July 28, 1997

One-stop telecom shop set up

Lisa Gonderinger The Business Journal

One of several upstart telecommunications resellers popping up in the Valley is launching some aggressive expansion plans.

Cabezon Telecom is putting its own switching technology in place at its headquarters in downtown Phoenix, an ambitious, expensive move for a small, young company.

And owners say the Phoenix switch is just the beginning. It will serve as a cookie cutter for others in other states -- 17 of them, when talking long-term -- where Cabezon plans to expand, said Charles Davis, president and chief executive of the company. The Phoenix switch will be up and running in the next 30 days, and switches are expected to be up in Salt Lake City and Albuquerque in 60 days. Davis is licensed to do business in 17 states, and already has started doing business in four of them.

"We have definitely set our sites on growth," he said.

Cabezon began operations in May 1996, and Davis said originally his plans were to "ride the tide as a reseller in switched and dedicated lines." However, as he and his staff began talking to customers, he said they learned that was not really what customers needed. He said many small businesses were frustrated at trying to deal with multiple providers for telephone lines, local and long-distance, Internet, voice mail, cellular, wireless, calling cards, faxes and modems, and to match the corresponding technologies.

"We sat down and decided what is really needed out there is a fluid company that could service those smaller businesses that are being shut out of the newer technologies," he said.

So Davis decided to make Cabezon into an unusual one-stop shop for all those services. And in order to do that, he said it made sense for Cabezon to invest into its own switching technology -- at about $750,000 per switch.

Switches are a necessary piece of telecommunications hardware and, depending on who owns them, they could save large sums of money. When a user punches numbers into a phone or dials into the Internet, that data travels through the copper wire to a switch, a physical computer that then routes the call to its destination and keeps track of the length of the call.

All that can be done by a telecommunications giant that actually owns the copper or fiber network. Or, resellers like Cabezon can lease a large volume of space on those loops, which they turn around and sell to the consumer, having won a discounted rate for volume.

Without its own switch, a reseller like Cabezon must pay extra to route calls through the switch of the telecommunications giant they are leasing from. But if a reseller invests in its own switch, the reseller can cut out those extra charges, which can add up to bigger savings in the long haul than the one-time expense of buying a switch, Davis said.

However, not many small start-ups will make that investment.

"You don't see so many smaller companies putting in switches because it's very capital intensive up front," said Rusty Graham, managing editor of Telecom Reseller Opportunities magazine, a monthly industry publication.

Davis said switches can cost "in the millions," but he was able to install his for about $750,000 each. Still, its a hefty investment for a smaller company, but it is one that Davis said is already paying for itself in Phoenix.

"We've already got contracts lined up," he said.

He also said once a reseller has its own switch in place, it opens other opportunities, such as co-op agreements with other resellers with switches in other cities, which would further lower the switching costs that would be paid to the telecom giants. And by having its own switch, Cabezon will be able to offer several new services, such as T-1 lines, at a cheaper rate to small businesses, Davis said.

Davis wouldn't release current sales figures for the company, but he said with the addition of the three switches this year, he planned to hit $12 million in sales, although he acknowledged that was an aggressive projection.

Cabezon has 12 employees in customer service and office staff, and 17 independent contract salespeople throughout New Mexico, Arizona and Utah.

© 1997, The Business Journal