By Joel Warner
By Michael Roberts
By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
By Patricia Calhoun
By William Breathes
Travis Credle was intrigued.
The man sitting across the table from him was outlining the problems with local telephone service 1,800 miles away, in Denver. He was telling Credle about the entrenched provider, Qwest, and its dismal customer-service record. About how the Colorado Public Utilities Commission had ordered the Baby Bell to refund $12.7 million to its customers in 1998. How it was the perfect time for a new company to give Qwest some much-needed competition. How the investment group he represented -- Telecom Advisory Services Inc. -- would be doing just that in Colorado, Arizona, Minnesota, Iowa and other states. That Mile High Telecom would be a once-in-a-lifetime opportunity.
It was a performance Frank Southerland was putting on all over Morehead City, North Carolina. He had known Paul Meyer, one of Credle's best friends, for more than four decades, so when Southerland invited Meyer to invest, it was only natural that his friends would be interested as well. Word traveled fast in the close-knit, affluent coastal community, which serves as a jumping-off point for tourists heading to Cape Lookout National Seashore and a string of nearby beach towns.
"He took about ten of us out to dinner," Credle says in his thick Tarheel drawl. "He realized there was a gold mine here, and he courted us. He said he wouldn't put family and friends' money in his other partnerships in the oil-and-gas business, but this looked like a sure hit. Who would present something like this to friends of forty years without believing it?"
It didn't hurt that Southerland liked to recall his own upbringing in the small North Carolina town of Goldsboro: It offset his designer clothing, gold jewelry and Florida residence. He also brought in the big talent, having Tim Wetherald, Mile High's managing partner, and Marc Shiner, a partner in Telecom Advisory Services, meet with potential investors in the spring of 2001. Wetherald also posted a letter on the company's Web site, reminding investors just how badly he believed Colorado customers needed another local telephone-service provider.
"Just as the long-distance monopoly by AT&T was broken up and along came MCI, Sprint and the others, we will be in a position to compete head to head with Qwest for the millions of residential and commercial phone customers throughout the state of Colorado," he wrote. "Fortunately for us, Qwest has the worst customer service rating in the nation. We will capitalize on this trend by building a company that focuses on the customer. The timing is right, the industry is exploding, and with the right management team and partners, the sky is the limit!"
The trio's efforts sold Credle and nine other residents, who were told that fifty units worth $20,000 apiece would be available in Mile High Telecom and each of its sister companies being set up in a half-dozen other states. Credle picked up about ten shares, investing $200,000, and he estimates that Telecom Advisory Services eventually raised a total of $1.5 million just in Morehead City for the projects. (While Telecom Advisory Services was the group spearheading the sales pitch for all the states, each of the phone companies is an independent business with its own investors.)
"The timing was perfect for them, because the market was down, and people were seeing their 401(k)s go down," says investor Bernie Baake, a retired Morehead City engineer. "I thought, 'I'm losing money anyway -- what the heck.'"
Hundreds of miles away, a Minnesota man received a random fax about Mile High Telecom, which was scheduled to launch service in July 2001, and wanted to find out more; like Coloradans, Minnesota telephone customers are essentially Qwest-dependent.
"I called and talked to Southerland," says Steve Petersen. "He told me getting involved in this was like having a license to steal. I knew that people were dissatisfied with Qwest, and I knew we had a chance to land a lot of customers."
By March 2001, the suburban Minneapolis bill collector had invested a total of $200,000 in start-up telephone companies in Colorado, Arizona and Minnesota.
"Frank Southerland just called up one day out of the blue," says Robert Brown, who lives in Hannibal, Missouri, and runs a trucking company. "He said there were fifty units for sale, and he'd never get a dime until we all got our money back. Old Frank was pretty smooth. Southerland said that in a year and a half, we'd have our money back and then get monthly or quarterly checks. He said that when they got to 15,000 customers, that would be the magic number."
Brown figured that if an upstart phone company could be profitable with just a few thousand customers, it might be a gamble worth taking. He eventually anted up more than $100,000 in new telephone companies in Colorado, Arizona, Washington and Minnesota.
Most of the 65 investors in Mile High Telecom were successful small-business men who were excited by the deregulation of the telephone industry and looking for investments outside of the tanking stock market. From them, Southerland raised $1.4 million for the Denver operations. But Credle says classic "boiler room" sales tactics were used to seduce backers, with a crew of salespeople working out of a small Boca Raton office and reading from a script. Seasoned telemarketers in such operations usually make large commissions pitching "can't miss" investments with big returns. They often target elderly people with money in 401(k)s or retirement accounts and exchange lists of potential prospects with other telemarketers.