An ISP that Thinks Small
Stephen E. Smith, CEO and President, OneMain.com Inc.
Interviewed by George S. Mack
May 3, 1999
The following interview was featured in the latest edition of Multex.com, Inc.'s weekly newsletter, The Internet Analyst. To read the newsletter in its entirety, please go to multex.com.
Internet Service Provider OneMain.com Inc. (ONEM), which predominantly services customers outside major metropolitan areas, went public on March 25 at $22 per share and raised $187 million. It was the largest Internet IPO to date. CEO and President Stephen E. Smith founded Reston, Va.-based OneMain.com following an eight-year career at Morgan Stanley.
[THE INTERNET ANALYST] As an Internet Service Provider, how are you different from all the rest?
[STEPHEN E. SMITH] We're the first national Internet Service Provider to focus exclusively on the secondary and rural markets in the United States. We think there's tremendous opportunity to provide high levels of customer service to these markets, which have been historically ignored by the national ISPs.
[TIA] Are your customers different?
[SES] Our subscriber base is extremely loyal, and that's evidenced by the fact that our churn rate, we believe, is the lowest in the industry. During 4Q98, it was 2.1% per month. Moreover, 65% of all of our new subscribers come from word-of-mouth referrals. Now understand, that's not refer-a-friend and get-a-month free, it's pure word-of-mouth referral. As you know, the acquisition cost per subscriber on a word-of-mouth referral is zero.
[TIA] If I were your customer, what would I notice that's different from other ISPs?
[SES] Instead of taking the 17 companies that we acquired and converting them into a single large virtual community, we are actually set up as a series of geographic communities. For example, people in rural areas are very interested in local college sports, and we will provide that content through partnership with a local newspaper.
[TIA] How many subscribers do you have, and how fast are you growing?
[SES] As of the end of February, we had 358,000 subscribers, and we believe the business is growing organically right now. Our strategy is to drive sales growth 15% each sequential quarter. Over the last eight quarters, revenue and subscribers have grown on average 16% and 20%, respectively, quarter over sequential quarter. Our subscriber churn rate has stayed below 3% for the last eight quarters.
[TIA] What about external growth?
[SES] Yes, we will continue to do acquisitions and get into new markets. With both external and internal growth, we believe we can grow at least 100% in 1999. My acquisition backlog is 1.5 million to 2 million subscribers, representing about 30 ISPs. We will be buying in blocks of 15,000 to 20,000 subscribers in markets where we don't currently have customers.
[TIA] How will you be financing new acquisitions?
[SES] Right now we have no debt on the balance sheet, and we have no plans to raise any debt. We will use our currency, as well as the cash that's on the balance sheet ($85 million). Our deals will be cash and stock.
(The information contained in the Ideas section of the Multex Investor Network is intended to provide readers with general news and items of interest in the markets. It is not intended to lead persons to invest in any particular investment. Before selecting investments, always take independent advice from your professional investment adviser. )
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