Changing the Course of Canadian Telecom – Part Two: Here Comes Fibernetics

Continued from Changing the Course of Canadian Telecom – Part One: “Go get a real job”

Fibernetics_Stair_PhotoThe Stratford-KW system was generating $17,000 a month, and soon the other systems across Ontario were earning similar revenues. Stix and Schnarr rented a big house with an indoor pool, had some buddies move in, and lived the high life. “We thought we’d reached it. This was the mecca.” Schnarr says.

But they kept being asked the same question: Will you ever link these separate regions together?In those days, it was impossible. The service would have to go through Bell, making it too expensive. “Then along comes the internet.” Schnarr says.

Always poised to embrace the latest technology, Stix and Schnarr scoured the U.S. for parts, made a voice-over-internet-protocol (VoIP) box, and became the second people in the world to announce they had channeled a call via the internet.

“It was terrible quality, but we were dancing because it worked,” Schnarr says. “Not only would it allow us to expand, but it would lower our costs. It wasn’t awesome, but our plan was to go free or for $10 unlimited.”

Again, they decided to start with a freemium model. But this time they needed someone with deep pockets to fund the infrastructure. Labatt jumped at the chance, and together they created the Labatt Blue Line.

It was a huge success – gaining 340,000 customers in 14 months – and in the end, that’s what killed it. So many people were using the line that Labatt could no longer afford the three-cents-per-call deal it had struck.

So in 2000, the founders again turned it into a paid service. A year after that, they sold the company and decided to move on with their lives.

The bug bites again

After three months, Stix and Schnarr were bored. They also felt like they hadn’t accomplished all of their goals. “We felt we had learned so much about how to compete against the big telco brands in Canada that we had a strategic advantage if we were to do it again,” Stix says.  So they entered the fray and joined forces with another old business friend, Mike Brown.

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Jody, John and Mike Brown

They didn’t want to use anyone else’s networks, though. In order to do that, they needed the CRTC designation of Competitive Local-Exchange Carrier (CLEC), the highest certification available.

It was an arduous process, especially for the fly-by-the-seat-of-their-pants duo used to pivoting at a moment’s notice. But they secured the certification, bought a system they could deploy across the country, and also launched a dial-up internet company in order to meet CLEC requirements to have a trafficked network.

Again, they went for the jugular on pricing. Dial-up internet was $20 to $25 a month back then. Fibernetics offered it for $2.95, and quickly became the fastest growing dial-up company in Canada.

They also launched traditional telecom services in order to secure a core base. Fibernetics now offers home-phone bundles, high-speed internet, and international long distance minutes, “priced lower than our competition, always.”

“We learned that a free customer, if marketed to correctly and had the right services and value shown to them, a certain percentage would leave the free service and take our paid service,” Stix says.

“The free service accumulates customers, aggregates a large database of customers, instills them with goodwill, allows them to get used to your network and your business, and you can walk them up the ladder.

“Companies nowadays, that are large telecom companies in their own right, buy facilities from Fibernetics to operate their business.”

The end of the common phone

Today, Fibernetics is betting that old-fashioned telephone technology won’t exist within a decade. Everything will be data.

So, again, the company is embracing the future: Voice is being erased from its offerings. “If you control the pipe into the house or business, it’s all going to be about data.  Voice is just going to be part of data.” Schnarr says.

There are 26 million mobile phones in Canada. In 2011, Canadians paid $10 billion in voice charges, Stix says, “the highest amount of money per capita in the world.” Long-distance and data are on top of that.

“It’s horrific charging. We knew if we could take our desktop application, and make it so it works on smartphones, that’s really eliminating a lot of hurt in Canada. That’s putting a significant amount of money back into the economy.”

Fibernetics developed a computer application that turns a computer into a free phone line. They started with a limited offer in Toronto, and their initial 500 customers quickly turned into 1,000, then 2,000, then 10,000. It was a good sign.

They came up with a new name for the service, calling it Fongo and spun it out into its own separate company. When it launched, the app hit the top of the Apple iStore chart. Now, there are over 250,000 active users, giving Fongo well over five per cent market share in Canada.

Fibernetics simultaneously targeted the business market as well, creating NEWT™, a private branch exchange (PBX) that essentially eliminates the phone line. As an example, instead of a business paying for 12 phone lines, a business can buy or lease a Newt PBX and not pay for a phone line again. All voice traffic is managed over a dedicated connection and quality is not compromised. Fibernetics believes that Newt is the only company in North America that is a regulated carrier, a network provider and has also developed their own PBX platform. Word is catching on, as Newt is now deployed in over 1,500 businesses.

With software developers based in Sofia, Bulgaria, a call centre in the Dominican Republic, and at head office in Cambridge, Ontario, Fibernetics is expected to crest $30 million in annual revenue in 2013, with no institutional investment, and is a diversified company routing millions of calls per day on its network.

“Where does the future lie?” Stix was asked.

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Roy Graydon – President & CFO with the boys

“We have a culture we’re trying to create here with over 200 employees and have added key leadership like our new President and CFO Roy Graydon. People care here about our community, people love to come to work and if we hire correctly and people can feel that culture correctly, and people can feel our passion and understand our vision, there’s no reason this business here in Cambridge can’t be the next great business out of this community.

“It’s all very exciting!”

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