One of the unexpected results of the 1996 deregulation of the telecommunications industry was the creation of a new breed of technology service firms intent on upgrading 20th Century commercial real estate with 21st Century technology. Offering services of telecom, Internet or a combination of both, these new companies are hoping to supply bundled communication services to individual commercial properties.
"The Telecommunications Act of 1996 really deregulated a lot of this market, so new companies were formed to address the opportunity in commercial markets," observes Andrew Goldberg, CEO of Philadelphia-based SiteLine Inc., which has been in business for all of one year. With its Access Ready services, SiteLine works with commercial property and real estate portfolio owners to provide their small- and medium-sized tenants sophisticated data solutions - basically supplying the Internet directly to diverse office buildings.
In contrast to SiteLine, there are numerous companies like OnSite Access which provide a total bundled communication solutions approach. The New York-based OnSite is only two and a half years old, but it is operational in 10 major markets, providing such bundled services as phone lines, calling cards, voice mail, T1 and e-mail.
Why would a building owner forsake the Bell connections or try to get a handle on a tenant's ability to connect with the Internet? The answer is, very simply, economy and control. "The owner of a building gets both the enjoyment of having a building of the future and the fee we pay them for allowing us to provide the technology," explains Bill Davis, president of Superwire.com's Superwire Communications unit in Irvine, Calif.
In addition, instead of adding telephone lines haphazardly while tenants choose the Internet access of their liking, these new telecom providers allow building owners to get control of the process. "Our services give the owners an opportunity to protect the tenants and sell them individually on high-speed Internet access," says Davis. "And we bill the tenants rather than the owner."
"There is no capital cost to the owner, and we look like a service provider to the tenant," notes Goldberg. "There are about 16,000 Internet service providers, so if owners don't proactively address this opportunity, individual tenants - one by one - will go out and find their own solutions.
"That doesn't allow the owner to capitalize on the opportunity," he continues. "And secondly, when tenants get their own service provider and everyone is looking to run wires up the risers, there are these different third parties coming into the building and you lose control of the communications backbone as people are drilling through your walls and getting zoning permits for the roof."
Does this mean communications services will be cheaper to the tenant? Probably.
Teligent Inc. in Vienna, Va., is an integrated telecommunications company, which means it offers a full suite of services for local access, long distance and the Internet. "When we deliver service to our customer, we do so using our own network, and that allows us to control the reliability of the service and offer savings of up to 30% off what customers in small- and medium-sized businesses are paying in our target markets," says Sheila Blackwell, director of corporate communications at Teligent.
OnSite Access calls itself a "Centric" communications company. "When you contact us to perform services, we have our own engineering and operations people who design a custom solution for the property - whether that consists of phones, equipment, Internet access, copper wiring or fiber-optic wiring," says Daren Hornig, co-founder and executive vice president of OnSite. "What makes us unique is once the building is wired, each property is assigned a building communications manager. That person is the liaison between the tenants of the property, property management and leasing representatives for all the communication and technology concerns."
Obviously, new buildings are one target of these telecom providers, but mostly this is a retrofit market. As Goldberg notes, there are something like 122,000 buildings in the United States with more than 100,000 sq. ft. That's a ton of market opportunities.
All these new communications service companies are growing like weeds in an empty lot. OnSite, which is in 10 major markets - Boston, New York Tri-State, Philadelphia, District of Columbia-Baltimore, Atlanta, Chicago, Dallas, Houston, San Francisco and Los Angeles - expects to open up another 10 markets by second-quarter 2000 and an additional 10 markets by fourth-quarter 2000. Hornig figures that's 3.3 billion sq. ft. in those 30 markets and maybe $15 to $20 million in communications revenue.
"Right now, we are averaging a 35% penetration rate after the first year," Hornig says. "That's five or six times higher than the industry average."
Superwire.com's original game plan was to target multifamily units for high-speed data access, but now it has expanded to commercial buildings. The company has done multifamily in Manhattan and in a Yale University apartment complex. Its first project, however, was in Brentwood, Calif.
"Currently, we are working with three management companies with a backlog probably on the order of 300 buildings," says Davis. "We think the demand from our market is the result of frustration with dial-up access. The technology that we manufacture gives us the ability to deliver the traffic, and we can come to the market at a reasonable price and provide a superior product."
Global Interactive Communications Corp., a Richardson, Texas-based bundled telecommunications provider, targets only multiple-dwelling residential properties. Formed in December 1998, the company already is in 53 markets and working with such large multifamily companies as Equity Residential and Colonial in providing video (from cable to digital satellite), telephone (provided through agency agreements with regional Bells), and Internet access. In regard to the Internet, Global Interactive also provides website development, web hosting and broadband access.
Also going the multifamily route is OnePoint Communications Corp. The Bannockburn, Ill.-based company has been around since 1995, but didn't incorporate as OnePoint until a year later. At first it targeted REITs, but over the past couple of years it has gone after end-users. The company totaled nearly 26,000 customers at the end of second-quarter 1998. One year later, it could brag 62,000 customers. Although it offers local and long-distance service in all its markets, high-speed Internet in just the Washington, D.C., area and cable television in just Chicago and Georgia, it reports growth at 8% per month. Eventually, the company will offer a total bundled package in all its markets.
"Clearly there is a financial incentive (commission) for apartment building owners to use us," says Scott Seawell, OnePoint vice president of national mark eting, "but the most important reason is that we simplify residents' lives."
SiteLine boasts having worked on buildings in 10 different cities. Its biggest relationship remains with Glenborough Realty Trust Inc., a San Mateo, Calif.-based REIT. The company also works with Insignia/ESG, which has chosen SiteLine as the preferred solution for owners it represents.
"In the past, if you were a building owner, the world was a monopoly," says Hornig. "Now, tenants are demanding real estate owners be proactive and upgrade their buildings with communication services. They are looking to the landlord to make these services available the same way that 50 to 60 years ago landlords made sure the building had elevators, and later air conditioning. As the world changes, tenants are demanding more from their landlords."
As Seawell adds, "The high-speed Internet is becoming for the apartment building industry what the workout room was in the 1980s and the swimming pool was in the 1970s." o