Score!

Posted: 12/1998

Score!
For Network Plus, Telecom is No Spectator Sport

By Ken Branson

It was the risk and reward, Rob Hale Jr. says, that got him started. He was 23 and a
year out of Connecticut College, working in sales for the former MCI Communications Co. It
was a good job and he was doing well. But it wasn’t enough.

"I came from an entrepreneurial family, where there was risk and reward,"
Hale recalls. "There was no risk in staying at MCI. I wanted risk and reward."

A decade later, the company Hale founded with his father, Robert Hale Sr., is Network
Plus Inc., a long distance reseller, local business telecommunications company and soon to
be, if all goes according to plan, a "one-stop shop" for Internet access, local
and long distance services.

Capital Expansion

The privately held company has evolved from an aggregator of AT&T Corp. long
distance service with "five guys making calls from eight in the morning until seven
at night" into a mid-sized full-service telecommunications service provider with 325
people in 11 offices, mostly in New England, Georgia and Florida. The company makes $120
million a year in revenues, Hale Jr. reports.

After running well for years on the senior Hale’s seed money–which lasted all of nine
months, his son says–and its own revenues, the company recently went looking for capital.
It secured $40 million from Putnam Investments of Boston in return for a 3 percent share
in the company, and a $30 million line of credit from Goldman Sachs.

The new funds have made possible a $30 million commitment to buy five 5ESS switches
from Lucent Technologies Inc., Murray Hill, N.J., which will be used to build a
facilities-based local service network. The company has begun offering local service in
metropolitan Boston and expects to offer local service all along the Boston-New York
corridor and in the South, south of Atlanta, by the end of the first quarter of 1999.

Throughout the company’s decade-long history, however, the Hales (Senior, former
two-term chairman of the Telecommunications Resellers Association (TRA), is chairman and
CEO; Junior is president and chief operating officer) claim they have not forgotten the
essence of what they do. "This is a company that’s extremely good at getting and
keeping customers," Hale Jr. says.

Network Plus began as a pure reseller, but has recently embraced a modified
"smart-build" strategy in which it hopes to own its switches and eventually
lease about half its transmission facilities. The younger Hale has already erased in his
mind the traditional line between local and long distance service. "To compete, we
need both local and long distance."

And yet, Hale Jr. doesn’t intend that Network Plus should be all things to all
people–just all things to small business customers in the Northeast and Southeast.
Network Plus claims 40,000 commercial customers nationwide, of whom 25,000 are in Florida,
Georgia, New York and southern New England.

Consequently, Network Plus has spent a great deal of time and trouble recruiting sales
and customer service people from all kinds of backgrounds–not necessarily
telecommunications. "We hire attitude and teach aptitude," the younger Hale
says.

This sort of mantra is chanted in business all the time, particularly among small,
entrepreneurial companies facing a highly competitive market. But industry observer Terry
Barnich, president of the consulting firm New Paradigm Resources Group, Chicago, thinks
the Hales are serious.

"They’re very aggressive, very competitive, very committed to doing whatever it
takes to get that customer and keep him," Barnich says. "They’re a very muscular
team."

There are signs of the attitude and aptitude at Network Plus headquarters on Copeland
Street in Quincy, Mass., where the largest single collection of customer service
representatives work. The phones ring continuously, but none for long. Hale Jr. claims 98
percent of all phone calls are answered within 15 seconds. Employees are rewarded, not
just for selling, but for taking care of their customers after the sale.

OSS from Scratch

But all the attitude and muscle in the world won’t make the transition from long
distance reseller to small-business competitive local exchange carrier (CLEC) happen if
the facilities and software aren’t there to do the job. The software is particularly
nettlesome, since being a local phone company, even on a limited scale, is vastly more
complicated than reselling the long distance service whose originator has already built,
and is responsible for, the network. Jack Crowley, director of software development, has
wrestled with this problem for two years.

"About two years ago, Network Plus was growing really fast, and we started to look
at buying OSSs (operations support systems)," Crowley says. "We looked at all
the usual suspects–Saville, Kenan [Systems Corp.], all those guys. We had umpteen
meetings with potential vendors and thought through all the customizations we’d need. It
took us about 18 months. In the end, it always boiled down to having to re-engineer our
processes, our systems. Well, we didn’t want to re-engineer our processes. So we elected
not to."

What Crowley and his colleagues elected to do was build their own OSSs. "Vendors
told me, ‘You don’t want to do this,’" Crowley remembers. "I said, ‘Yes, we
do.’"

Crowley explains that Network Plus’ processes hadn’t grown up by chance. They had been
deliberately conceived to get and keep customers. To tamper with them too much, certainly
to "re-engineer" them, was to risk losing touch with the customers Network Plus
had worked so hard to get.

So Crowley and his colleagues decided to build their own OSSs. While it’s common for
CLEC startups to build their own systems as they get started, they usually look forward to
buying "real" OSSs from established vendors once their businesses reach a
certain size. To contemplate a future running on one’s own home-grown OSSs, however, was
risky.

Crowley hired developers and started to work. He insists that all the company’s OSSs
are built on open standards and can interoperate with the rest of the world. He says only
the billing system is outsourced, and Network Plus anticipates taking most of that
function back as soon as the new billing system is ready.

While this move might have seemed counter-intuitive at the time (as it certainly seemed
to Network Plus’ potential vendors), Barnich says it’s turning into a bit of a trend.

"It makes sense," Barnich says. "If what the gurus tell us about this
brave new world of computers is true, and software is malleable and should be bent to
serve the interest of the customer, then their response is right. God bless ’em."

Smart-Build Strategy

Barnich also believes that the "modified smart-build" strategy of Network
Plus makes sense. Network Plus has purchased indefeasible rights of use (IRUs) for fiber
capacity from Qwest Communications International Inc. and Northeast Optical Network Inc.
on routes between Boston and New York. "We have the minutes–60 million per year–and
we’re standing in line for DS-3s," Hale Jr. says. "We need the fiber."

"I think what they’re trying to do is look at the cost of market entry, and
they’ve sort of stood it on its head," Barnich says. "It’s not too surprising.
There are those who say that, given the amount of fiber capacity in the ground and the
economics of the switch, it doesn’t make sense to follow the old facilities model."

The venture beyond New England to selected pieces of the great world beyond, and the
venture out of the long distance reseller niche also may have risks, but they are risks a
company like Network Plus has to take, as Barnich sees it.

"It’s a historical accident that sticking to your knitting means sticking to a
geographic area or to local or long distance," he says. "The geography is a
regulatory artifice. People have communications needs, period. They need voice, data and
Internet and they often want it from one source."

The Hales, strolling around their headquarters in Quincy, remain rooted in New
England–the beaten-up wood and metal chairs in the building’s lobby are from the original
Boston Garden and the accents on the phone are purely Bostonian–and in
telecommunications.

"I love what I’m doing," says Hale Jr., who, today, is in his mid-30s.
"I expect to retire from this."

Ken Branson is East Coast Bureau Chief for PHONE+ Magazine.