Norlight: A Small Counterpunch

Until recently the incumbent monopoly phone companies were crowing that the competition was dead, but it's a new day, and a small, midwestern managed services provider may be better placed than any telco to acquire new customers.

by Alex Goldman ISP-Planet Associate Editor [August 28, 2002]

Just a few months ago the big telecommunications companies were crowing that customers would need a large provider because the small fry were going bankrupt.

Verizon Communications petitioned the Federal Communications Commission (FCC) for permission to speed up bankruptcies. Calling it a "Plan to Protect Customer Service and Healthy Carriers During Telecom Shakeout," the company asked the FCC to allow it "to quickly modify tariffs to require security deposits or payments in advance from companies that demonstrate a financial concern."

That is, companies that were going bankrupt would have to pay more, and pay earlier, than companies that were healthy. It seemed as if all the competitors would disappear.

But some competitors are not public companies, did not borrow excessively, and are poised to survive the shakeout.

Share and share alike
One such is Brookfield, Wis.-based Norlight Communications, part of Journal Communications. At Norlight, an employee-owned company, employees can purchase shares in a company trust. The shares are valued according to an average of the retained earnings over the past three years.

Jim Ditter, Norlight's president, explains, "since our valuation formula focuses on earnings over the past three years, we avoided the excesses of many of our competitors, who were focused on revenue and EBITDA and were not watching expenses. Revenue and EBITDA are not enough in today's market."

Employees can only sell shares when they leave the company or retire. They sell the shares back to the trust at that time, and the trust can re-sell the shares.

Says Ditter, "we've grown from a very small company but we're now at revenues of about $150 million per year. We're now doing more to get the word out, but we still believe that the best form of marketing for us is word of mouth."

Ditter takes a personal interest in every new hire. He boasts, "I meet the new employees and I always tell them that customer recommendations are really powerful. You know your customers, and if they recommend you to their friends, then you know they'll have confidence in you and you can have confidence in them. It's easier to work with people who have come to us through word of mouth."

Ditter feels customers know small companies are the best option in the current economy. He says, "prospects know that smaller telcos can serve a specific niche where it's difficult for larger companies to provide the level of service they achieved in the past because some are filing for bankruptcy and others are laying off employees. We have to leverage the capabilities of our small organization to be a very high touch service provider, and we also have to demonstrate from a financial standpoint that we're on solid ground. Those are our two major sales hurdles."

Ditter explains that the telco can slow him down. "Take a look at our customer satisfaction surveys and you'll see we do very well in our wholesale business with our Guardians of Data brand. In the enterprise segment we have to work with the RBOC, and customers still say positive things about us, but they'll ask that we leverage our relationship with the RBOC better. We're doing well in customer satisfaction, but there's still an extreme amount of frustration with how long it takes to do something in the local loop."

Help from HIPAA
We find an unusual small business customer, the Bay Area Medical Center of Marinette, Wis. and start out by asking how long the center has been a customer. John Beyer, the center's network engineer, says that the center switched from dial-up to frame relay in August of 2000, although network design began in 1999.

"I like Norlight's proactive customer service," he says. "If we have a line outage because of issues with thunderstorms or local phone companies, Norlight will contact us and tells us we have a line down and that they're working on it. That's above and beyond what I've seen elsewhere."

Local medical centers should be good sales prospects for local service providers. These organizations may have high tech operating rooms, but many still use paper to store medical records. That will change because the "Y2K of medicine" is approaching as the Health Insurance Portability and Accountability Act (HIPAA) requires medical records be stored safely by April 14, 2003, but that organizations submit their plans to do so by October 15, 2002 (although extensions can be obtained).

As soon as the Marinette site went online, doctors began requesting that other clinics be added to the network. Beyer was glad to rely on managed services which allowed him to avoid hiring additional employees to deal with the larger network. This growing network currently supports thirteen clinics.

"HIPAA also specifies that transmissions must be encrypted, so many hospitals are now interested in deploying VPNs," notes Beyer.

Topping up the bottom line
Whatever the challenges of a changing economy may prove to be, Norlight seems ready to take them on. The proof is in sales, and currently, Norlight is doing well, Ditter claims. He notes, "over the last three months we've had strong sales results. I don't think that the market is growing, but customers are frustrated with current suppliers and there's a lot of uncertainty. We're seeing demand from people who want a backup connection, and also from those who want to switch. They have to understand that the lead time for switching in voice services is significant."

Norlight focuses on small- and medium-sized enterprises (SMEs) and most of its customers spend between $5,000 and $10,000 per month, although a few pay much more. Ditter feels Norlight has a real advantage in this area as large providers slim down their customer service staff, and small business customers come to him looking for better service. Only time will tell, but larger companies may regret cutting costs when they lose customers to local, focused, conservative competition like Norlight.

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