Buyout Solidifies ISP

Charles “Trey” Sharpe III left the courtroom for the boiler room in 1995. That’s when the president and CEO of Arkansas.Net gave up his successful Little Rock law practice to brave the mounting pressure cooker of the Internet technology sector.

Everything is cool now.

Sharpe, 35, weathered the mad dash for domain registrations in 1996, a statewide operational crisis in 1997 and the shaky existence of the entire telecommunications industry during three subsequent years of dot-com meltdowns. His perseverance has made Arkansas.Net easily the state’s largest Internet service provider (ISP) with a statewide footprint of 71 cities and 30,000 dial-up modem subscribers.

(Click here to see the list of ISPs. Click here to see the list of computer dealers.)

That includes the Jan. 18 acquisition of competitor Millennium Communications LLC in Rogers through a quiet, no-cash buyout. Acquiring Millennium, which did business as MC2K, solidified Arkansas.Net’s dominance of the local market by bringing in 5,000 new dial-up customers in Benton and Washington counties.

For competitive reasons, Sharpe said, Arkansas.Net does not break out its subscriber numbers for individual markets. But its Northwest Arkansas penetration is significant, and the company controls 41 percent of subscriptions held by the top four ISPs statewide.

The second largest is Arkansas iNet LLC (World Lynx) of Little Rock with 19,526 dial-up customers, or 27 percent of the big four’s business.

Arkansas.Net does not disclose financial figures. But subscription revenues would total about $600,000 per month, or $7.2 million per year, based on Arkansas.Net’s basic $19.95 per month rate.

But that would not include the firm’s value-added services such as SPAM blocker or virus protection, advertising revenue or additional business lines such as Web hosting, networking or digital subscriber line (DSL) service.

The MC2K deal did result in Arkansas.Net gaining one stockholder, whom Sharpe declined to identify, bringing its total number of investors to 11. Sharpe did say that after purchasing the Internet domain name “www.arkansas.net” for $50 in 1995, he would be willing to sell it for “an eight-figure sum” today.

“That’s because they’d have to buy the whole company along with it,” Sharpe said.

Bell Time

Arkansas.Net flourished by having the right people in the right place at the right time, Sharpe said. Its defining moment came in August 1997, when Southwestern Bell announced that by January 1998 it would cancel its remote call-forwarding service.

The inexpensive flat-rate service was intended to allow rural phone customers to make unlimited toll calls into local cities. It quickly became the lifeblood of ISPs, because the Internet companies could extend their coverage off the beaten path without having to add costly additional local modem access stations or points of presence (POPs).

Pretty soon rural users were staying online constantly, and Bell said it couldn’t afford to pick up the tab.

“We would put one piece of equipment in Fayetteville, Little Rock and Pine Bluff and could service nearly every Bell customer,” Sharpe said. “We were racking up phone bills that were literally four-feet tall but that totaled only $70.”

Many ISPs had to fold. But Arkansas.Net identified five areas with its largest pockets of customers. At that point, it had 20 cities online, including Fayetteville, which Sharpe said was a tremendous growth area.

On Oct. 11, 1997, Arkansas.Net decided to relocate from Little Rock to Fayetteville, and ever since it has been headquartered in the E.J. Ball Plaza building on the downtown square.

Luckily, Sharpe said, Bell backed off a new $3,000 installation fee, and national equipment vendors got creative to mitigate network expansion costs.

“Along came Ascend Communications out of California,” Sharpe said. “It had developed its Max Line of remote access switches (RAS), which are basically digital modems that look like a VCR. They had a ‘buy two, get one free’ deal and we could get them for $15,000 each with a four-year financing plan.”

With the needed equipment finally in hand, Sharpe, former employee Bobby Mitchner and Arkansas.Net co-founder and now Chief Technology Officer John Coy took turns driving across the state to install equipment in 30 cities in 15 days. They each put about 17,000 miles on their vehicles.

CenturyTel of Monroe, La., continued offering call forwarding until last year when it finally determined it was losing $2.6 million per month to Internet junkies. With Public Service Commission approval, CenturyTel placed limits on the plans in September, and another wave of ISPs felt the crunch.

But Arkansas.Net had already addressed its coverage concerns three years earlier.

Crossing the Street

The Internet was not a career choice when Sharpe graduated from University of Arkansas School of Law in 1992. At that time, the Internet was in the purview of the academic community and not yet commercialized with handy browsers and nearly unlimited e-commerce capabilities.

After passing the bar in 1993, Sharpe worked in private practice with a group of lawyers on the 38th floor of Little Rock’s TCBY tower. That’s when difficulties in accessing some CD ROM information from the U.S. Commerce Department drove him to the Internet.

“A young lady at the Commerce Department said if I had Internet access I could just download what I needed,” Sharpe said. “Prior to that time I had one semester in computers.”

Sharpe walked across Sixth Street to Little Rock’s Lafayette Building and the headquarters of Intelli.Net to pick up an access disc. Within five minutes, he was surfing like a champ.

Sharpe said his curiosity deepened, and he got into domain name registrations. He helped Harvest Foods of Little Rock and Clear Mountain Water obtain theirs. In 1996, Sharpe and some friends at a Little Rock ad agency got $10,000 to design the first Web site for Landers Auto Group.

Coy worked for World Lynx, which was supplying the upstream bandwidth for Sharpe. The two went to dinner one night and discussed becoming an ISP.

“He literally pulled some figures out of his back pocket and said, ‘OK, here’s what it would take,’ ” Sharpe said. “I said, ‘Let’s do it.’ I had used my savings, credit cards and all of the normal stuff you hear about dot-coms using to get started. Then in 45 days, we raised the private capital needed, and on Sept. 6, 1996, Arkansas.Net was incorporated.”

Sharpe and Coy and a few assistants launched their company in a former law office on the 16th floor of Little Rock’s National Bank building. Their goal was to get 5,000 subscribers, and it happened by the firm’s 20th month.

By then Marisa Willis, Arkansas.Net’s controller, had left Little Rock accounting pillar Moore Stephens Frost to join the ISP. She said she wanted on the Arkansas.Net team because of its founders.

“There’s no B.S. or power struggle here,” Willis said. “We’re frugal, and we review costs to protect our stockholders’ investments. That, and the ability to listen and work well with one another, has made us successful.”