Talk America Continues Bucking Telecom Trend

Byline: Yuki Noguchi

Talk America Inc. posted its fourth consecutive quarter of profits Tuesday, making the Reston-based firm one of the healthiest firms in an industry where few local telecommunications companies are still left standing.

Talk America, which sells local and long-distance telephone service to residential customers in 25 states, said it earned $13.4 million (45 cents a share) on revenue of $79.1 million during its third quarter. That compares to a loss of $162.3 million ($6.18 a share) on revenues of $126.3 million during the same period a year ago. Most of decline in revenue was due to a fall off in its long-distance business, which the company is no longer actively marketing except to package it with local service.

The company added 32,000 new customers during the quarter. The company now has 276,000 customers who buy both local and long-distance services, and it expects that number to increase to between 315,000 and 325,000 customers.

Talk America also completed a 1-for-3 reverse stock split during the quarter, and retired $13.5 million in debt after the quarter, which will reduce its interest payments over the next three years by $1.4 million.

"We've really increased our marketing," said Gabe Battista, chairman and chief executive of Talk America, which now employs about 1,000 people. The company has started to advertise at events, as well as through telemarketing or on television, radio, and online media, he said.

Talk America's profitable performance is the result of having solved some of its costly earlier problems, Battista said. Until year ago, the company had poor computer systems that could not handle the complexity of managing the provisioning, billing, and credit-checking necessary, he said. Last year, Talk America invested $50 million in its administrative systems, which made it easier to weed out delinquent customers and provide service faster, he said.

Talk America is also benefitting from a revival in the business of reselling local telecommunications services.

Unlike some upstart companies that spent billions of dollars to build their own networks, Talk America essentially leases lines and network equipment from incumbent phone providers like Verizon Communciations Inc. and SBC Communications Inc. and markets those telecommunications services under its own brand name. In the last year or so, this has become a popular way of competiting against the main local phone companies because it does not require a lot of capital to start the business.

The company was originally founded in 1989 as Tel-Save Inc., a long-distance reseller. In May 2000, shortly after Battista took over control of the company, the company renamed itself to Talk America and began selling local services bundled together with its long-distance offering.

"Long distance was not a viable business because competition was so aggressive and prices were falling," Battista said. While hundreds of companies were already offering businesses alternatives to their local service, Talk America decided to sell to residential consumers because "nobody else was doing it," he said.

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