Wholesale Channel - CIMCO Beats Odds on Resale Model

Posted: 08/2001

Wholesale Channel

CIMCO Beats Odds on Resale Model
By Josh Long

Having nurtured a personal relationship with its customers in the Midwest for 16 years, CIMCO Communications Inc. (www.cimco.net) is exploring new ways to make life simpler for businesses.

Despite relying on underlying carriers to resell voice and data services since 1989, Oakbrook Terrace, Ill.-based CIMCO is exploring whether to launch new services in the ASP mode or to offer systems integration as a means to take better care of its customers. The integrated communications provider is activating routers in collocation facilities to provide its own Internet access, a move that could trigger web hosting among other data-centric opportunities.

Describing how the new service model might work, CIMCO CEO and co-founder Bill Capraro Jr. says the company might integrate a WAN and LAN and design customer applications, such as sales automation and human resources tools, for businesses. “We are looking for more and more ways to simplify customers’ lives for having a single point of contact to do more things for them,” says Capraro, a husband and father who runs and plays golf in his free time.

Capraro says the hundreds of testimonials hanging on his office building walls characterize the satisfaction of his medium-sized to large business customers numbering in the thousands (the private company does not disclose financial information).

He admits it was not easy making a name for CIMCO. The company has moved through several evolutions–from operator services distributor to long-distance reseller to integrated communications provider–since its founding in 1985.

AT&T Divestiture Sparks Interest

In 1981 Capraro graduated with a degree in business management from St. Mary’s University in Winona, Minn. Following in the footsteps of his father, who had brokered and managed commercial and industrial real estate transactions in Chicago, Capraro Jr. sold residential real estate in Naples, Fla., for three years until 1984.

But he told his dad the real estate business was not his goal. He recalls being “intrigued” by the divestiture of AT&T and wanting to start a business to compete with the monopoly, but his dad told him to learn the business somewhere first. That is what he did, garnering 18 months of experience at a payphone provider in Illinois. But Capraro discovered something else: “I didn’t want to be in the payphone business.”

Still, he was interested in the telecommunications industry, and in collaboration with his dad, Capraro co-founded CIMCO Communications in 1985. In its early years, the company was a distributor of operator services in hotels and hospitals. CIMCO installed auto-dialer equipment to route calls to Dallas-based long-distance carrier ITI, an alternative to AT&T. Hotels and hospitals reaped a commission rate off calls routed to now defunct ITI, Capraro says.

But the product offering was limited to facilities where people outside of their home or business needed to make a call. Then, in 1989, CIMCO signed a $2-million agreement with AT&T to resell its long-distance network to predominantly Midwestern businesses.

“That was by far the riskiest thing I ever did … because I wasn’t in the long-distance business, and so I had to make a commitment without the first penny of revenue,” Capraro says.

CIMCO, which provided the billing and customer service, may not have had the name recognition of AT&T, but it did hold at least one advantage: Small to medium-sized businesses were looking for an alternative to the incumbent. The company worked hard in 1989 and 1990 to establish a long-distance clientele. In 1989, CIMCO sold long distance for 25 cents per minute.

“What customers liked about AT&T at the time was the call went through,” Capraro said. “What they didn’t like was that they were a small fly on the wall, or they were just a tiny speck of business for AT&T, so

medium-sized and large businesses couldn’t get the … level of service they needed to help them run their business.”

CIMCO Eyes Momentum in Data

In 1992, CIMCO based its long-distance resale model solely on AT&T’s network. Today, the majority of communication services are routed through other carriers, such as Qwest Communications International Inc. (www.qwest.com), Focal Communications Corp. (www.focal.com) and Global Crossing Ltd. (www.globalcrossing.com).

“They didn’t progress with the times and keep up the technology and service offering to us,” Capraro said.

Until 1994, CIMCO resold long distance with a core of about a dozen employees. The company holds partnerships with 45 agents today–representing about 25 percent of its business–but only used a direct sales force back then. As the Clinton years wore on, Capraro noticed that more service providers were getting involved in providing data services such as frame relay, a viable alternative to point-to-point connections.

In the mid 1990s, CIMCO hired a team, including sales people, engineers and technicians, to facilitate the resale of data services. Phil Korte, a senior executive with 18 years of experience in WANs, also came on board. Korte is now vice president of sales. CIMCO employees even began installing routers and firewalls to provide a more comprehensive solution to clients.

In 1997, CIMCO began offering Internet services and late the next year became a full-fledged provider of local voice service. Today, the ICP offers a full range of services, including local, long-distance, Internet access, data services and customized billing applications. The company does not sell to “mom and pop shops.”

CIMCO Avoids Debt Storm

Capraro says CIMCO has benefited by not investing millions of dollars in network equipment. The chief executive is reluctant to invest in voice infrastructure, noting significant changes in how voice calls are placed. He believes that distancing CIMCO from the equity market has allowed the company to grow at a gradual pace and maintain control over its customers. Capraro says his 100-strong employee base is highly experienced in the telecom industry; customer service representatives have up to 30 years of experience.

“A majority of our services are still non-facilities based, and we still [think] that is one of the main reasons we have been able to prosper today,” he says. “There is a lot of network out there and companies that make an investment to build a network will always need companies like CIMCO that can bring high-quality users on a regular basis to fill up their networks. We focus on the customer, and we don’t have to worry about the network piece of it.”

CIMCO is moving toward the ownership of one important network asset. The ICP is activating routers in Focal’s collocation facilities to provide its own Internet access, rather than continuing to resell the service. Meanwhile, the company is pursuing other ways to generate revenue from the data market. One possibility: development of customized applications.

“The options are endless, and we have had discussions where we could turn many of the applications we have developed for our business into applications our customer would want to buy,” Capraro says.

Capraro says the telecom industry will continue to evolve, but if a company concentrates on making life simpler for the customer, it will have a long history.

“From our customer’s perspective, we are never going to be the cheapest company,” Capraro says. “You could offer Internet services out of your garage and have no overhead. We take a much different approach. This is mission-critical communication for companies, and when something is wrong there are people here in the office with the expertise to fix it immediately.”