Q&A With AboveNet CEO Bill LaPerch

By Khali Henderson

As as president and CEO of AboveNet Inc., Bill LaPerch heads up one of the country’s fastest-growing metro optical network providers with $360 million in annual revenue, 2,200 on-net buildings and 2.1 million fiber miles. The company is relatively new to the channel; its program is just four years old. But LaPerch is encouraged by early results despite the carrier’s non-transactional (read non-channel-friendly) service line, which is all big bandwidth services. The success lead him to make his first appearance at the channel’s primary trade show, The Channel Partners Conference & Expo in March. PHONE+ sat down with LaPerch on March 2 to discuss the company’s channel.

PHONE+: How many agents do you have?

Bill LaPerch: It’s increasing all the time. It’s become a significant part of our growth.

PHONE+: What do you mean by significant?

BL: …It’s our fastest growing sales channel. It’s far outpacing our direct sales channel in terms of growth. A little bit of that is it’s grown from nothing.

What is the channel’s contribution?

BL: Our channel revenue is less than 10 percent but growing very fast.

PHONE+: Was this an initiative that you encouraged or was it brought to you?

BL: We actually argued about it internally for quite some time. We are always looking for ways to expand our reach from a sales perspective, but we thought that because of our specific sales focus on 100mbps and above solutions, we were wondering how suited we were for the agent world. We typically had a long sales cycle; we had a long install cycle. It wasn’t T1s; it wasn’t voice; it wasn’t ISDN lines. It was a sale that very often would take two years from start to finish.

PHONE+: Ultimately, you decided to go ahead. What put you over the edge?

BL: A couple of things: One, as Ethernet continued to emerge, we were able to standardize a lot of our products and make their delivery more predictable and the pricing schedules more predictable. In essence, we were able to communicate with the channel partners what we were about, how long it took to install and how much it would cost. The other thing was the realization that — it may sound naïve — there are a great deal of value-added resellers that have long-term relationships with customers and they are able to effectively compete and add value to us with these more complex, long sales cycle type deals. With that in mind, we said, “Let’s get this started.”

It’s gotten to the point where it’s a very significant part of our sales strategy. It’s something that everyone from the CEO (me) on down is spending time to understand and get better at.

PHONE+: What is your commitment as the CEO to the channel?

BL: Three or four years ago, as I said, we were wondering if it would work. I issued the challenge to my sales leader John “Joc” Jacquay. He is a very competitive person as I am. We said, “Let’s make this work.” The success built on itself. Eighty percent of the stuff we tried worked; the other 20 percent we threw out and tried something different. Listen, we are a company of 650 people. The way we compete in the marketplace is by some nimbleness and speed. I carry the CEO title, but [indirect sales director] Brian Sheehan can walk into my office any time he wants and lay an idea on me. If it’s a good idea, we will try it.

The sense that I get when I talk to partners is they recognize this. They say, “Your people are responsive to work with.” That really increases my enthusiasm; these are professional salespeople that have relationships with customers and knowledge of the industry that quite frankly would take forever to build internally.

PHONE+: Looking at the partner base, what are their biggest challenges and opportunities for 2010?

BL: The biggest challenge and opportunity is to understand our value proposition. The sense I get from some of the partners I talk to is, “We are done with T1s. We are done with VoIP. We are done with ISDN. If we are truly going to take care of our customers, we need to get them on next-generation solutions and you guys have that.” The fun part too is that conversations aren’t just centered on lower prices. That hasn’t been said to me once. We give great value for what we sell, so I’m not that surprised.

The other thing that I worry about and I am learning about this, I am hoping the agent channel fulfills my vision of expanding my reach, or said differently, I don’t want to spend a lot of time in conflict with my direct sales force. I am hoping the agents have relationships in places where I am not.

PHONE+: Are you ensuring that with the way you select partners?

BL: My direct sales force is segmented geographically, not by industry. So in the markets they are in, they go after those big bandwidth opportunities they see. The channel relationship is still in its early stages; we haven’t got to the level of sophistication you are talking about there. But as I have talked to the senior people at these [partner] organizations, that’s clearly the next evolution — how do I leverage the expertise of a channel partner in an industry segment?

