The Broadband Broker
A telecom-bust refugee reversed his fortunes by coming up with a way to trade Internet connectivity just like pork bellies.
(Business 2.0) – Jamie Martino staggered out of the smoking ruins of the telecom bust singed and jobless. But the former Global Crossing executive had a couple of things going for him: a Rolodex full of industry contacts and a keen understanding of the towering inefficiencies of the telecom market. From those humble elements, he fashioned an investment play that has allowed him to succeed where far bigger players before him failed--and that seems likely to make him a very rich man.
Martino is flourishing as a broker of broadband connections. Enron and Rate Exchange, among others, thought they could rake in cash by matching companies that want long-haul links with providers that have them, trading connectivity the way others trade pork bellies. They went poof, leaving many Wall Street hotshots to conclude that telecom's jumble of competing networks and players makes brokering broadband a sucker's game.
Martino's edge was an ability to see opportunity in the industry's maddening "last-mile" problem. Since the breakup of the old AT&T monopoly, the regional Bell companies have had a lucrative lock on the last leg of connections from telephone trunk lines into buildings and onto the desks of workers. The upstart telecoms that emerged in the 1990s almost always had to pay through the nose for that last link.
Eventually the newcomers--a group of companies called competitive local exchange carriers, or CLECs--began laying their own fiber into premier buildings. In theory, this meant that CLECs could save by buying last-mile connections from one another. They didn't, largely because there was no central information source that could tell them which CLEC had access to which building. One classic result: WorldCom reportedly once contracted for a last-mile connection to a Boston office tower with Verizon, which happily provided it--by subcontracting to another division of WorldCom.
Starting with $100,000 of his own savings, Martino started working to create a simple database of which carriers had lines and where, and approached potential customers with the idea of brokering last-mile broadband for them. He didn't get far. Prospects liked the plan, but they wanted to deal with someone who had actual telecom assets. So Martino bought the U.S. operations of Band-X, a small, struggling outfit that brokered long-distance minutes and already had its own data center. For Band-X's customers, last-mile connections were one of their biggest costs. Using his fledgling database, Martino was able to put together a broadband deal that cut those costs for one customer by $10,000 a month. With that as an example, he persuaded other Band-X customers to tap him as their broadband broker. Martino and his colleagues then worked on expanding the database, focusing initially on the New York metro area, which alone accounts for about 10 percent of the $20 billion U.S. corporate broadband market. It took 18 months for them to ferret out the data, mostly through endless badgering of their industry pals and contacts.
Today, Martino's database has information on about 15,000 buildings. His firm, called Last Mile Connections, brokers about 100 deals a month, worth roughly $300,000. He has 53 clients--CLECs, Baby Bells, and foreign carriers like Asia Netcom and Telstra. Typically, customers log on to Last Mile's Web-based system and enter an order with the price they'd like to pay. The order then goes up for bid to telecom service providers, much the way pimple-faced collectors fight it out for Anakin Skywalker action figures on eBay. Once the bidding closes, Last Mile earns the spread between the two prices.
Right now, much of Martino's revenue is going straight back into the business, which he is expanding into other high-growth cities. But he says his investment angle should soon prove to be a classic cash cow. Overhead should be low, and the model should be easily transplantable in other markets. He even has a soft spot now for the telecom bust. "It was ugly," he says, "but if things hadn't imploded, I never would have come up with this idea." -- OM MALIK