Sparkplug CEO Dishes on Wireless Broadband Expansion, Differentiation

Xchange Magazine
By Kelly M. Teal
June 11, 2008

Sparkplug Inc. just might be the new-ish kid on the block you've yet to meet. And that seems odd, considering the Chicago-headquartered wireless broadband provider has the backing of several former Craig McCaw executives. In fact, chairman Steve Hooper has served as CEO of every McCaw company except for Nextel and Clearwire, and led NextLink before it became XO Communications. Several of Sparkplug's investors, including Ignition Partners, also hail from the McCaw world.

The four-year-old Sparkplug operates in five major markets, competing with Towerstream Corp. and Airband Communications in some of those areas. Sparkplug CEO Bill Malloy spoke with xchange in June about his company's market approach, its services for other carriers and what sets it apart from its rivals. This is the edited transcript.

XC: Sparkplug has been around since 2004, but became the larger entity it is now after buying Telespectra and Prairie iNet in 2006. The company also digested Verde Communications out of Las Vegas about a year ago. Yet, it seems few have heard of your company. Why?

Malloy: Good question. I guess one of the reasons is we kind of operated under the radar to build out our markets, acquire businesses and acquire customers. And I think one of the reasons is because the business is highly localized - Chicago, Des Moines, Phoenix, Las Vegas, Nashville. Quite frankly, we haven't been one to go broad in terms of getting everybody to know about Sparkplug; it's been highly targeted to the customers and the carriers we serve.

XC: Your investors are pretty well-known. What do they see in Sparkplug?

Malloy: The real opportunity they see in Sparkplug is this interesting development over the last several years that we predicted some time ago, but that's finally coming to bear: high-speed access and data transport for the business as well as for the other carriers; and backhaul for wireless carriers. And what our investors like about Sparkplug is the ability to serve that very handily, both in the speed to deploy, the ability to manage an IP-based network that has Ethernet delivery, and to do it cost-effectively for customers. We provide them a great alternative that often can be 30-50 percent less than their wired or fiber alternative.

And when you look at the numbers, just in the small-to-medium-sized business space alone, IP services are growing anywhere 40 percent year on year - they're driving the need for the services that Sparkplug provides. Our investors see it as an early growth opportunity not unlike what we saw in the cellular business in the early '80s, mid '80s.

XC: Your investors have pumped a little more than $22 million into Sparkplug. How long will that funding last?

Malloy: The company is profitable today. Our strategy is one where we continue to invest in our networks to continue to grow today in each of our markets, as well as continuing to look at acquisitions that make sense for us, like wireless operators in areas we target. So a lot of our milestone funding is really driven off what we would do on the acquisition side, rather than being driven off what we would do with our organic business.

XC: Are you working to secure more private funding?

Malloy: We're really focusing on growing the operations that we have. Again, as we look at larger acquisitions, no doubt we would look at different avenues in terms of our current investors, primarily, to fund that growth strategy.

XC: Who is your target customer?

Malloy: Our ideal customer in the business segment is the one that lives by its broadband. It's well beyond voice. They know full well that if they lose their voice service today, as critical as that could be, far more important to them and far more horrendous is if they lose their broadband connection. Further, they're reaching the limits of it. So it's the business that knows it's got high-growth broadband needs, feels it everyday. They're typically adding applications as they go - they probably already have decided to put voice over their broadband connection, or they will. They transmit a lot of data, whether it's from some specialized application because they're in health care or some specialized application because they're an architectural firm and they move large data files. Or they're in media-related businesses and they do the same, or a law firm. The common denominator is heavy data usage both in and out of the business. They reach the limits of a T1 very quickly; they reach the limits of a bonded T equally as quickly.

XC: The intersection of health care and telecom seems to be getting a fair amount of attention lately. How much of this vertical drives your business?

Malloy: It's a significant segment for us and it's continuing to grow. You'll find hospital groups, for instance, that just because of new applications for radiology, they'll come to us needing as much as 45mbps of dedicated service from one point to another. And then you've got the satellite effect of all the doctors that work at the hospitals that are on the same application.

XC: With such critical data as health care records, as just one example, on the network, disaster recovery and business continuity have become key concerns of businesses, organizations and regulators. What is Sparkplug's view on business continuity?

Malloy: I would describe 'backup' in a different way than I think we used to think of it in telecom. Time was, I think we'd always have something, call it redundant or on standby, because it's a data-driven world. We'll also see this from carriers who use us for backhaul and transport and network extension - I know that I need x amount of capacity and bandwidth and I know I need to continually scale it. So what you have with fixed wireless and Sparkplug is the ability to have an easily scaleable solution that you can put right alongside or on top of what you already have. It doesn't mean it has to sit there idle. You've got the full redundancy, you've got it immediately for failover. You're good to go across both of the networks should anything happen to one or the other. But, more importantly, you have the ability to scale alongside of your other network. It's fully diverse back to the PoP.

