Apogee hooks up with UT
Austin Business Journal - by Stacey Higginbotham Austin Business Journal Staff
An Austin-based broadband services provider has signed a five-year contract with the University of Texas that could grow to as much as $200 million in revenue in the deal's final year.
The agreement calls for UT to endorse Apogee Telecom Inc. as the broadband, telephone and long-distance phone provider of choice to students living off-campus, as well as faculty and staff -- a pool of 64,000 people in Austin -- says Chuck Brady, founder and CEO of Apogee.
Although the agreement doesn't make Apogee the sole provider for UT students and faculty, history has shown those customers tend to follow the university's endorsement. A previous endorsement for a dial-up account called Telesys led to about 40,000 to 45,000 users -- 66 percent of available users -- choosing UT's recommendation.
UT will market Apogee's service to students beginning in the fall of 2002. In the meantime, Apogee is planning to build out its fiber-optic network to the three most popular off campus living areas for students -- West Campus, off Riverside Drive in Central Austin and in the Far West Boulevard neighborhood in Northwest Austin.
The company now serves about 1,700 students in the West Campus and Riverside Drive areas.
He estimates the full complement of services costs an average of $72 a month per student. If every potential client signs up, that would mean $200 million in revenue for Apogee, Brady says. But getting to that number means building out the network.
The company plans to lease some of the lines from San Antonio-based SBC Communications Inc. and Stamford, Conn.-based Time Warner Cable while completing the buildout, Brady says. At the end of the five-year time frame, Apogee plans to have leased about 17 percent of needed lines and complete the built out of the remaining 83 percent of the system.
A September report by Cambridge, Mass.-based Forrester Research Inc. states that in the coming year, half of telecom companies will reduce their capital expenses allocated to network construction. Nearly half of the surveyed carriers say there isn't enough demand for the extra bandwidth to merit adding fiber.
But Brady says Apogee has an 87 percent to 96 percent use rate in the apartment complexes it currently serves here, justifying the local build out. The company acquired those customers when it bought Austin-based Waller Creek Communications Inc. in June from Houston-based El Paso Energy Partners LP.
Apogee employs 15 people and had revenue of $1.4 million in 2000. It forecasts revenue of $2 million in 2001.
Brady estimates the company will focus on the UT contract for the next six months, and then pitch similar partnership agreements to the 31 other universities around the nation with which Apogee already has relationships. Those established deals are for the sale of discount telephone calling cards to students at those universities.
The company might seek to acquire other communications companies as it expands to those schools, Brady says.
For now, getting into apartment complexes in Austin is Brady's key concern. Expanding the network will take about two to three years, depending on demand from apartment complexes, faculty members in single-family dwellings and private dormitories, he says.
"We have also made it attractive for property owners to sign up with our service because they can charge higher rents and have a higher occupancy rate," Brady says.
Ugene Olson, general manager of The University Towers, a private dorm that houses 600 students, says the service helps sell students on the property because it is already operational when students move in.
UT gets something out of the deal as well. It will receives 4 percent of Apogee's profit made from selling to students and faculty. Stephen Janes, associate vice president of student affairs, says student demand for broadband services is huge.
Janes says Apogee was the only contractor to bid to provide service to the university. UT already was aware of Apogee through the calling card program.
"We clearly had confidence in [Apogee] from our past experience with them," Janes says.
STACEY HIGGINBOTHAM can be reached by email at (shigginbotham@bizjournals.com).
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