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by Lee Leffler
Summer, '96
The chances of finding one large long-distance phone company in a small midwestern town are not very high. The chances of finding two large long-distance phone companies in such a town are about as likely as finding a working pay phone in Nehawka, Nebraska. Yet Fairfield, Iowa, home of the long-distance phone companies Telegroup, Inc., and USA Global Link, is proof that high-tech industries are flourishing among the cow pastures and cornfields.
Telegroup and USA Global Link are ideal examples of the growing trend toward geographically independent businesses. They buy what is known as "dark fiber" in the telecommunications industry--long-distance time that the large networks such as AT&T don't need. They resell this long-distance time to their customers. This "dark fiber" is purchased in such large quantities that Telegroup and USA Global Link easily undercut the major long-distance carriers.
Companies like USA Global Link and Telegroup do not need Madison Avenue addresses to be world-class players. Since they contract with the major telephone networks, they can mix and match to get the best combinations of rates and technical services. This leaves them with plenty of room for innovation and flexibility. And innovate, they have.
The "telecom reseller" industry is experiencing explosive growth, and Fairfield's participants in this volatile new industry are popping like hot popcorn. Inc. Magazine named Telegroup the nation's second fastest-growing privately held company in 1995. USA Global Link likewise reports phenomenal growth of up to 30 percent per month. Taken together, the two companies' 1995 revenues topped $300 million.
With revenue comes the need for people to collect it, count it, and provide service in exchange for it. Hence, the tremendous demand for good personnel. Between the two companies, over 7,500 sales representatives sign up new customers. Here in Fairfield, they employ more than 550 people. The full-page employment ads in some of Fairfield's publications indicate their personnel needs. They are recruiting outside of Fairfield as well. USA Global Link plans to double or triple the number of people on their payroll in the next year.
Many of the positions are service oriented, high tech, computer and telephone intensive. The growth of these types of positions has been predicted for some time as Americans move toward an information- and service-based economy. The good news for a small town like Fairfield is that the local economy is flourishing as a result.
Although Telegroup and USA Global Link are playing on the same field, the field is pretty big and getting bigger. Both companies experienced much of their success by attracting international customers.
How can American long-distance resellers attract customers outside their borders? By reselling a U.S. dial tone. Computers and high-tech telephone switches make it possible. Here is how it works: someone in another country wants to place a long-distance call, but doesn't want to pay the high rates of their nation's long-distance phone company. So they call a special number in the U.S., let it ring once, and hang up. Seconds later, a computer calls them back and they hear a dial tone that originates in the United States. They place their outgoing call and pay a monthly bill from the American long-distance company. And they save money--up to 70 percent. This technique for reselling long-distance service is known as "callback."
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| Over time, these long-distance resellers have become even more clever with their international customers. They offer automated callback, so that the American dial tone is available without dialing any numbers. They have made it convenient for a fast-moving international traveler to place calls through them. On the domestic front, both companies resell long-distance service with a wide variety of convenient features, including 800-number access and innovative prepaid calling cards. |
How do two of the largest resellers of international phone service co-exist in a town of 10,000? Quite nicely. Only a fraction of the market for international long-distance reseller services has been tapped. The potential market is so large that having similar companies geographically side-by-side does not matter. The real competition is on a global scale.
Around the world, most national long-distance telephone companies are bloated, government-run monopolies. Many justify their high rates by claiming the profits will be used to build up the telephone network and subsidize local calls. USA Global Link's Tom Morgan says, however, "No PTT [a type of national phone company] has ever published records of what it is doing with the money." Morgan points out that the money their international customers save stays in the local economy, fueling economic growth from within.
Both USA Global Link and Telegroup see telecom competition as important for developing the worlds' economies. "When you get a really lively competitive environment, the technology gets better, the prices get better, the service gets better, and then everyone benefits," says Telegroup's chairman, Fred Gratzon. "The history of telecommunications teaches us that open competition results in lower calling charges, more calls, bigger earnings for local phone companies, and greater prosperity for [a] nation," says Thomas H. Makeig, USA Global Link's Executive Vice President.
Obviously, many countries' national long-distance carriers were taken by surprise when callback services started undercutting their rates in the late 1980s and early 1990s. Being monopolies, they were not designed to compete. Several governments have banned, tried to ban, or threatened to ban companies like Telegroup and USA Global Link from offering callback services in their countries. Of course, the customers complain loudly whenever their government tries to take cheap long-distance service away.
Callback services have never been determined illegal in the United States, nor have they been found to be in violation of international laws or obligations. Some countries have settled for banning callback service companies from advertising. Others threatened to cut off callbacks, yet did not always have the technology to carry this out. Even if they cut off calls from one area code in the United States, the callback company could move its callback computer to a different state.
