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Working 'Thru' the Financial Fog

W hat makes one company fail and other succeed? In the case of ThruComm, it was protocol expertise coupled with the willingness to meet a daunting challenge. Offering fast, reliable, "always on" connectivity in an affordable package, ThruComm supports EFT transactions and back-office applications from existing ATMs, electronic cash registers and point-of-sale systems ? but it didn't start out that way.

In the mid-1990s, a small group of tech experts started out as a reseller value-add for Hughes Network System, building a hub and offering satellite services for Fortune 500 companies. When they were approached by a petroleum company that had 660 gas stations and convenience stores that were sick of the hundreds of individual dial-up lines and just as many different applications, these data gurus successfully converted the entire operation into a single-line connection that improved performance and increased revenue.

Given all the engineering work that had to be done to take those cumbersome legacy dial-up systems and convert them to online communication, the result was not only impressive - it changed the direction of the young organization.

"That account changed our company," says Mark Gianinni, CEO of ThruComm, Inc. "We got visibility into the larger electronic funds transfer marketplace. Our core competency was already there. We liked the business and we could, in effect, carve a niche into transforming dial-up networks to online connections."

From a trio of execs, the company grew rapidly to a staff today of 57. Its structure converted from a limited partnership to a C corporation in January 1998.

Previously, ThruComm was non-specific in terms of industry, utilizing one transport medium -satellite. After '98, ThruComm became industry-specific and began incorporating multiple transport mediums such as terrestrial frame relay, wireless frame relay and recently introduced yet another new service - virtual private network (VPN).

One thing that has not changed, though, is ThruComm's philosophy. "From day one and forever going forward, we see ourselves as a service provider," says Gianinni. "All technology developed over the years is a means to the end. The end is service."

At the heart of ThruComm's service is its competence in facilitating the migration of the EFT industry from archaic dial-up networking to fast, online connectivity and doing it at a price point that the vast majority of the marketplace is willing to pay.

"That is the trick," says Gianinni. "Anyone can order a frame relay network - expensive as hell to install and run, and very difficult to maintain. Our secret sauce is CID."

CID stands for "customer interface device." At the heart of ThruComm's enterprise managed network, CID does a lot for ThruComm's clientele. It enables transaction and communication devices to achieve "always on" connectivity.

With the CID installed, users achieve three- to five-second network response times and 99.9% percent guaranteed network availability, important benchmarks for merchants who have seen electronic transaction authorizations rise from 1 in 18 to 1 in 4. It acts as a concentrator inside the merchant store for different types of already installed devices such as POS terminals, servicers and PCs.

Multiple devices can seamlessly plug into CID, which also acts as a frame relay access device - a box that takes the signal and prepares the packet of data to be sent over a telephone line in a particular fashion. In order to plug in to a frame relay circuit, one has to go through a frame relay access device. CID has that capability imbedded in it.

All these functions imbedded in a device that doesn't need to be bought translates to delivery of in-demand online connectivity services at a price point that is attractive to the merchant.

What is also attractive is that ThruComm doesn't sell any boxes. There's no expenditure for equipment. It has determined that customers are no longer interested in investing in technology.

According to Gianinni, companies want to use it but don't want to sink capital in it. Toward that end, ThruComm has formulated a unique relationship with Information Leasing Corp., a wholly owned subsidiary of Provident Bank.

"We, in effect, sell our equipment to ILC, who, in effect, lease it back to us," says Gianinni. "We bundle everything into a package and the customer pays for that package on a monthly recurring basis. Service, equipment, installation, field maintenance - it's all inclusive."

The technology platform that ThruComm has developed and pointed specifically at the EFT marketplace certainly differentiates the company in this competitive space. ThruComm is deeply centered around a core competency in networking and protocol, but what truly seems to set it apart is its passion.

"We love the business. We love the industry," says Gianinni. "We like being in it and therefore have a willingness to go a distance the big carriers don't even consider."

Gianinni continues, "I really believe if a merchant who is currently in a dial-up environment wants to get out of it, they would be forced to do business with the big guys if ThruComm wasn't there. No one else in this space is doing what we're doing."

What's the hottest thing ThruComm is doing today? That would be VPN.

VPN takes a normal dial line already in the store and makes it perform like an online connection without having to go through the expense of installing a frame relay circuit at each site. At a cost of $95 per month, the VPN product provides service up to six ports, guarantees a three-second response time and provides standard field support from 8 a.m. to 11 p.m.

The next service on ThruComm's menu is WFR - wireless frame relay. For $125 per month, the customer receives all of the attributes of a wireless frame relay system usually offered conditionally when there are enough sites within a certain radius to connect to the cell. There has to be a combination of 20 merchants in one site radius to make the investment in a RF base station.

The WFR service seems to be the favorite. "For the customers who have it, they love it," says Gianinni. "Right now, our biggest user is U.S. Bancorp." TFR, or terrestrial frame relay, is next on the list of services ThruComm offers. The cost is $165 per month, and it's utilized primarily by merchants with a lot of enterprise applications as well as banks, which prefer using terrestrial frame relay for ATM networks.

Turnaround time varies for ThruComm's products and services. Installation can be anywhere from three to 35 days, with VPN the shortest and TFR the longest. All, however, can be seamlessly integrated into existing equipment. And with more than 2,000 locations up and running on ThruComm's network, it would appear that a lot of integration already has occurred.

