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Telecom Valley
Telecommunications
"upstarts" are booming in the St. Louis region.
By Liese Hutchison
An exciting
venture capital climate, talented employees and a history of being
home to large telecommunications companies are all combining to
position the St. Louis region as a hotbed of telecommunication
activities.
The
St. Louis area reached a record $283.5 million in venture investments
in 1999 and technology-based companies accounted for more than
90 percent of all investments. That is twice the dollar amount
generated in 1998.
"St.
Louis is a great telecom town," notes John Shapleigh, investor
and chairman of Partner Communications & Services, Inc. and
president of a telecommunications investment and consulting
firm, Double
Eagle LLC. "It started with the fact that, historically, we have
been the headquarters of Southwestern Bell. Any big company like
that is always a wonderful incubator for telecommunications talent,
some of whom go out and start companies." Shapleigh, one of the
original founders of Brooks Fiber Properties, Inc., notes that
MCI and GTE also have regional headquarters here, which adds to
the large talent pool.
Rich
Phillips, president of Primary Network, says this pool of highly
skilled and highly paid workforce contributes to the economic
impact of the region. "This workforce spends money here and spurs
more growth," Phillips states. He points out the telecommunications
companies also
foster growth through competition. "On the consumer side we're
providing advanced services for very competitive pricing. It's
less expensive for our customers to do business." Primary Network
is a competitive local exchange carrier or CLEC that also provides
DSL and ATM network services. It was the fastest growing technology
company in the region last year.
In
addition to Southwestern Bell, MCI and GTE (which was Continental
Telephone in the 1970s), Shapleigh says telecom pioneers such
as Bob Brooks and Jim Barnard are also an important reason telecommunication
companies are being created and growing. The duo originally founded
Telcom Engineering in the 1970s. Once they sold, they and some
of their key employees started other companies. (see chart)
From
Telcom Engineering came Cencom Cable and LDX Net. From Cencom
Cable, Brooks Fiber was born. Brooks Fiber has spawned Gabriel
Communications, Millennium Communications, Partner Communications,
GLA International and Brooks Investments. Also from Cencom Cable,
Charter Communications was created. From LDX Net came Access America,
Intertech Management and Omniplex.
The telephony
startup craze has carried over to the internet, since many of
the telephony companies are also offering Internet services. "There
is a lot of crossover," says Jim Brasunas, CEO Partner Communications
& Services. For example, CoreExpress is a new upstart Internet
company founded by Mike Gaddis, CEO, and former CTO of SAVVIS.
He is credited with building SAVVIS into an international Internet
powerhouse. "We attracted significant attention from the venture
capital community due to the strength of our vision and ability
to build the right team," he comments. "This says a lot about
the St. Louis employee base of telecommunications and Internet
professionals."
With
the two ingredients of a historically large telecommunications
presence and telecommunication pioneers, one other
component must be added to create the climate of start-up telecommunication
activity seen in St. Louis today. "The other ingredient you need
is money," Shapleigh notes. "Thanks to the increasing number of
venture capital companies in St. Louis willing to fund these start
ups, we're now in the forefront nationally in terms of cities
with the critical mass needed to create more spin offs."
Jerry
Howe, president and CEO of Gabriel Communication, agrees that
St. Louis is on the national radar screen in the telecommunications
industry. "I think that with regards to spawning telecom companies
on a per capita basis, we're pretty high on the list nationally.
From the talent and type of people we have here to build and manage
telecommunication networks and services, we're probably in the
top 10 in terms of our telecom capabilities," Howe remarks. Gabriel
employs 250 people in St. Louis. The company provides a full suite
of integrated services, including local and long distance service
and Internet access.
"The
passage of the Telecommunications Act of 1996 was a significant
catalyst locally and nationally to start up telecom activity,"
Howe notes. "We see three things in general in the industry. The
first is the regulatory change driven by the Act. The second is
that technology has changed significantly, which
provides higher speed data and Internet access. And finally, there
is a shift in market demand. With technology changing, consumers
are demanding the high-speed data services."
To
help meet its customers' demands, SBC is introducing its Pronto
project. "This $6 billion initiative by SBC promises to make available
high-speed Internet access service to 80 percent of all SBC customers
within three years," notes Jan Newton, president, Southwestern
Bell Missouri. "To reach that goal, SBC is relying on its vendors
to supply the products for Pronto. Many of these suppliers are
start ups located right here in the St. Louis area that are supplying
specific products and services for Internet-related business."
The region's telecommunications industry is starting
to receive national recognition. Last year, Upstart magazine
published a cover story on the region's telecommunications companies.
This article spurred civic action among the telecom companies
mentioned, says Ken Harrington, president of WorkNET. A lunch
was held after the article's release among those interviewed.
"It started informally, and we all asked what can we do to continue
the promotion of startups in the telecom industry," Harrington
remembers. WorkNET, a wireless Internet company, employs 200 people
in almost
a dozen cities across the middle United States.
The
Upstart Committee was created and joined the RCGA's Technology
Gateway's efforts to promote the technology of the region as a
whole. Its focus is on the telecommunication industry. Harrington
says Upstart members try to:
- promote
the industry
- raise capital
- attract
and retain employees
- help
companies moving into the region determine and access the right
telecommunication needs for each company.
"In
terms of attracting companies to St. Louis, we make sure they
have the telecommunication capabilities to make their businesses
successful," Harrington notes. Phillips of Primary Network agrees
that one of the focuses of Upstart is to improve the infrastructure
of the region to continue to entice new companies that demand
the best telecommunication technology available.
Because
so many of the start-up telecom companies are helped financially
by angel networks, venture capital groups and other entrepreneurs
who've succeeded at their own telecom ventures, Howe of Gabriel
isn't concerned that rising interest rates might stop the growth
of telecom start ups. "Higher interest rates from banks shouldn't
stop this boom in telecom," Howe notes. He says that more start
ups are being created. "There are more and more services that
telecom providers can bring to the market place. The way the capital
market exists today, experienced management teams can put together
a business plan and get the money to go and fund these new start
ups," Howe says. Before this exciting capital climate, larger
telecommunications companies would have had to fund new projects.
Now entrepreneurs, with the right management team, are doing it
themselves.
"The
entrepreneurial spirit is a very positive thing for St. Louis,"
Shapleigh states. He says these telecom start ups that have come
from first and second generation start ups keep growing off their
previous company's success. "It's almost like the computer industry
in Silicon Valley; the telecom companies feed off each other,"
Shapleigh remarks. "These companies are positioning St. Louis
to more fully participate in the soon-to-be trillion dollar world
telecommunications market."
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