Tales of Ulysses

Posted: 12/1997

Tales of Ulysses

CGX Expands its Embrace from Operator Services
to the Internet with a Reach that Spans Ten Years, Several
Continents and Some New Technology

By Peter Meade

When Ulysses G. Auger II joined the family business in June
1972, he was thinking more about room service than phone service.
Auger Enterprises, a privately held company founded in 1946, then
focused on hotels, restaurants and real estate. Auger began in
the restaurant group and spearheaded its operation from 1974 to
1988, operating 52 restaurants with 2,500 employees. Later he
took on responsibility for hotel development and real estate
management.

At the urging of his father, in 1987, Auger began discussions
with some telephone executives about the possibility of expanding
Auger Enterprises’ interests into long distance service. The
company had complementary real estate holdings, and with the
telephone industry deregulating, Auger had began reviewing market
conditions and emerging opportunities. Over the next six months,
he put together a business plan.

Auger formed a company with two partners, but when the revenue
did not meet their expectations, the trio went their separate
ways. Undaunted, Auger hired a "telephony tutor." He
then founded Cleartel Communications and entered telecom through
operator services.

Today, Cleartel is part of CGX Communications, a
Washington-based holding company that embraces CAIS Internet, an
Internet service provider (ISP), and OverVoice, a provider of
high-speed, data-over-voice Internet access to apartment
complexes, hotels and other multidwelling units. In sum, CGX
offers voice, video, data and Internet services with high-speed
switching and transmission technologies that include frame relay,
switched multimegabit data service (SMDS), asynchronous transfer
mode (ATM), integrated services digital network (ISDN) and
asymmetrical digital subscriber line (ADSL).

Cleartel is enjoying a 10th anniversary this year, a
celebration that carries special meaning for its founder.
"It means we have been in business longer than 90 percent of
our competitors," Auger says. But, Cleartel is not about to
rest on its laurels. The facilities-based carrier offers a 100
percent fiber optic network and operator centers that can provide
long distance terminations anywhere in the world.

Its multilingual call center includes around-the-clock
assistance and such services as 800, telemarketing, information
and customer service. Continued growth also is coming from
aggressive win-back programs and improved customer service along
with making customer reports available over the Internet.
Cleartel’s offerings extend to 14 states–with plans to add up to
five more states this year–and involve both automated and live
operator services and domestic and international long distance
terminations that serve the private payphone sector as well as
payphones owned by local telephone companies.

Going Abroad

The key catalyst for the growth in operator services came some
two years ago as a result of Cleartel’s decision to outsource its
call center operations. In addition to moving its customer care
services outside the company–in fact, outside the
country–Cleartel formed a multimillion-dollar joint venture with
Codetel, the GTE-owned Post Telephone & Telegraph (PTT)
administration in Santo Domingo, Dominican Republic.

Ronald A. Burleson, who joined Cleartel as vice president and
CEO in 1994, was instrumental in securing the deal, Auger says.

Burleson had spent 13 years, including four as vice president
of marketing, with GTE’s $500 million Latin American and
Caribbean telecom conglomerate, so he is well-acquainted with its
strengths and capabilities–as well as some ultimate strategic
advantages. "Creativity is the name of the game when cutting
costs," he says. "The focus was on taking a
labor-intensive service and moving it where the labor costs are
lower."

Burleson acknowledges that forging the offshore deal was
perceived by many as a high-risk proposition. "I worked
there, so I knew the company and the circumstances very
well," he explains. "It’s a high loyalty company. The
work ethic is extraordinary." Categorizing the relationship
as "a phenomenal success," Burleson says Cleartel
recently renewed its pact with Codetel for three additional
years.

Other Operations

Cleartel’s payphone operations are located in nine states,
mostly in the mid-Atlantic area. Many of the phones are located
in the lobbies of Auger Enterprises’ hotels, where they do as
much business as the phones in the rooms, Auger says.

