Integra Telecom, a CLEC based in Portland, Ore., has a lot on its plate. The company is working toward the closing of its announced acquisition of longtime competitor Electric Lightwave Inc., even as it faces stiffer competition from a newly resurgent ILEC, Qwest Communications. Also, the small and medium-business customers prized by Integra Telecom are the same ones everyone else seems to be chasing these days.

The company also has some additional overhead costs from its customer service operation. Integra doesn't use automated interactive voice response (IVR) systems to handle the more mundane customer service tasks, so proportionally it has higher customer service costs than its competitors. It staffs live customer service reps to handle as many calls as possible during normal business hours.

But this service provider, which has more than 280,000 customers (as of December 2005) in eight states (Arizona, California, Idaho, Minnesota, North Dakota, Oregon, Utah and Washington) says that the “high-touch” approach is the secret to its ongoing success.

“For a customer with a problem, the amount of time that it takes you to reach a live person is extremely important,” said Dudley Slater, CEO of Integra Telecom. “We've done a lot of research into our own customer base to suggest how important that is, so we have never used an IVR system to handle customer calls.”

Slater admitted that approach can be “investment-intensive” but said the additional cost provides the company even more motivation to retain and satisfy its customers.

“Churn is enormously important,” he said. “High-churn companies consistently struggle with profit. We spend a tremendous amount of money and time acquiring new customers, but we have very low churn rates. By keeping them, we have a much longer return on the investment we make in each customer.”

Because of the investment involved, you also won't see Integra play a discount pricing game. But Integra may not be sweating that detail. Slater said the company's customer research also has revealed price is not a major concern of its customers and lags far behind service quality in importance.

Integra's high-touch customer service effort has resulted in consistently high marks from surveys of its own customers. On the company's 2005 Customer Care Report Card, customers in Integra's largest market — Oregon and Southwest Washington state — gave the company an 8.8 out of 10 on the customer satisfaction scale. The report card also showed that 93% of all customer calls in 2005 were answered by a live person within 20 seconds. About 91% of customer calls were answered by a locally based customer service agent.

That customer service record will prove to be Integra's most valuable asset in an increasingly consolidated telecom market with potentially larger competitors, Slater said. It will help Integra protect its own customer base as the company looks to win business customers away from consolidating service providers that have taken their eyes off the ball.

While you might describe Integra's customer service approach as charmingly old school, its approach to enterprise services might fit the same bill. While many carriers are hotly investing in voice over IP (VoIP) and wireless to model new kinds of enterprise service packages, Integra is acting more conservatively. The company is eyeing both technology trends, but it hasn't seen either become a major need of its customers, who tend to be smaller and have more basic communications needs.

“We're talking to a lot of customers who are still on dial-up, and they're just looking for a pretty basic package,” Slater said. “VoIP is getting traction in the large enterprises, but it's not yet there for the small guys. It's the same thing with wireless, where the small business customer still has concerns about it being reliable and secure as a technology.”

Still, the business enterprise market, even at the smaller end of the spectrum, remains a game of scale. Small and medium-sized businesses need service providers that can grow with them and are able to offer geographic scale to support shared IT and communications services between multiple branch offices in different regions. Integra has begun to answer that need with the pending acquisition of ELI.

That deal, announced in February and due to close during this quarter, surprised some people in the industry, according to Slater, because 7-year-old ELI had proved to be an expensive CLEC for its previous owner, Citizens Communications, to operate. ELI had aggressively built out a 4700-mile fiber route in the Pacific Northwest on which Citizens eventually had to take a write-down when ELI couldn't turn a profit.

“We looked very closely at that, and it's not something we would have spent hundreds of millions of dollars on, but we will enjoy great savings by owning it,” Slater said.

That's because Integra had been leasing capacity on its competitor's long-haul network for its long-distance needs. When the deal closes, Integra will be in a better position to offer enterprise customers scalable multi-branch solutions.

The acquisition also was surprising for another reason. At the time it was announced, the $243 million deal was part of the largest debt-financing package — $450 million — ever raised by a CLEC. (The remaining $175 million not part of the price tag is being used to refinance Integra's own debt.) It was a bold move by a small service provider that favors an old-school customer service strategy and conservative service approach. Slater said it was a testament that Integra is taking the right approach.

It's hard to say at this point whether ELI will formally join the industry's consolidation craze or not. Slater said the company is focusing on integrating ELI first, and that will be a big task, as some job reductions and organizational restructuring likely will be required.

“It's going to be a balancing act,” he said.

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