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Towerstream
is attracting many customers because its WiMAX technology products are less expensive and
faster than Legacy providers, and comes with a money back guarantee
Technology
Internet Service Providers
(OTCBB: TWER.OB)
TowerStream Corporation
55 Hammarlund Way Tech II
Middletown, RI 02842
Phone: 401-848-5848
Jeffrey M. Thompson
Founder, CEO and President
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - May
11, 2007
BIO:
Mr. Thompson is the co-founder and CEO of Towerstream. Thompson has created a new model
for delivering reliable bandwidth to the commercial market. By leveraging
second-generation multipoint fixed wireless technology, Towerstream has built an
expandable network that is 99.999% reliable. Thompson represents Towerstream in the WiMAX
Forum and is frequently quoted in media because of his expertise in WiMAX, Fixed Wireless,
and 802.16.
Prior to founding Towerstream, Thompson was founder and Vice President of Operations of
eFortress, a privately held ISP. Under Thompson's leadership, eFortress became one of New
England's largest ISPs. Thompson was responsible for eFortress' growth to 20 markets
across the country and he oversaw technical integration during nine ISP acquisitions.
He holds a BS in Electrical Engineering from UMASS.
Company Profile:
Towerstream is a leading fixed WiMAX service provider in the U.S., delivering
high-speed Internet access to businesses. Founded in 2000, the company has
established networks in such markets as New York City, Los Angeles, Chicago, San Francisco,
Seattle, Miami, the greater Boston, Providence and Newport, R.I. areas, and continues to
expand coverage throughout the country. The company was the first carrier selected to join
the WiMAX Forum to assist leading vendors in establishing industry compliance with
international broadband wireless access standards and cross-vendor interoperability.
CEOCFO: Mr. Thompson, what was your vision
when you founded Towerstream and where are you today?
Mr. Thompson: “Our vision was that we
wanted to be one of the leaders in a new space. We wanted to start a company that was in
the telecom business that had monthly recurring revenue and did not depend in any way on
some other phone company to be a successful business. We needed a technology and a
business model that would completely avoid the phone companies, but let us replicate what
they do and try to do it better. That was back in 2000 – today we are well on our way
to getting our wish of being one of the leaders in this space and having a business model
with very high margins that does not depend on the phone companies.”
CEOCFO:
2007 has started out as a very big year for Towerstream; would you tell us about becoming
a public company?
Mr. Thompson: “We have proven our
business model in very large markets, including Boston and New York. If we were able take
the model that we used in Boston and New York and replicate it across 10, 20 or 30 new
markets, we will have a very large company very quickly. But to expand into these markets,
we need the capital to do so. Therefore, that is why we went out and raised our first $15
million to become a public company in January 2007. It was very well received when we were
out there on the road show, so we are very excited to have access to the capital market
now, to actually be a public company and recruit good employees to help build the
company.”
CEOCFO:
How do you decide where to establish the networks, and where are you going next?
Mr. Thompson: “Right now, we are in the
top markets in the United States -- New York, Los Angeles, Chicago, San Francisco, Miami, Seattle,
Boston, Providence and Newport. We look at markets that have lots of businesses and that
are growing the number of businesses. Not only would there be a huge potential for us to
get work with current business customers in that market, but we also want to make sure
there are new customers coming into that market. Therefore, instead of taking them away
from AT&T Inc (T-NYSE) and Verizon Communications (VZ-NYSE), we can get them before
they go to the legacy providers.”
CEOCFO:
Do you tend to get a larger percentage of newer companies; are they willing to try
something outside of the norm?
Mr. Thompson: “Anyone that needs
reliable broadband needs our product. A lot of people have been talking about WiMAX for
the last 2 or 3 years. We were the first service provider to join the WiMAX Forum 4 years
ago. It has a lot of momentum behind it by very large companies; all the top networking
companies are part of the WiMAX Forum, whether it is CISCO Systems (CSCO-Nasdaq), NORTEL
Networks (NT-NYSE) or Alcatel-Lucent (ALU-NYSE); the list goes on and on. People are not
afraid of trying WiMAX at all. If it’s a small company, we have a money back
guarantee for the first 30 days, so there is no risk to try our products. In addition, we
are less expensive than Legacy providers like AT&T and Verizon. We can give customers
a product that is cheaper, bigger and faster, with a money back guarantee. Therefore,
it’s not difficult to get customers, whether it is a large fortune 500 company or a
small start-up. We have quite a range of customers that are using this technology
now.”
