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Storm Internet Services’ growth is up 100 per cent thanks to trimming the cost of services to its widely dispersed customer base (Getty Images)
Storm Internet Services’ growth is up 100 per cent thanks to trimming the cost of services to its widely dispersed customer base (Getty Images)

Case Study

Slashing overhead spurs wireless company’s growth in rural areas Add to ...

THE CHALLENGE

Herbert Hartwig is the co-founder and chief technical officer of Storm Internet Services, an Ottawa-based wireless Internet service provider (WISP) and web hosting company. Within two years of its founding, Storm was a small, profitable regional Internet Service Provider (ISP). But even though there was healthy demand for wireless Internet services in rural eastern Ontario, the challenge became how to build a large wireless coverage area and develop a profitable client base.

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THE BACKGROUND

In 1996, Mr. Hartwig was working with Andre Gosselin at Magi Data Consulting when it was sold to iStar Internet, an ISP that was conglomerating smaller units to create a national ISP. Within five months of becoming iStar employees, Mr. Hartwig and Mr. Gosselin left iStar to start Storm Internet Services. Their vision was to service the rural communities around Ottawa using Wi-Fi technology and build a service that was superior to dial-up technology.

They started by providing dial-up connections and DSL in 1997. By July 1998, they were profitable and had sufficient cash flow to purchase their first 802.11b Wi-Fi equipment and by Oct., Storm had its first wireless beta customers inside the city.

As Storm built out its rural wireless infrastructure, International Datacasting (IDC) purchased the company. IDC was looking for a way to provide last-mile solutions to its satellite-based customers and decided that Storm’s Wireless Infrastructure was the best way to accomplish that.

By 2003, Storm had 1,000 wireless customers and their network stretched more than 200 kilometres from Hawkesbury to Renfrew, and more than 60 kilometers south of Ottawa to Kemptville and into western Quebec.

But with customers so widely dispersed, overhead costs started weighing on the company. “A single service call could require a technician to spend up to four hours driving to and from a single customer,” says Mr. Hartwig.

It was then that Storm’s founders realized they needed to reduce the costs of servicing customers, and that they should also purchase the business back from IDC.

With the support of two investors, Storm’s original founders purchased the business back from IDC in 2003. Their first priority was to trim the cost of servicing customers by clustering support via regional support offices in both Perth and Chesterville.

Over the next four years, Storm more than doubled its predominantly rural residential customer base. By 2007, Storm received an unsolicited offer to sell its rural customer base to Xplornet.

“About that time we realized that we needed to expand our idea of clustering customer support to include clustering our Wi-Fi coverage. This would allow us to more economically build out Wi-Fi coverage and lower our customer acquisition costs,” says Mr. Hartwig.

To do this, they would need to funding, so the owners of Storm sold most of their existing wireless customer base to Xplornet. Storm kept its customer bases in urban Ottawa and Lanark County as well as their dial-up, DSL, and corporate services clients.

THE SOLUTION

With cash from Xplornet and financing from the Royal Bank of Canada and the Business Development Bank of Canada, Storm started rolling out what it calls ‘a mini-node solution’ and started developing its own operating system.

The mini-node system involves a wireless signal that goes from a Storm tower to equipment mounted on everything from a barn roof, to a silo and even in tall trees, which is then redistributed to individual client homes and businesses. It only needs partial line-of-sight to establish a working connection instead of full line-of-sight requirements, which severely limited service availability due to the dense forests and other obstacles in the region.

“We ... developed software that allowed us to complete an customer installation without physically visiting the customer’s location every time,” continues Mr. Hartwig.

THE RESULT

In 2008, Storm won a $1-million rural wireless contract from the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) to build a network in parts of Lanark County.

By 2011, Storm had over 1,500 wireless rural customers and won a $3-million contract from the Eastern Ontario Regional Network (EORN) to deliver “last mile” wireless services to the rest of Lanark County and the Ottawa Valley South area for residential and business customers.

To date, Storm has built nearly 200 mini-nodes and concentrated its coverage on 50,000 homes in 50 communities in Eastern Ontario with broadband speeds that are on a par with services available in many urban centres.

Over the last 24 months, Storm’s wireless customer growth is up 100 per cent to 3,000 subscribers, the number of employees has grown from 28 to 39 and company revenues have grown 40 per cent. The company plans to open additional regional offices in the next 18 months and remains on the hunt for future acquisitions.

“We attribute our growth to focusing on customer clusters and offering a service that has no long term contracts or needless penalties,” says Mr. Hartwig.

Craig Elias is the founder of Shift Selling Inc. and an entrepreneurship instructor at the Haskayne School of Business at the University of Calgary. This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Small Business website.

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