A telephone company in Indonesia had the sense to realize they could not beat USA Global Link, so they joined them. Even though callback services are technically not allowed in Indonesia, earlier this year PT Indonesian Satellite struck a deal to buy 20 percent of USA Global Link for $20 million. This influx of cash is fueling tremendous growth for USA Global Link, giving the company a better foothold in Asia, and letting PT Indosat have a piece of the action. Says USA Global Link Executive Director Greg James, "Rather than a giant telecom company being irritated by the presence of an alternate carrier, these companies now . . . are seizing the opportunity to participate in a market that they couldn't take part in before."
Domestically, disagreements over callback have favored callback companies. AT&T Co., for example, complained to the Federal Communications Commission (FCC) that callback services were using their phone service without compensating them. They claimed that the initial call made by the callback customer, in which the customer hangs up after one ring in order to trigger a callback, was unfair. In 1994, however, the FCC ruled that callbacks were perfectly legal, particularly considering that many of AT&T's answering machines have a "toll saver" feature. This toll saver feature allows people to call their answering machines and determine if they have new messages based on the number of rings. If the phone rings more than twice before the answering machine picks up, then the owner knows to hang up and avoid long-distance charges.
In 1982, the FCC broke up AT&T's monopoly on the American phone system and tilled the field for companies like Telegroup and USA Global Link. This made it possible for entrepreneurs like Fred Gratzon, founder and past president of the Great Midwestern Ice Cream Company, to purchase long-distance time from companies like AT&T and resell it to his friends and business contacts from his home in Fairfield. Voila, Telegroup sprouted in 1989.
To avoid becoming one of the many casualties in this new, volatile industry, Fred Gratzon, Telegroup chair, and co-founder Cliff Rees, president of Telegroup, needed to stay ahead of the competition by diversifying their customer base. In 1990, using the newly invented callback device, they began attracting international customers. "Global Access Callback quickly became the preferred alternative for international customers struggling to get out from under the exorbitant vice of established telephone monopolies," says a Telegroup video.
The globe was familiar territory for Telegroup's founders. They had traveled extensively in the 1970s while teaching the Transcendental Meditation program, and knew people all over the world. Cliff Rees had founded an international oil brokerage company with offices on three continents. These contacts helped them break into international markets, as well as better understand business customs throughout the world.
Gratzon's savvy of cultural differences has landed him business worldwide. During a May 1996 lecture sponsored by the Fairfield Entrepreneur's Association and Telegroup, Gratzon described Telegroup's success in Japan as an example of his company's willingness to understand that country's culture. A Maharishi International University (now Maharishi University of Management) alumnus who lived in Japan told Gratzon that Telegroup only had one chance to succeed in his country--adapt to the customs. Telegroup followed the alumni's guidance. Now they are experiencing much success in Japan. The other American telecom resellers in Japan tend to attract mostly Americans located in Japan. Gratzon indicated that Telegroup's ability to adapt to the customs in other countries is a great advantage in building an international business.
USA Global Link's leadership also is also at home in the international arena. When they founded USA Global Link in 1992, Christopher W. Hartnett and C. Holland Taylor had both traveled and done business throughout the world.
USA Global Link's chair Christopher W. Hartnett was an international gem trader and member of the Chicago Mercantile Exchange for many years. When he started USA Global Link, his trading contacts, his former classmates from Maharishi International University, and friends helped him sell phone service throughout the world. USA Global Link's co-founder and Chief Executive Officer, C. Holland Taylor, lived and traveled extensively in Europe, the Middle East, and the Pacific Rim.
International phone tariffs are falling around the world, so callback will not support USA Global Link and Telegroup forever. Being established in hundreds of countries, they are preparing to jump to the next level in the ever-shifting international long-distance business. They are building their own global network by installing switches in strategic locations throughout the world.
Switches are devices that route telephone calls. Northern Telecom is well-known for its state-of-the-art switches. Switches are expensive, but provide the infrastructure to handle a large volume of calls. They are high-tech replacements for switchboard operators.
Although Northern Telecom's switches are sophisticated, according to Telegroup's Gratzon, whenever AT&T wants a new feature in a switch, they are told, "It will take two years and cost two million dollars." Thus, Telegroup has set up what Gratzon calls a "Bell Labs of sorts" in Iowa, where a team of about 60 engineers are designing the next generation of telephone switches. Unique to the industry, these switches will be part of a network in which the intelligence, or programming, is built into the network, rather than into the hardware. Telegroup calls this project "Intelligent Global Network."
Part of the reason Northern Telecom takes so long and so much money to change their switches is that the intelligence in built into the switches, or hardware, itself. Telegroup's "software" approach will allow tremendous flexibility. Calls will be routed in the cheapest, most efficient way. Enhanced services, such as call forwarding, conferencing, and fax broadcast, will be available to customers who cannot get these services through their countries' own phone companies.