CEOCFO:
How do you reach potential customers?
Mr. Thompson: “There have been a lot of
great networks in the past that have been built that went bankrupt. They had fantastic,
high-tech, great technology, but they did not fill up their network of customers. We
don’t talk about the technology that often. We think of WiMAX as a great tool to
avoid the phone companies being in our business model, but more importantly allows us to
have a 74% plus gross margin that we had last year, which can trickle down into our EBITDA
margins. How do we get to our customers? We have a centralized call center where we have
sales people in each of the markets that we are in, all centralized in one location; one
team calling Boston, one team calling New York, etc. We raised money and went public to
fill up the rest of our markets with sales people. In the past they did not have sales
people; it was all inbound sales. The sales people make ‘x’ amount of calls per
day, typically 80 calls a day, they get through to ‘x’ amount of customers a day
and it produced ‘x’ amount of installs per month. We proved that model in Boston
and New York and we are going to prove that in the other markets as well.”
CEOCFO:
In your sales approach, what is it that you say to encourage people to respond?
Mr. Thompson: “We get through the door
because of our price. It is less expensive because we do not have to rent a wire from
AT&T and Verizon. Every other phone company in the markets that we are in, whether
it’s a CLEC or BLEC, they have to get their last mile from someone and that is
typically AT&T, Verizon or Quest Communications Inc (Q-NYSE.) Therefore, they
have to go through those companies and it costs money to rent that circuit. We just cut
that cost out. We get through the door with our price and that keeps people from hanging
up on us, because everybody wants to save money. Once we get them to listen about our
price, we tell them about all the features that are much better than a traditional legacy
landline. What do I mean by that? Flexible bandwidth, we can turn it up and turn it down
in a short amount of time. Our deliveries are measured in days where our peers measure
theirs in months. We have quality of service in the last mile, meaning we can guarantee
reliable internet access. We also have service level agreements that are some of the best
in the industry. Last but not least, we have a money back guarantee. If you are a
Towerstream customer, you get services that are more robust than what the legacy companies
can offer. You get a better cost structure; it is more flexible and can be turned up or
down and installed very quickly. And they have no risk because if they don’t like it
they have a 30-day money back guarantee.”
CEOCFO:
Is customer service an important feature for you and how do you differentiate yourself?
Mr. Thompson: “A lot of people try to
do what they call the customer service sell. However, just bragging about your customer
service that you are better than Verizon or AT&T is a tough sell to get a customer to
listen to you. The best way to sell on having good customer service is that first time
where they have an issue or they want more services from you and they have a smooth
transaction. If service is very reliable, they shouldn’t need to call into our call
center very often to ask for help. However, it is that one or two times that they have to
do that or they want more service or want to upgrade and they can get through to a human
quickly and get their problem resolved quickly. That is when our customers start telling
their friends about our service.”
CEOCFO:
Is your customer service U.S. based?
Mr. Thompson: “Yes our customer service
is in the United States and it is in the same operations center as our sales team.
Everyone in here is in sales and customer service.”
CEOCFO:
How do you deal with changing technologies and trends in the industry?
Mr. Thompson: “We look at WiMAX as a
tool to avoid the phone companies. It is one of the first wireless last mile technologies
that really has the quality, security, standardization and huge support from a large
amount of companies. We have been using this equipment for five years and we know it works
and that it’s reliable. Are there going to be newer technologies that are coming out?
We hope so and if they do, we will use them. We are not tied to technology; we are tied to
our customers and dedicated to giving them a good experience. If it is WiMAX now and super
XMax next year, we can update our services much easier than the legacy folks, because the
legacy folks have these old TDM and ATM networks, where we have a pure IP service
offering. No part of our structure is legacy, non-IP infrastructure, so for us to add a
newer technology is very simple and very smooth. As technologies get better, if it will
give our customers a better experience, we will use them.”
