Serving Business IP Since 1994

A philosophy of planning and building for the long run—combined with an obsession with high-quality service—position this Texas ISP to grow and prosper in the post-bubble telecom service environment.

by Ted Stevenson ISP-Planet Executive Editor [February 28, 2003]

Texas.Net got its start "way back" in 1994 as a family-owned, family-run business offering dialup Internet connections in the Austin area. Texas.Net passed through the tech-bubble and dot-com-debacle years, emerging today as a strong, profitable organization, and entering into a period of accelerating growth. President and CEO Jonah Yokubaitis characterizes the company as the only independent [non-RBOC] regional—or super-regional—provider remaining in Texas.

The business-oriented ISP, which grossed just short of $18 million last year, offers dedicated high-speed, high-quality, Internet access (from T-1 to OC-12), plus webhosting, colocation, managed e-mail, network security, and disaster recovery. Texas.Net manages a redundant network infrastructure of multiple Tier One backbone connections through its NOCs located in Austin and Houston.

Underpinnings of success
What's the basic business philosophy of Texas.net? Says CEO Yokubaitis, "We built the business to operate it—to run it. Lots of high tech businesses, especially in the Austin area, were built to be sold. They're mostly gone."

From the get-go, the business (financed and owned by Yokubaitis and his parents) was designed to have staying power. "We're definitely in it for the long run," said Yokubaitis. "I wouldn't be surprised to still be running Texas.Net forty years from now."

Yokubaitis rejected the "exit" or sell-out strategy so popular among high tech businesses several years back, took no venture capital investments, and indeed had no outside financial backing until very recently.

He points to the company's minimal staff turnover as evidence of its stability and overall biz philosophy. "Many key employees have been with the company from the beginning, and more than half have been here five years or more, said Yokubaitis. "In fact our first sales person is still with us. We promote from within, and we call our managers 'player-coaches'."

Texas-sized competition and opportunity
During the boom years, Texas had a reputation for being an ultra-competitive environment for telecommunications services. Texas.Net stood up to that competition and, due in part to its style of doing business, outlasted much of it. According to Yokubaitis, "Aside from the RBOC, most of the powerful regional competitors have disappeared from the scene. Many aimed at establishing a DSL customer base and died. Many were gobbled up by aggregators like Verio, Alliance Telecom, and others, who stumbled, and in many cases perished."

Compared to the past, today there's actually less overall competition in the Texas ISP world, Yokubaitis observed. For one thing, there's been an enormous drop in data-center hosting competition—largely the result of huge over-building of capacity. (In 1999, in Austin alone, there were about 1.3 million square feet of data-center space—more than a square foot for each area resident.) While not dead, the hosting business is flat these days, says Yokubaitis. There's no growth in the customer base, and competing businesses are just poaching each other's customers—based on price—in a sluggish spiral of churn.

On the other hand, says Yokubaitis, the market for high-quality Internet access service is stronger than ever. "Despite the current state of the economy, businesses are becoming increasingly interwoven with the Internet—dependent on it," asserts Yokubaitis. "So enterprises are buying and using more and more bandwidth. This is a healthy, growing market."

Survival becomes advantage
The misfortune that thinned the ranks of Texas.net's direct competitors also promises to stoke the fires of the company's future growth. CEO Yokubaitis characterizes the ISP as being in "shark mentality" these days. With a strong cash position, Texas.Net has been aggressively buying selected Internet access businesses—including data center properties—at fire-sale prices (20 cents on the dollar or less).

These acquisitions—two in 2002 and two more to come in the near future—represent "a major asset expansion at a low cost," on which the company will build its prosperity for years to come. Yokubaitis points out that Texas.Net is adept at getting plenty of mileage out of its assets. "The company is still operating many assets that have been fully depreciated," he said. "We've got lots of computers here that other companies would have sent to the dump long ago."

Properties acquired in 2002 include active customer bases in addition to facilities and infrastructure. In keeping with its reputation as a high-quality provider, Texas.Net has taken some pains to assure that new customers are absorbed in a way that promotes the health of acquirer and acquiree alike. Last year it went so far as to develop a new billing application to promote such smooth transition, when it couldn't find just the right thing in the marketplace.

Value-added future
In another expansion move, Texas.Net has created a Disaster Recovery Service business as a component of its data center operations. While not actually put in place until after the September 2001 terrorist attacks, the project was already on the drawing boards when that tragedy occurred.

Disaster Recovery outsourcing customers select from a three-tiered program of data recovery (DR) services, all of which share the basic service of automatic backup to Texas.Net's data-center servers—from nightly for the bronze and silver programs to "real-time" for the gold plan. "Return to Business" guarantees vary from 48 hours for bronze customers, to virtually uninterrupted service on the gold plan.

According to Yokubaitis, this line of business is still young, and doesn't yet constitute a significant revenue stream, but it is growing at a predictable rate, and in the meantime is an excellent use of the company's excess data center capacity. Looking farther to the future, Yokubaitis envisions a more comprehensive bundle of corporate outsourcing services operating out of Texas.Net's data centers, including voice.

—End