BTI - The New Breed

Posted: 01/1998

BTI – The New Breed

By Debera Bell-Beam

Not everyone is buying into the fear, hostility and paranoia that fairly characterizes
the current telecom environment.

There are some who believe cooperation may fuel growth and promote healthy margins.

Really.

On its way to becoming one of the nation’s top 15 long distance providers with annual
revenues approaching $200 million, Business Telecom Inc. (BTI) has forged a new class of
competitor in the long distance market that is nurtured by–of all things–a consortium of
long distance carriers.

No one, however, should make the mistake of thinking this Raleigh, N.C.-based
full-service provider is anything less than a strident competitor simply because it
belongs to a consortium of member companies whose objectives include the word
"share." And they don’t mean share as in market.

Camera-shy founder and CEO Peter T. Loftin has proclaimed on more than one occasion
that BTI was born to compete. "It’s what we live for."

BTI, then, is living large by anyone’s standards. The company got its start buying time
from AT&T and MCI 14 years ago on the heels of divestiture. BTI has since emerged to
become a major wholesaler, boasting a recent financing package–$310 million–to fuel
expansion of its nationwide digital fiber optic network. BTI has more than 450,000 route
miles with fully deployed SS7 signaling throughout the network.

New network switching centers to include New York and Chicago soon will take their
place among existing centers in Raleigh, Atlanta, Dallas and Orlando, Fla.

Also, BTI has been approved for local service in North Carolina and Georgia and has
filed more applications in other Southeastern states. The company has become an Internet
service provider (ISP), offering dedicated and dial-up service nationwide. And, BTI
recently opened new sales offices in Houston and New York, with continuing expansion plans
for its authorized dealer program.

There’s more. BTI has begun to compete for residential long distance customers in
selected markets. And, the company has its eye on the cable and wireless industries down
the road.

Carrier services include origination and termination, private line, SS7 connectivity
and LATA transport, paging, international, operator, prepaid calling, enhanced calling,
conference calling and a reseller program.

It’s no wonder Wall Street insiders frequently point to BTI as the quintessential
integrated telecom provider that today’s competitive long distance market demands. The key
has been internal growth, but BTI also is helping others to grow.

The Associated Communications Companies of America

BTI is making arrangements with other like-sized or smaller carriers to cooperatively
promote a healthy market class through a self-governing, nonprofit telecom consortium
called the Associated Communication Companies of America (ACCA). ACCA was formed to
provide a forum for member companies to meet and share information and resources.

A "you do this one, I’ll do that one" modus operandi will encourage mid-tier
growth in the industry, BTI President Michael Newkirk says. "You can try to stick a
flag in every market, but if you do, you may leverage yourself out of business. Instead,
we work toward promoting each other’s success."

For years, the long-haul business was segmented into two groups: the elite (massive
facilities-based carriers) and the many (small players, primarily switchless resellers
that rely on others’ networks for service). Deregulation, however, paved the way for this
new breed of carrier. Wedged between the elite and the many is this growing middle tier of
providers that, rather than fight each other, have banded together to take on the big
guys.

"We know who our competition is in the interexchange carrier (IXC) market,"
Newkirk says. "It’s AT&T, MCI, Sprint, WorldCom, not the other carriers (BTI’s
size or smaller)."

ACCA’s strategy includes exploiting instead of depleting smaller carriers’ limited
resources. To that end, member companies have forged reciprocal traffic trade agreements.
"We’ve learned how to take advantage of each other’s strengths while helping out each
other," Newkirk adds.

Full Circle

The foundation for this new middle tier began last year when BTI began offering
capacity on its nationwide network to switchless resellers. The move represented a
completed circle for the company whose own humble beginnings in 1983 were those of a
reseller.

Sentimentality aside, wholesaling has become the fastest growing segment of BTI’s
business, currently pulling down $6 million a month, Newkirk says.

"These are the rewards of having our own network," says Anthony M. Copeland,
vice president and general counsel for BTI. "It’s part of the maturation of the
company, a natural evolution."

Expansion brought with it capital expenditures that exceeded $10 million last year,
according to the company. But, privately held BTI secured a $310 million finance package,
including $60 million from GE Capital, to fund its network infrastructure plans and set
off for its newest venture: the local telephone market.

National Aspirations

BTI’s ultimate goal is to become a national player, and the company is well on its way
with strategically placed switches in Atlanta, Dallas, New York and Orlando, Fla. The
company’s long-haul fiber network along the East Coast will total 3,000 miles by the
second quarter of next year, covering New York to Miami. BTI expects to acquire–either
through construction, purchase or long-term lease–long-haul fiber network capacity
between Washington, D.C., and Atlanta, Newkirk says.

BTI also has purchased a 65-mile SONET ring linking the North Carolina cities of
Raleigh, Cary, Durham and Research Triangle Park through the network assets of its
competitive local exchange carrier (CLEC) sister, FiberSouth Inc., which BTI bought to
expedite its entry into local service.

Going Local

BTI has made great strides through the ranks of long distance, but Newkirk says
becoming a local service provider will take the company to even greater heights.

BTI has targeted the Southeast as its point of entry. In 1993, the company created
FiberSouth, its own competitive access provider. FiberSouth was awarded the first
competitive cable TV franchise in Raleigh and was among the first new entrants to win
state utilities commission approval to offer local service.

FiberSouth beagn alternative local access in the North Carolina cities of Raleigh and
Research Triangle Park in 1995. BTI, which recently bought FiberSouth, currently delivers
local service in Florida, Georgia, North Carolina, South Carolina and Virginia.
Applications in additional states have been filed. "We are applying our experience in
the long distance market to the local market," Newkirk says. "We are using our
experience from Virginia and the Carolinas to go nationwide."

Successful deployment of local services is, for now, BTI’s top priority. In November,
BTI deployed a 5ESS switch in Raleigh to provide facilities-based local dial tone. The
carrier maintains hosts in Atlanta, Greensboro, N.C., and Orlando, Fla. Remotes are
located in two Virginia cities, Norfolk and Richmond, with Greenville, N.C., Columbia,
S.C. and Tampa, Fla., soon to be added, Copeland says.

Local may be No. 1 on a long list, but BTI, looking to fill out its service portfolio,
became an ISP last summer. The company now provides local dial-up in 180 markets through
an agreement with UUNet Technologies Inc. BTI controls its own point-of-presence servers
and provides Internet access to its customers nationwide.

Back to the Future

The atmosphere for BTI’s employees, which now number 600, has been invigorating to say
the least, says Copeland, a former prosecutor who met Loftin through local contacts in the
early 1980s. The pace–and plan–since then often can be "overwhelming for many from
the traditional Bell environment" with 22 offices throughout the Southeast and
national aspirations. Copeland admits it suits him just fine.

Joining BTI in 1992 represented "a ground-floor opportunity in an entrepreneurial
environment," Copeland says. "But I don’t think anyone could have imagined what
would happen when we opened Pandora’s box (long distance deregulation). If you need
certainty or stability, look elsewhere."

One thing is certain: The pace is not likely to slow. Agility and a driving competitive
edge have earned BTI current revenues of nearly $200 million. There’s something to be said
for integrity and commitment as well.

Today, BTI continues to encourage industry growth along with its own, but the homegrown
company remains committed to the city from which it sprang. Last March, BTI donated $3.1
million to the former Raleigh Memorial Auditorium, which will be expanded and renamed the
BTI Center for the Performing Arts. The contribution includes $600,000 in telephone
service. "BTI has experienced tremendous growth and prosperity as a result of support
from local businesses and our community," Loftin says. "It’s only right that we
give something back to them. More than just good business, it’s our responsibility."