To expand the company’s payphone penetration, Auger says he
has concentrated on creating a sales force of people who live in
the areas they cover. "These people know their customers,
their associations, their businesses," he says. Cleartel now
provides service for between 35,000 and 40,000 phones in 15
eastern states from Boston to Miami. To maintain a high level of
reliability and control, Auger says Cleartel went to a dual
matrix switch, a DSC DEX 600 toll-tandem switching system, so the
company can process more than 100 million minutes of call volume
per year. Cleartel’s 1996 revenue was $25 million, according to
the company.

Meanwhile, its one-plus service continues to grow both
geographically and in the number of new product offerings and
agent programs. Last year, the company launched CleartelPlus, an
agent-based resale program, and doubled its one-plus long
distance minutes.

Revenue from calling card services, meanwhile, rose 126
percent–thanks, in part, to an increased emphasis on high
volume, wholesale commercial accounts, Auger says. Calling card
services include prepaid cards, telephone credit cards,
promotional and collector cards and private label cards.
Cleartel’s next major step hinges on securing strong marketers of
calling cards.

Golden Arches

In late 1995, Auger began looking into what the burgeoning
Internet could bring to Cleartel’s portfolio of services.
"Computers have always been my hobby," he says. Auger
started out to buy an Internet connection, but says, "I kept
hearing that no one offered resale." Then Auger found
Capital Area Internet Services (CAIS), a four-year-old,
first-tier ISP. After starting a relationship as a reseller,
Auger ended up liking what he saw so much that he bought the ISP
in August 1996. With the acquisition of McLean, Va.-based CAIS,
Auger formed CGX Communications as the parent of both Cleartel
and CAIS, which is responsible for providing downstream Internet
service to some 500,000 users.

This move represents a new strategic direction for CGX as it
vies to become a major player in Internet-based telecom services.
Focusing on business customers, the ISP is directly connected to
more than 50 domestic ISPs as well as 16 international ISPs in
the Caribbean, France, Germany, Hong Kong, Sweden and the United
Kingdom. "We look at the ‘Net as big," Auger says.
"We look at it as becoming a McDonald’s kind of thing."

In addition to providing co-location for businesses and ISPs,
CAIS offers a variety of high-speed dial-up and dedicated access.
Moreover, CAIS was chosen by Bell Atlantic Corp. to test market
the telco’s ADSL service.

Also, CGX is exploring ways to take advantage of its Internet
expertise in its other business units. For example, soon all
Cleartel agents will be able to get statistics via the Internet.

OverVoice

Internet access is just the beginning. CGX’s newest business
unit is OverVoice, a new high-speed Internet service that uses
existing telephone wiring to provide users with simultaneous
phone service and around-the-clock, split-second (1.54 Mbps to 10
Mbps) Internet access–up to 300 times faster than typical
dial-up service, according to the company.

OverVoice, launched in June, is aimed at clustered customer
opportunities, such as those found in apartments, condominiums
and hotels. Subscribers pay between $40 and $50 a month for
service–roughly the same price for a standard dial-up Internet
account and an extra phone line. "OverVoice represents a
unique opportunity for owners of multidwelling unit buildings and
others to participate in the revenue generated from enhanced
communication services they might not have otherwise
gotten," says Evans Anderson, CAIS’ vice president and
general manager.

Auger says OverVoice is different than the much-ballyhooed
voice-over-the-Internet technology being hyped. OverVoice uses
existing telephone wiring to provide users with simultaneous
voice and data communications over a single line. An Ethernet hub
is located at the building. The high-speed line is connected to
the Ethernet hub, which connects to a proprietary device called
the OverVoice aggregator. This device allows for on-premise
aggregation of Internet traffic as opposed to being done at the
telephone company’s central office. Next, a special wall jack,
which has separate openings to plug in a telephone and a
computer, replaces the existing telephone jack. Existing
telephone wires connect to the aggregator and wall jacks.

Pilot programs at apartments in Arlington Courthouse Plaza
Apartments in Virginia and meeting rooms in the Washington
Marriott have led to more than 2,500 installations, says Auger,
who is now looking for partnering companies, so he can grow
OverVoice through co-branding agreements.

"Much is riding on OverVoice," he says. "It
will dictate the fortunes of the company for many years to come.
We look to do one big thing each year. This is the year for
OverVoice."