re going to get acquired and make some obscene return on their money. We’re a private company, and our thought is that we’ll be here offering competitive service in 50 years.”

Socket got into the local telephone business because its customers were asking for the competition, Coffman said. Because the company also offered Internet and long distance service, local service seemed a natural complement.

“We can offer services that the incumbent local phone company cannot,” Pfenenger said. “We’ve gone and done what they can do, and now we’ve surpassed what they can or are willing to do for many companies.”

Because it offers service across the state, Socket can claim the largest coverage area of any local phone company in Missouri . Socket’s local phone service is often attractive to companies with facilities around the state that may lie within the domains of several different local phone companies, Coffman said. For instance, Columbia , Jefferson City and Fulton have different incumbent providers, so a company with an office in each town would need to deal with each of them. Socket can combine telecommunications services, and bundle them with Internet services, so that dealing with only one company and bill is necessary, often saving time and money for the customer.

Coffman presented an example of a medical company based in Columbia , with medical clinics in Kirksville and at Fort Leonard Wood, which would mean phone bills from CenturyTel, SBC and Sprint.

“If they want to tie these together for communication purposes, they’re probably going to have a local phone bill for three locations, an Internet bill for each location as well as a networking bill, and then who knows what the long distance is going to look like,” Coffman said. “So we’ll go to a company like this and say give us this five inches of paperwork, and we’re going to turn this into a consolidated bill.”