XC: What is Sparkplug's growth strategy for the second half of 2008?

Malloy: We're continuing to expand our networks in each of our cities. Recently we announced that we've now expanded considerably the number of businesses that are covered in Chicago. We're doing the same in each of our markets, both geographically in terms of the number of businesses they cover, and also we're adding considerable capacity so we can serve more and more of the higher-capacity customers - where you do get in the upper reaches of the 10mbps symmetrical service and on up into the 20s, 40s and 50s. We've been building our plant to go deeper and provide those kinds of capabilities and services, and at the same time, go wider to cover more businesses. You'll see more announcements in that regard.

I think the other piece you'll see is that we continue to look at other markets where we want to enter, and we've stated publicly we'd enter one of two ways. We'd go there and start building on our own, or acquire a company. I wouldn't name markets or give you a calendar because that's something we keep internal.

XC: How is Sparkplug differerent from Towerstream?

Malloy: First off, in addition to the enterprise market that we serve, we also have the carrier and the wholesale piece of our business. We provide the backhaul and transport services for the cellular carriers, wireless mobility providers - Sprint Nextel, Verizon. I think that's a clear distinction. And I think the fact that we do that lends a lot of credibility to the large enterprise market that we serve. That's a business model differentiation between us and them.

I think the other way that we're very different is we're very locally-based. We've got a real strong local presence in terms of our people who work on the network, as well as respond to customers, and the sales and account management side. We learned those lessons when we built businesses in wireless mobility. People want to feel good about the fact that you know the territory, you know their needs and you can get them provisioned quickly. You can grow their bandwidth quickly, groom it, and I think we're known for our local presence more so than they are.

XC: Who are your other competitors?

Malloy: If you look at the fixed wireless for business space, Towerstream. You have a company by the name of AirBand that is in different markets than we are - we compete with them in one locale, which is Phoenix. Once you get past the three of us, you really are hard-pressed to find anyone who has multiple markets, just focused exclusively on business.

XC: Tell me about Sparkplug's wholesale services.

Malloy: Let's start with, say, one of your cable readers. To the extent that one of the cable providers finds themselves at the edge of their plant and wants to supply a new territory or go directly to end user, we do that. We provide wireless data connections to the end user both on the low end - the equivalent of 2mpbs of symmetrical service - all the way to the high end of somebody needing DS3 service or higher equivalents out to a location. So it looks like network extension, and like a network extension beyond a geography or to a pocket or an area in the network where those cable companies know they've got demand and customers they could serve and don't yet have the plant built to those areas.

I think on the RBOC side, probably less so. But if you go to the ILEC business, they'll approach us with network extension or point-to-point needs they have where they're up against the plant. They're in the decision of, 'Do we build, do we buy or do we buddy?' We've also worked with some of them to respond to proposals to build out beyond the edge of their networks and let them use our network in conjunction with theirs.

The other one I would mention is the wireless backhaul business, which is supplying the data needs that are behind every cell site. That's been a real key piece of our business that we continue to develop.

XC: Why did Sparkplug elect to build its own network as opposed to ride on someone else's?

Malloy: It was really quality and control, and the economics. If you look at where businesses are today, we saw the opportunity where, if you can get service, sometimes it's cost-prohibitive, particularly in a growth mode against the broadband needs. So we said, 'How do you build a network fully diverse that can serve those customers from the get-go, at 30-50 percent of the cost less than what they pay the incumbents, and at the same time, has the ability to grow?' And always being fans of wireless, and then seeing in 2002-2003 what would happen with IP-based technology at the radio, as we call it, we just saw it as the most efficient way to build that kind of network and control it end-to-end for the customer, which I think is very important. We were of the mind that the last thing to do is overcomplicate things by providing a network we didn't control, or that we resold, or that had areas where you were on our network or off our network. It starts to diminish all the advantages of a completely diverse network.

XC: Who are key equipment suppliers and why?

Malloy: Our top three are DragonWave, Alvarion and Motorola. The reason we use them is they all have great product breadth and depth. They're all time-proven. Early on, some of the deepest research we did before we even launched commercial service was spending time with the manufacturers, spending time in their labs, literally understanding what their product plans were. So in the case of Motorola, they have very durable equipment that holds up under all the stresses of weather. You name it and it just runs marvelously. It does a great job in terms of ability to give us management to the device – Motorola is the baseline infrastructure for service in a lot of areas.

We use Alvarion for the higher-megabit service in the areas as far as how their radios perform, and DragonWave we use predominantly for what we call our backhaul to connect our sites, as well as backbone for our networks. In many cases, we'll use it for customer premises equipment if it's a large installation from end-to-end for a customer. They're all leading manufacturers with high-quality equipment; they have devices that we use to develop network management and monitoring schemes so that we can really control the quality of service for our customers; and they're all IP-based.