CEOCFO:
How long does it take you to get set up in a new city?
Mr. Thompson: “The tough part is real
estate and that takes a very long time to get the real estate for our market. That is why
we have been negotiating in a lot of markets for many years. Even if we are planning to go
into a market in 2 years, we are planning the real estate now. This is because real estate
is a huge game factor and there are a finite amount of buildings in each market that you
really want to get first. Therefore, we have been trying to get as many of those in our
real estate portfolio before anyone else. Having the best real estate in each one of the
markets gives us an operational advantage over any future competitors, so that is the
first step. The second step is building the network and that doesn’t take that long.
It takes about six to eight weeks to build out the network once all the leases are done.
The key part is filling up our call center with another 20-30 sales reps; they are
actually going to call into that market. That is what we have not been able to afford in
the past, but the $15 million that we raised is all geared towards sales and marketing. As
a result, we are now penetrating our existing markets better and when we open new markets,
we can fill them up with sales people right away.”
CEOCFO:
Do you market the name Towerstream; is that part of your plan?
Mr. Thompson: “Branding is very
expensive, but branding through your customers by giving them great experiences is not
very expensive. We try to do a little bit of typical branding, but we are frugal on that
side. By having a great product at a great price, word gets around very quickly. We do
spend a little time on branding and because we are one of the first successful operators
in this space, we have gotten a lot of press in the trade magazines. We have been very
helpful in getting people educated on this space and doing a lot of tours of our
facilities in New York. Intel Corp (INTC-Nasdaq) has a case study on their website about
Towerstream and we have done a lot of initiatives with the WiMAX Forum for them. That
included hosting visitors from other countries and hosting regulators of their spectrum
from many other countries. Therefore, the Towerstream brand is getting well-known by being
a first mover with a very successful business model.”
CEOCFO:
What is the competitive landscape?
Mr. Thompson: “When we make a hundred
phone calls a day, 80 or 90% of those phone calls are to AT&T and Verizon customers.
Therefore, we are already competing with the toughest competitors probably in the world.
We are used to having unique products that take advantage of the legacy physical problems
of a large 800-pound gorilla like Verizon or AT&T. If you look at the rest of the
competition, looking at companies like Towerstream, there were not many companies in this
space from 2001 to 2004, because it was very difficult to get into substantial financing
in the telecom meltdown. We have a huge lead over anyone else and then we have thrown our
real estate property that we have and that gives us another huge boost. We believe we have
a two-year lead no matter what happens. If a company does come into this market today, the
won’t have the base of experience that Towerstream has. There were a lot of models in
the past and these companies had a lot of money, but their business models were not
successful enough for them to survive. In addition, their operating processes were not
efficient enough to make a high-growth, high-margin, profitable growth company. The
Towerstream business model is probably unique because we did this through a bootstrap with
our own friends and family money. We were not just throwing money at problems; we always
spent the time to come up with the best networking solutions for our customers and those
processes probably wouldn’t have been so perfect on if we had tons of money in the
bank to start. We are taking that five years of experience that we had to make a
profitable business model and now we have proven business processes and methods of
delivering services.”
CEOCFO:
Why should potential investors be interested and what might they miss when they first look
at Towerstream?
Mr. Thompson: “We look at it as a very
inexpensive way to get into the WiMAX field, if you want to invest in wireless or WiMAX
technology. Some of our peers traded at much higher multiples than Towerstream. Therefore,
we are an inexpensive way to get into the WiMAX space. We are a super high growth to very
high margin business, which is very unique and we have a monthly recurring revenue model.
Any Funds that like a recurring revenue model in a high growth, high market business,
would want to invest in Towerstream. We are right at the beginning of this WiMAX run with
a model that we have proven in Boston and New York and multiply that times the other
markets where these markets are already adjusted EBITDA positive. You can see that we can
approach 60% EBITDA margin in a market and that is unheard of in the telecom space.”
CEOCFO:
What should people take away from this interview?
Mr. Thompson: “Towerstream has great
solutions for customers. It is very early in the WiMAX world, so join us for a fun
ride.”
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