The Saint John River, which winds its way down the western flank of New Brunswick, breeds potatoes, trees and a rare breed of entrepreneur who bristles with ambition to take on the world.
This mindset has energized generations of Irvings and McCains, and a pair of silver-haired brothers from Woodstock, N.B., Bill and Ed Barrett, who aim to build a national champion in the underserved, underappreciated market of broadband Internet for rural Canada.
The country’s communications giants have tended to treat rural areas, with their thin customer density, as an afterthought in rolling out high-speed Internet and its array of video, data and music services. But the Barrett brothers have tackled this niche with laser-like intensity. In the past five years, their company, Xplornet Communications Inc., has amassed 150,000 subscribers across Canada, and revenue of more than $100-million a year.
It has recruited a seasoned wireless executive as chief executive officer, and this past fall launched the first of two satellites to deliver faster, more efficient fourth-generation technology across rural Canada.
Now, Xplornet finds itself at a critical juncture, as it aims to quadruple subscribers in four years, while convincing Ottawa to alter its wireless spectrum auctions to give the company a better shot at its growth targets in rural areas.
In the drive to be a force in Canadian broadband, “2012 will be pivotal,” says CEO John Maduri, sitting in his Markham, Ont., offices, along with chairman Bill Barrett, who has flown in from New Brunswick.
The Barretts and Mr. Maduri are pursuing their goals with a blend of aggressive growth tactics and an evangelism about bridging the rural-urban digital divide. They cast themselves as the great hope for the disadvantaged 14 per cent of potential consumers outside urban centres – a segment of about 2.3 million rural households.
Xplornet’s game plan is to expand through a hybrid model of erecting 4G transmission towers – about 200 last year, with the same number planned for this year – and satellite service. It put its first satellite aloft in October with another scheduled to take flight this spring.
Growth has not always been easy, the management team concedes, and complaints about the quality of Xplornet’s service have spawned an outpouring of vehement comments on the Web.
Asked if customer experience has been sacrificed to growth, Mr. Maduri, a former Rogers and Telus executive, says every carrier must face the wrath of critical blogs and websites. And he fully agrees the company has struggled in some areas. As it expanded, it relied a lot on crowded public wireless spectrum, which created interference problems for its services.
As a result, Xplornet has become very active in acquiring private-licensed spectrum for itself. And the CEO insists its customer ratings rank high for its market segment.
The challenge is heightened by rising customer expectations for broadband products, which Xplornet aims to meet with its 4G satellite coverage. It was six to eight months late in launching its first satellite – with commercial service expected to begin in mid-February. The main cause of the delay was nailing down insurance, reflecting insurers’ caution after recent negative experience with satellites, Mr. Barrett says.
“If we had been on time, an awful lot of that customer response wouldn’t have been there,” he says, noting that Xplornet’s model in building a national, private rural system has no precedent. “We’re creating the template as we go.”
Xplornet wants to be active in buying wireless spectrum in Ottawa’s periodic auctions, but feels hamstrung because spectrum is sold in big blocs that lump rural and urban areas together. Xplornet and other rural providers are asking Industry Canada to decouple high-density urban areas, for which the major wireless players pay hefty prices, from low-density rural zones.
Given the high prices paid at past auctions, “there is no economic model in the world that could justify that kind of investment for rural spectrum,” Mr. Barrett says.
Mr. Maduri says he expects changes in how Ottawa sells rural spectrum, but he can’t predict the details.
The Barretts are used to uphill battles. Thirty-five years ago, both brothers were planning professional careers – Bill in law and Ed in public administration – when they decided to come home to go into product-distribution businesses with their father, Malcolm.
In time, they became part of an investor group that acquired a direct-to-home satellite licence in the 1990s. The group joined forces with Shaw Communications Inc., forming the basis for the Star Choice satellite TV service.
Having assembled a national sales and installation network for Star Choice, the Barretts saw the potential to leverage that network to meet future demand for rural broadband. That led to the formation of Xplornet in 2004.
So what is the end game for the Barretts, who funded growth by tapping private equity and are now minority shareholders? Bill Barrett says his family was willing to sacrifice control because “we wanted the company to be as good as it can be.”
The business is capital-intensive, and satellite funding alone will add up to $600-million or more over the next decade. As Xplornet grows – and investors look to exit – it may have to go public or sell to a large strategic buyer.
But with any future change, the brothers, both in their late 50s, would still want to be shareholders, Bill Barrett says.
“ We’ve gone down 95 miles of hard road to get to where we are. We really want to get to the other side and build the value in this company.”