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Happy 10th, Sovernet


March 30, 2005

BELLOWS FALLS -- There was a point in the early days of building Sovernet's telecommunications system where the numbers were just not working. The company had dedicated itself to delivering Internet service throughout the state, but antiquated laws that chopped Vermont towns into small calling areas made it costly to reach potential customers in some telephone exchanges.

When Sovernet went online in the spring of 1995, the company connected people in Brattleboro and Bellows Falls to the Internet. As the calls demanding service flooded in from Chester and Manchester, from Westminster and Grafton, company co-founder Erik Leo had to get creative.

"It wasn't working," Leo said in a recent interview. "We didn't have the money or the equipment to get to all of the towns. We didn't know what we were going to do about Chester."

One day, Leo, who grew up in southern Vermont, remembered that the state's Public Service Board had ordered changes in the telephone industry during the 1980s. These changes meant some calling areas overlapped, and calls between certain towns could be made toll-free.

He had a friend who lived in Rockingham, but who could call Chester toll free.

"We bought five lines and actually hooked them up to his house," Leo said simply. "We turned the equipment on and walked away."

Old Corner Store, early 1900s
old store photo

Leo gathered maps of the calling areas and eventually found a way to leap-frog dial-up connections between towns and among them. Thus, a customer in Chester or Manchester or Westminster could dial a local number and, with call forwarding, get connected to a server that otherwise would have been a long-distance call.

The result: Sovernet gave every Vermonter access to the World Wide Web with a local call.

This month, Sovernet celebrates 10 years of innovation and success.

From a group of three partners who set out to wire Vermont when most of the larger companies were ignoring it, Sovernet has grown into one of the largest telecommunications companies in the state with more than 70 employees producing nearly $12 million in revenue out of 16 central offices.

During a period that saw the dot-com bubble expand and burst, and a majority of telecommunication companies fail, Sovernet has managed to survive and grow.

Sovernet Building today
sovernet building photo

Anchored in a yellow building in the center of Bellows Falls, the company today is a model for locally owned Vermont businesses that do things their way.

"Sovernet represents something for us," said Paul Costello, executive director of the Vermont Council on Rural Development. "They've come through tough times and have done a great job of building visibility. We need to find a way of teaching that creativity."

Not only has Sovernet contributed to a successful business climate in the state by delivering high-speed Internet service, Costello said, but its model of approaching challenges with aggressive, new ideas is one that would well-suit other businesses trying to make it in Vermont.

Quick thinking

Company co-founder Tony Elliott said Sovernet has been thinking on its feet from the very start.

In the early 1990s, Leo had done some programming work for a business Elliott owned. At the time, the Internet was starting to gain momentum in cities like Boston, where Leo had done work, but access was very limited in Vermont.

He knew if he could figure out a way to get people on to the Web at a reasonable price, there would be a market in Vermont.

"You could see the potential right away," Leo said. "I remember seeing a VCR when they first came out and thinking, 'Everyone is going to want one of those.' I was always sorry I didn't invest in that. I didn't want that to happen again."

Army Navy store, 1968-69
army-navy store photo

Leo presented Elliott and his business partner, Jay Eshelman, with a plan. They wrote to 150 businesses in southern Vermont and asked them to share the expense of investing in a high-speed connection to the Internet.

They sent out the letters in early 1995.

"We only got one response, and it was, 'No,'" Elliott recalled, adding with a laugh, "But that 'No' is a customer today."

The businesses did not see the purpose of spending the money, Elliott said. But the three partners believed if businesses and homeowners could get onto the Internet for $20 a month, they would sign up.

They rewrote their business model, and instead of asking businesses to invest in the high-speed connection, Sovernet absorbed that expense and counted on enough people to sign up for dial-up service.

Companies like Sovernet were forming all over the country, and they were sharing information and short-cuts for getting the Internet to rural areas.

"We were figuring it out on the fly," said Elliott. "Erik would come up with these diagrams and say, 'This is what we need to have, and this is what we need to do.' So we did it."

Elliott and Eshelman's other business was in Westminster and Leo had grown up around Westminster and Putney. At the time, Bellows Falls was still struggling through tough economic times. But the three partners needed to be in a building close to a central telephone office, and when they found an available space in Bellows Falls, they set up shop.

"We felt that Bellows Falls needed us here," Elliott said. "And this is where we wanted to be."

Welcome to Bellows Falls front view - 1972
building photo

Bellows Falls Development Director Richard Ewald, who has helped turn the town into a model for other parts of the state that are seeking to improve their downtowns, said Sovernet has been an important piece in that success.

"There were few signs of the comeback when they moved in," Ewald said. "There is no doubt that they made a significant contribution to what has happened here."

When Ewald is selling the town to potential businesses, he said they usually know about Sovernet's presence. He said having a company which is there to provide service when it is needed is a big selling point, and he said local restaurants and stores benefit from the daily traffic.

"Sovernet has become part of the image of Bellows Falls," said Ewald. "It is an image that we want to present."

Fast growth

After the company got its Internet service going, the demand took everyone by surprise.

When they were writing the business plan, Leo said that if they could get 300 customers in the first year, they would make enough money to survive.

They had 500 within the first two weeks -- and 3,000 by the end of the first year.

"It was like riding a tidal wave," Leo said. "We were just trying to stay on top. Stay ahead. The phone never stopped ringing."

The company was still only the original three partners, cobbling together a system with largely untested equipment to customers unfamiliar with the technology.

The company began to hire employees. They were hopping around the state, storing equipment in closets and small buildings, and figuring out how to wire Vermont's hills and valleys.

"It didn't come all together in a box," said Leo. "We had a hodgepodge of equipment. It's like plumbing. You have all these parts and you have to put them together."

KC Corner store - 1985
corner store photo

Larger companies came in and offered them wads of money to sell the company, and Elliott said that, at one point, a deal came very close to happening.

He said the potential buy-out was a time to question what they really wanted to do.

"We came out of that experience needing to catch our breath," he said. "Up to that point, there was literally not a moment to stop and think about what we were doing, and what we wanted to do."

Telecommunications companies around the country were starting up and failing on a monthly basis. Elliott said the company realized that if it was going to grow and survive, it would need to gain a stronger hold on the telephone infrastructure and not rely on the phone company to provide the wires.

The federal Telecommunications Act of 1996 opened that market up and forced the large telephone companies to compete for space on the lines.

In October 2000, Sovernet acquired National Mobile Communications, a telephone company in the Burlington area. Owning the company allowed Sovernet to get into telephone service, but the move brought on some of the most pressure-filled times in the company's history.

While Elliott does not regret the move, the debt began to pile up at a time when the economy was slowing down and banks would not lend to telecommunication companies. He said there were some very tense moments when Sovernet came close to going under.

Leo called it the "dark era" of Sovernet's history.

Once they emerged from the initial growth period of the merger, Sovernet was able to expand its service to provide local and long distance telephone service throughout much of Vermont. Today, nearly half the company's revenue comes from its telephone service, and it serves about 25,000 residential and business customers in every corner of the state.

Neither Elliott nor Leo wanted to make any predictions about the future. Technology, they both said, moves so fast it is impossible to know what the next few years will bring.

Elliott said there are still new customers to reach through their telephone service, and he said there are challenges in reaching Vermonters with wireless service in the most remote parts of the state.

But figuring out those challenges, Elliott said, is what makes it fun.

(c) 2005 Brattleboro Reformer. All rights reserved. Reproduced with the permission of Media NewsGroup, Inc. by NewsBank, Inc.