Rural revival
by Sarah Brouillard Though he grew up on a farm, Donny Smith was fortunate enough to be exposed to leading-edge technology at a young age.
He got his first teletype terminal, a screenless predecessor to the personal computer, as a high-schooler in the 1970s. On it, he accessed the DARPAnet, an early government-created network from which the Internet evolved.
“As crude as it was, it was state-of-the-art back then,” says Smith.
Now, as CEO of Owatonna-based Jaguar Communications, he wants to make sure other rural kids have that same early flirtation with new technology. But most are merely playing catch-up to their urban peers, who’ve been surfing the Web and dabbling in digital for years, he says.
That’s why Smith’s telecommunications company is going where most phone and cable companies fear to tread: into the small towns and farm communities of southern Minnesota, which have little or no access to the products and services metropolitan areas take for granted.
“I wanted the people that live here, and the children that are growing up here, to have these advantages — not just the kids in the city,” says Smith, who gives his age at about 50.
By the first half of next year, Smith hopes to have begun laying a fiber-optic cable network in the area to enable customers to have dial tone and super high-speed Internet service, as well as other perks such as high-definition television channels and video-on-demand, all in digital. It’s a move that will have him competing directly with cable companies and DISH Network Satellite TV.
“This is like the holy grail, right now — to get to where all the services are from one place.” Such packages would run at about $100.
Right now, the company offers local and long distance via conventional copper wires and shares its network with Internet service providers that in turn provide digital-subscriber lines (DSL) to Jaguar customers. It also rejiggers phone lines to make the region entirely local; in some spots, calls within just a few miles are subject to long-distance charges due to extremely close calling-area boundaries.
The company serves both business and residential customers in Faribault, Owatonna, Albert Lea, Austin, Blooming Prairie, Rochester and Waseca, which it added to its service territory in May.
Avoiding rural
While it’s no secret the telecom industry as a whole is moving toward fiber, many companies avoid rural areas. The reasons are varied.
Fiber’s thin glass strands offer many advantages, among them a higher carrying capacity and less signal degradation, since they carry light signals instead of copper’s easily interrupted electrical signals. But companies don’t get as much “bang for their buck” when they get into sparsely populated areas, says Carl Schick, Jaguar’s chief technology officer.
A city block may have an apartment building and rows of closely packed houses, netting hundreds of potential users within a short distance. But out in the country, companies get a lousy return on investment: there are fewer people, and they must lay longer lines to reach homes that may be miles apart from one another. “It’s just a matter of economics,” he says.
Large incumbent phone companies, such as Qwest, also confront an additional market disadvantage: they can’t get federal funding to expand into rural areas the way small companies can, says Lorrie Yeschick, co-owner of Torrent Technologies, a Grand Rapids-based telecom consulting company.
“The big companies don’t qualify for it, so they can’t be waving the white flag and come running into town and say, ‘We’re going to bring you this, this and this,’ ” she says. Yet small telephone companies “are going to look good to the general population because it looks like they’re doing something fabulous — and they are — but on the other hand, they’re also going to reap the profits of it.”
Jaguar Communications has applied for $4.5 million through the Broadband Program, a federal low-interest loan program run by the U.S. Department of Agriculture’s Rural Utilities Service that aims to increase the rate of deployment of technology to small towns in rural areas. Smith says he hopes to be approved sometime this fall.
‘We just are cheap’
Since federal money alone can’t make a business plan cost-effective, Smith has employed other methods to keep down expenses at his company.
“We just are cheap,” says Smith, with a big belly laugh.
That doesn’t mean his company cuts corners with customers, he says. Instead, he runs very low overhead costs.
Jaguar has fewer employees than other companies of its market reach, says Smith, and no advertising budget to speak of. Most new customers arrive via word-of-mouth referrals.
And staff build their own computers, buy used office chairs and tables, and shop bankrupt companies’ liquidated wares. Smith has even bid for older mechanical equipment on eBay. What cost him $1,500 at the online auction would have cost $100,000 brand new, he says.
“It’s a difference of using Wal-Mart to buy certain things versus Nordstrom,” says Smith. “Sometimes it makes sense, one over the other.”
Plus, young telephone companies, such as Jaguar Communications, benefit from today’s smaller, more compact operational technology. Incumbent telephone companies must maintain humongous switching rooms, housed in massive brick buildings that can take up a quarter of a city block and soar a dozen stories high.
These yesteryear facilities cost a lot for air conditioning and upkeep, yet it would cost even more for companies and their customers to scrap them and start over. Jaguar’s switches, in contrast, fit onto a single rack 7 feet tall, 23 inches wide, and 18 inches deep. A switch is a device that channels incoming data to output ports that then take the data toward its intended destination.
The company has also been grassroots about raising cash. When its original seven investors pooled their money and realized they needed more to start up the company, they turned to friends and family.
As a result, Jaguar has a motley group of 60 investors, which includes a mechanic, a plumber, a rancher, a couple of college professors, and former NFL long snapper/radio host “The Superstar” Mike Morris. The original investors put up six-digit figures; of the rest, each had an average investment of $5,000, though some contributed up to $20,000.
“We wanted to do this for our friends and family,” says Smith. “So that was the requirement: you had to be somebody’s friend or part of their family to be able to invest.”
Smith, too, got into the business somewhat by chance.
Although he made a living as an offsite programmer for Fortune 500 companies such as Ford Motor Co., Kodak and Xerox, his first entrepreneurial endeavors were selling gladiolas and exporting cattle.
A die-casting company he founded eventually morphed into an Internet company, Local Link, also based in Owatonna.
“We wanted to advertise on the Internet, and we wanted Internet access, and there wasn’t any in this area. So we brought a line in for ourselves,” says Smith. “While we were doing that, we thought…this works pretty good. Maybe we should start selling it.”
Smith and his fellow investors sold the company in December 1999 — weeks before the tech bubble burst — and invested the proceeds into what is now Jaguar Communications.
Jaguar Communications crossed $1.5 million in sales in fiscal 2004, and is on track for $3 million in 2005. It’s also profitable, says Smith.
[contact] Donny Smith, Carl Schick, Jaguar Communications: 507.214.1000; dsmith@jagcom.net; cschick@jagcom.net; www.jaguarcommunications.com. Lorrie Yeschick, Torrent Technologies Inc.: 218.327.9025; info@torrenttechnologies.com; www.torrenttechnologies.com
