Everest mounts a cable takeover in Kansas City

Oct 14, 2002  •  Post A Comment

If it were up to Wall Street, Everest Connections Corp. would be on the auction block or the scrap heap of telecom startups. But here on Main Street-specifically the suburbs of Kansas City, Mo.-people are embracing this bundler of video, voice and broadband with a fervor one usually associates with multilevel marketing or “The Sopranos.”
So all you Peter Lynch wannabes, perhaps you should book a ticket to Kansas City and drop in on one of the informal block parties Everest throws nearly every week in the neighborhoods it serves. Grab a hamburger off the grill and talk with some of the company’s enthusiastic customers who are paying less and getting more. Step into the big blue RV where anyone can test drive the company’s high-speed network.
You might just come away feeling a tinge of optimism about the telecommunications sector.
In the course of two years, Everest-a relatively tiny asset in troubled energy giant Aquila Corp.’s portfolio-has built out a state-of-the-art hub and laid hundreds of miles of fiber in three communities. And while it has barely begun to make inroads in this midsize market (70,000 homes passed by year-end), its early returns have exceeded even the most optimistic targets.
Seizing more than its share
According to company officials, Everest is achieving 40 percent to 50 percent penetration within two months of entering a neighborhood.
That figure grows to 55 percent after one year. And look what Everest customers are buying:
82 percent are broadband customers, with most opting for the medium-level 1.5Mbps connection speed;
90 percent are digital cable customers and most have at least one premium channel;
98 percent have switched their local phone service from other providers to Everest.
What this suggests is that Everest, if it can remain viable-and that is a big if-will go beyond merely seizing market share from its competitors. It will actually kick-start such businesses as high-speed Internet, digital cable, even personal video recorders.
By dramatically lowering the price of entry of its five residential packages, ranging from $49.95 to $149.95 per month, the company makes adding new services almost irresistible. Everest customers are averaging 2.7 services ordered. In fact, its bundled offerings are so reasonably priced they are even creating new customers for plain old basic cable.
“From the get-go our whole mindset was bundles,” said Kevin Anderson, the company’s 37-year-old president. “Hooking them up is the big cost. One spot, three services. It’s not rocket science. We’re achieving economies of scale.”
Interviews with a dozen Everest customers, new and not so new, backed up Mr. Anderson’s assertion. Many used the words “no brainer” to describe their decision to switch.
Lenexa, Kansas, was the first community to receive Everest service, in January 2001. During the buildout, Everest crews cut gas lines, disrupted service to customers of competitor Time Warner Cable and annoyed residents by digging up their backyards.
Yet it appears all is forgiven. Everest has a 55 percent market share in Lenexa, well exceeding its projections of 35 percent.
Mike Hendricks, a columnist for the Kansas City Star who lives in Lenexa, switched to Everest, and he estimates “two out of three” of his neighbors did too.
“The beauty of it was calling up Southwestern Bell and telling them to go to hell,” Mr. Hendricks said.
Mobile promotion
The blue Everest mobile unit-a sort of high-tech bookmobile-has become a fixture in the communities it serves. It came to Joni and Ted Breidenthal’s home in Overland Park, Kansas, recently, along with a grill, 150 hamburgers, dozens of the Breidenthals’ neighbors and company reps who signed up several customers that night.
Everest has adopted this grass-roots marketing strategy perhaps more out of necessity than choice. With fresh capital in scarce supply and Aquila Corp., which owns 90 percent of Everest, battered by its energy dealings, there’s not much of a budget for promotion.
So far, however, cookouts, direct mail and word of mouth are getting the job done. Bundling was one of the great promises of the 1996 Telecommunications Act, but lately it has into disregard.
The reason Everest is succeeding, said Ken Johnson, its senior VP of technology, is that from its inception the company was focused on creating a network to offer three services to every customer. Neighborhood nodes, for example, serve just 150 homes, or about one-third the cable industry average. This means fewer amplifiers and higher-quality delivery of data and video.
Mr. Johnson supervised the construction of Everest’s $25 million technology center in Lenexa, one of two it has built to serve the metro area. He said there was no exact precedent for Everest’s center-which combines a head-end, telephony switches and an Internet hub under one roof-so he visited a number of telecom companies in the United States and Canada and took away the best practices from each.
Continuing growth
By starting from scratch, Everest has the luxury of a scalable architecture that allows Mr. Johnson to plug and play new gizmos with ease. The company just introduced the Explorer 8000 set-top box, which has an 80-gigabyte personal video recorder and picture-in-picture. Not only is the PVR fully integrated with Scientific-Atlanta’s program guide, it can record two shows at once. Everest is also configuring the program guide to include a Web-driven interactive guide developed by Source Media of Irving, Texas, with information about local restaurants, movie showings and other events.
The Explorer 8000 is available to customers who buy the high-end $149.95 package. That’s $20 more than the next-highest bundle; a TiVo monthly subscription alone is $15.
But can Everest continue growing its business and giving happy customers new toys to play with? Aquila has sunk $215 million into Everest and recently pledged an additional $26 million for the fourth quarter. But a source familiar with the market estimated it will take four times that amount to completely build out Kansas City. Aquila is on shaky ground, its debt is rated at or near junk status and many analysts would like to see it shed $1 billion in debt-including Everest.
The next few months will be crucial. Mr. Anderson said the company’s better-than-expected penetration levels have helped it to meet its business plan. That plan calls for Everest to be “EBITDA-positive” in mid-2003. With profitability, Everest will finally be able to secure third-party debt and wean itself from the parent company.
Whatever its future, Everest offers a tantalizing glimpse of what the bundling business could be, if companies can keep costs down, build scalable systems from scratch and win over customers with a personal touch.
“I know they’re a young company,” said Joni Breidenthal, as neighbors and Everest representatives mingled in her front yard. “But they’re kind and they care for you. It was kind of a no-brainer.”