Just how many connections have come about through the efforts of ISOs? ThruComm primarily works through processors and has relationships with Paymentech, Vital and FDC. ThruComm sees the world through three channels, one of which is what it calls the business development channel - namely, the ISO community. ThruComm hopes ISOs will take the time to look over the products and offer ThruComm as an alternative service to both new and existing merchants.

The second channel ThruComm is looking at is the retail/convenience/petroleum space, and the third is the restaurant/service industry. "We tried to develop a suite of services that more or less appeals to just about anything from moderate to heavy transaction volume merchants," says Gianinni. "Right now we tend to appeal to merchants that are part of chains with heavy point-of-sale authorizations. We don't charge by transaction. All pricing is flat - another differentiator."

So far, ThruComm's marketing efforts have been with processors since processors are seeing the demand coming from their merchant base. According to Gianinni, they're getting daily calls from larger customers requesting, sometimes pleading, for a solution. "Twenty years ago, one out of 18 transactions required something other than cash. Now it's one in four," says Gianinni. "Speed becomes extremely important and, obviously, communication solutions that charge by the click are counter-strategic. As your volume grows, you don't see economies of scale. That's why we've priced our services flat. All are 'all you can eat' services."

Will ISOs take advantage of the "all you can eat" offering? Gianinni says it's not that simple.

"The single biggest challenge is when we first started interesting channels to us, they just had no interest in taking on this scope of work because they could still get by with what their merchants were using to transmit data to their centers," he says.

"Then they started to see the demand push from the other side. Paymentech is the most savvy in terms of recognizing this kind of tsunami that has been heading their way."

Does ThruComm have criteria about whom it chooses to work with? Organizations willing to invest time and resources in productizing ThruComm are preferred.

"Secondly, while there are no hard and fast rules, we want to invest our time and money with a processor who has critical mass in merchants," says Gianinni.

Another important ingredient is that processors have to do the certification necessary to know when specific applications are running over ThruComm's network. This certification involves a plethora of different apps running on different terminals.

"One of the things about the EFT space I observed when I pointed the company in this direction was that I had never seen an industry that was so fragmented," says Gianinni. "I am a serial entrepreneur. I couldn't believe big companies doing significant revenues were all predicated on one tiny slice of the EFT space. Never had so many made so much for offering so little."

Gianinni saw hundreds of different apps doing the same thing and hundreds of ways of doing it with little quirks and characteristics of codes that made operation different. "At the same time, it is my bread and butter. I can make order out of this chaos," says Gianinni.

Making order out of the chaos involves training. ThruComm trains processors' sales forces on how to present the integrator suite to merchants. On-site training as well as in-house seminars are offered with ample training materials provided.

But the single biggest franchise for ThruComm remains its customer support. ThruComm proactively monitors all CIDs that are installed.

With software running in each CID that connects all to ThruComm's Operational Center, the network checks in on CIDs everywhere and asks, "Are you there?" at regular intervals. If there is no response, it is called an "event," and ThruComm contacts that customer within minutes, advising that the site is interrupted. The field-service clock starts ticking.

In an industry where mergers and acquisitions can acutely and negatively affect customer service, ThruComm is committed to maintaining its customer-oriented business model.

"Obviously, we are very keen on avoiding the classic mistakes that are made over and over again by merging companies," says Gianinni. "Companies fail just as often with demand as they do with lack of demand. We have an extremely high level of service and constantly look at how do we can continue to attract people to us without blowing up our budget."

ThruComm is involved with opportunities to work alongside some major processors and is excited at the amount of proposals it has been receiving. It would appear the stage is set for great expansion at ThruComm. Its network is in place, and it is eager to develop new business channels.

And expansion was certainly on the minds of everyone at ThruComm in September 2001 when it was announced that $15 million worth of fresh capital had been raised in its Series D round of funding.

The eager investors included Continuation Investment Partners (CIP) and Northwood Ventures LLC, who led the round. Ashford Capital Management, KDI Precision Products (a division of L3 Communications), Marconi plc, Pecks Management Partners Ltd., and Penny Lane Advisors, Inc., also participated.

The money was used to wipe out debts, consolidate operations in St. Petersburg, Fla., and continue research and development of product and services for systems that need ThruComm.

"Based on just what I read and what I talk about with people in the industry, in terms of this proliferation of different ways to pay for the same thing other than cash, debit, loyalty, etc., the processing industry is going forward requiring more healthy transactions. The greater the need for transactions, the greater the need for ThruComm," says Gianinni.

"We've never met a system we couldn't handle. Our philosophy: There is no such thing as bad business, only bad prices. As long as a customer will pay, we will provide the solutions."

ThruComm ISO contact: Paul Nee Phone: 727-821-2300 E-mail: pnee@thrucomm.net

Company address: 100 Second Ave., Suite 1100 St. Petersburg, FL 33701 Phone: 727-821-2300 Fax: 727-896-6268 Web site: www.thrucomm.com

ISO benefits: - Reliable connectivity and affordability for online connections. - Customer interface device (CID) is "secret sauce." - Can install virtual private network (VPN), thus avoiding the expense of a frame relay circuit. - Wireless frame relay (WFR) is a customer favorite. - Terrestrial frame relay (TFR) is available for customers with a lot of enterprise applications. - All pricing is flat. - On-site training, in-house seminars available. - Operational Center checks in on all CIDs.