"One of the things that make it 'Intelligent Global Network' is that the intelligence will actually be throughout the network, rather than centrally located," says Dick DeAngelis, Telegroup's Vice President of Sales and Marketing. When the network is complete, callbacks will be obsolete, since international customers will just connect with Telegroup's switches on their own continent.
Most other carriers use switch technology that dates back to the '60s and '70s. "Radical transformations are happening in the industry, and Telegroup is very well poised to take advantage of those changes," says Cliff Rees. In addition to the advanced switches, Rees credits Telegroup's "very creative and intelligent managers" with putting them at the front of the pack. "It's a quantum leap," he says, and Telegroup is ready to "make that leap very gracefully."
USA Global Link is working on becoming, like Telegroup, what is known as a "facilities-based" carrier, meaning that instead of relying totally on others' facilities, they are buying their own. They already have several switches in place. Much more is in the works, but it is hush-hush.
Rapid expansion has meant physical "growing pains" for USA Global Link and Telegroup. USA Global Link's office on Main Street nearly burst at the seams until it bought the All-Pro Auto Parts building on Highway 34. The building has been beautifully renovated, and graced with a serene stone fountain in the central hall. They will tear down Wooly's Gourmet Frozen Custard next door to make room for a two-story brick quadrangle extension, built in accordance with Maharishi Sthapatya Veda. USA Global Link has offices in two other buildings in Fairfield, including the one that housed the old Fairfield Telephone Co. on Second Street.
Telegroup's eight Fairfield locations have created what they call the "campus effect." After graduating from Gratzon's home to an office in the Broadway Building, Telegroup now occupies the whole Tetra II building on North Third Street. Since then, it has annexed several nearby buildings and recently started moving some offices to the Overland Outfitters building on the edge of town. Running between the offices gives employee Marilyn Kelley plenty of exercise, but she does not like the "downtime," meaning loss of work time.
In stride with today's Internet-focused cultural climate, USA Global Link and Telegroup occupy a virtual presence in cyberspace. Happily, space on the World Wide Web is cheap and plentiful, and does not require building permits or parking spaces. Both companies capture new customers in their webs. These sites provide up-to-the-minute news and job postings.
Both companies are "wired" internally, too. E-mail breaks down geographical barriers between sales representatives and the home offices. USA Global Link requires every new rep to get appropriate computer equipment. Telegroup's RepLink lets reps place orders over the World Wide Web instead of faxing them. This has directly increased profits, due to increased accuracy, speed, and rep self-reliance. Reps can check the status of their orders themselves. Soon, customers all over the world will be able to check their accounts on-line. The World Wide Web breaks down computer barriers, too, since it can be used with Macs or PCs.
Telegroup recently launched Call Cost Comparison, an innovative World Wide Web site that helps people find the carrier with the lowest long-distance rates.
The existence of Call Cost Comparison shows plainly that competition for long-distance service is fierce. Fortunately, USA Global Link and Telegroup are established in the much larger, international markets. They are accustomed to dealing with diverse customers. The companies' flexibility and broad vision give them a real advantage over companies that provide only domestic service.
Fairfield's two large long-distance resellers are both privately held, and each seems on the verge of going public. The injection of cash from selling shares on the stock market will fortify the companies. The initial public offerings (IPO's) will be celebrated by the companies' employees. "USA Global Link's employees will definitely benefit from our going public," says C. Holland Taylor. Many of his employees have been offered shares or stock options.
The caliber of personnel at USA Global Link and Telegroup is high. Telegroup looks for people with "vision, creativity, and enthusiasm "who are "bright and flexible, and enjoy learning all the time," says John Smilek, director of Human Resources. USA Global Link needs "visionaries" who want to invest in their careers and their futures.
The international mixture of Maharishi University of Management graduates helps these companies support their broad customer population, often in their own languages. "I've always felt that the world is my family," says Theresa Chatelle of USA Global Link. "The vision of USA Global Link and its international staff is living proof of that. And that is extremely fulfilling. "Telegroup finds people from all over who move to Fairfield because they practice Transcendental Meditation, according to Smilek.
A high percentage of people at Fairfield's large telecom resellers practice Transcendental Meditation, including most of the senior officers. While high-tech environments are usually stiff and stressed, at Telegroup Smilek notices a "dynamic but settled, fun, and light atmosphere." Michael Moore of USA Global Link says, "I have never worked in such an exciting atmosphere simultaneously charged with focus and happiness."
USA Global Link loyally showed its dedication to Fairfield by erecting this sign outside its office on Highway 34: "Welcome to Fairfield...Our Home."
Judging by the positive impact these companies are having, Fairfield is fortunate to be home to Telegroup and USA Global Link.