PHONE+: Is there an element of timing here? Market conditions have agents searching for a company like yours at the same time you are looking for them?

BL: I couldn’t have said it better. If you look at the research, legacy networks – frame, ATM, SONET – are in negative growth or single-digit growth. If you look at Ethernet, MPLS and WDM networks, they are growing in excess of 30 percent. Today about 34 percent of total network spend is in this next-generation area. Five years from now (2015), it will be 56 percent. The excitement I get from talking to partners is they are looking for that company that takes advantage of that situation, that doesn’t have a legacy network tied around their neck to worry about cannibalizing. Everything for us is a greenfield opportunity for a next-generation network.

…As I talk to end user customers, they speak to two generic problems that on the surface sound like they are between a rock and a hard place. One is, “Tough economic times require us to spend less.”

The other is, “Bandwidth keeps growing. I need more.” The reality is that if you look at a legacy TDM-based network and what you are spending for that, we can solve the problem. We can present a solution that costs the customer less and gives them more capacity. It’s a “light bulb” moment for the CFO and CTO at the end user.

PHONE+: Do you have buildout plans?

BL: If you look at our balance sheet, you’ll see that I have somewhere in the neighborhood of $160 million in cash. Sixty cents of every dollar I spend is to support specific customer contracts. So, we are essentially expanding on the back of customer deals; there is no better way to spend money. I am extremely happy to do that. I don’t have to hire network planners to guess where to build things.

Having said that … the investors are asking how we can be more aggressive. So we are looking at two buckets of expansion — within our existing markets there is an opportunity to extend the network and get to a new section of town … there is selective expansion in the footprint. The more interesting piece in that is, if we are the 100mbps and above solutions provider, where are our customers telling us we need to go next?

The customers are saying the good places have four characteristics: One, there are a lot of enterprise customers; two, those enterprise customers are data centric – finance, health care, media, social networking companies; three, the market has a data center infrastructure – Switch and Data, Equinix, Savvis, TeleMark are all there; four, it’s an Internet-centric city with cable landing sites and carrier hotels and Internet infrastructure.

The conclusion is that we are pretty well positioned in North America. There are probably only two premier cities I am not in — Miami and Toronto. I am strong in London, but my customers want to get to Frankfurt … or Amsterdam.

PHONE+: Are any of these on your road map for 2010?

BL: They are all under consideration. Based on things we have going on now, one may come before the others.

PHONE+: It’s interesting that you are going to be more aggressive. What changed in your investors’ or your mind?

BL: Nothing. It’s consistent with the model. I am not interested in becoming a CDN provider. I am not interested in providing cloud services. I had a data center business I sold off. So, the evolution is that we evolved from a dark fiber provider to a metro services provider to a big bandwidth solutions provider. It leverages the powerful metro networks we have. It leverages the WAN services we provide.

PHONE+: I was referring to the difference in being success-based versus building first.

BL: It is in some respects [more aggressive], but it’s a measured approach. Twenty percent of every dollar already goes to infrastructure that doesn’t relate to a specific customer. [We’ll just be increasing that.] …$160 million is not burning a hole in my pocket. Having said that we are a growth company and I have to figure out ways to keep growing.

When people talk about field of dreams builds, I get chills up my spine. It was the stupidest thing I ever lived through in my life. We are going to ask our customers because they will tell us and then we are going to do some initial work on where we should be. Our expansion is going to be through evolution not revolution. I’m not going to plop down $60-$70 million to build in Frankfurt. I am going to go to Frankfurt in the carrier hotel and three big data centers and build a ring and then use my success-based capital to expand from there. People may disagree with my approach, but it’s not about plopping down huge amounts of capital and hoping it works.

When I ask partners what can we do better they say, “Get to more places.” I say, “I get that part.” It ignites my enthusiasm for this whole process. People want to use us. So, yes, we are going to get to more places.

…This is a public company and we are not going to make the mistakes we saw people make in terms of “field of dreams” building and too much debt. We are going to stay with our model, which grew our financial performance over the last four or five years. We are doing fine.