It is heaven-and it is Iowa

From startup company to multistate digital network, Racom has grown its business by making outsourcing of communications attractive to public safety and commercial users alike. For Racom owner Gregg Miller, Iowa has become a ‘Field of [Wireless] Dreams.’

What do you do if you are a “little operator” or, for that matter, even a “medium-sized operator” in an industry in which mega-giants are consolidating everything in sight? One strategy is to await the inevitable and hope you get acquired at a price that will enable your early retirement. Another approach is to search out a niche that will sustain your operation, but is too small for national or international competitors to put forth effort. An alternative approach that is difficult-and rare-is to find a new way to compete in the same league with the big operators.

The latter approach describes Marshalltown, IA-based Racom Corporation. Racom currently operates one of the largest digital wireless networks in the upper Midwest. The typical approach has been for the provider to sell the entire infrastructure-towers, antennas, equipment and buildings-to the customers. The idea that Racom’s president, Gregg Miller, embraced was to retain ownership of the infrastructure, expand it as necessary and simply lease air time to customers. Users in small rural areas, such as regional manufacturing operations and, especially, public safety officials, gain access to state-of-the-art communications systems that they otherwise could not afford.

Miller recalled nostalgically the early days of the two-way industry when radio hobbyists began their “mom and pop” garage-based operations. Miller, who started with amateur radio too, was part of that process. He and his wife, Sally, started Racom in 1972 in the attic of their farmhouse. (Racom was selected for the company name as a contraction of the words “radio” and “communications.”) Sally ran the office, while Gregg spent his days on the road selling radios and his evenings processing orders.

Along the way, Miller designed a number of innovative communications systems, including a mobile system using a satellite for uplink and downlink. He designed and constructed a network of 800MHz radiotelephone systems. In 1993, Miller acquired enhanced specialized mobile radio (ESMR) licensing and began construction of a network that would eventually cover seven states.

The company’s resources include 4,000 contiguous 800MHz channels with which it serves more than 8,000 customers. Racom’s channels lie in the 861MHz-865MHz band and, theoretically, are subject to relocation by 800MHz auction winners, primarily Nextel Communications. Miller isn’t worried, however. The digital network is only using about 500 to 600 of the 800MHz channels, so the remaining spectrum may be sold or traded. As a member of the board of directors of PCIA’s Mobile Wireless Communications Alliance (MWCA), Miller has worked for an “SMR incumbent bill of rights” and relocation to comparable spectrum for 800MHz incumbents.

“As it is, we feel absolutely comfortable in telling our public safety customers that while we may have to go to new frequencies in the 800 band, it’ll have to be done in such a way so that it’s totally transparent and seamless to the end users. The only way to do that with a network of our size, we’ve concluded, is to put up a parallel network. So it may be that Nextel will just leave us alone. They don’t have that many of us [operators] that are of this scope and size to contend with, and so they may just decide that they’re going to have to build around us and leave us alone,” Miller said.

In addition to public safety agencies, Racom’s government clients include highway departments, public works departments, prisons, water districts and the U.S. Corps of Engineers. The corporation has numerous large and small private clients as well. (See sidebar on page 37.)

‘The loser now will be later to win’

Miller admits the idea of leasing network space, as opposed to selling infrastructure, came about by accident. In 1994, officials in Polk County, IA, decided they needed a new 800MHz system for the county’s public service agencies. They went about it the usual way, getting officials and users together, hiring a consulting engineer, writing a spec and drafting an RFP. Racom bid the job at $8.4 million, but Motorola underbid Racom with a price of $6.7 million.

The county’s radio committee spent about six months evaluating the bids and visiting the two companies. It recommended to the county board of supervisors, which held the pursestrings, that the county accept the Racom bid, even though it was $1.7 million higher than Motorola’s. There were several reasons, Miller said, including what the committee felt were superior features, such as the Racom’s use of Ericsson’s Enhanced Digital Access Communications Systems (EDACS).

The board accepted the committee’s recommendation by a 4-1 vote, with one qualification-the acceptance was contingent on the passage of a bond issue the following November. Motorola persisted in pursuing the contract with a campaign against the bond issue. As a result, a strange situation developed. An out-of-state company was encouraging Iowa voters not to pay what it considered to be an exorbitant sum asked for by Racom, while local officials were going door to door asking Iowans to underwrite that sum.

The referendum failed. Motorola won-at least in the sense that Racom did not get the job-but Motorola did not get the contract either. Polk County also lost. It had nothing to replace its antiquated communications system.

A way out of the impasse came when a sheriff asked Miller, “Don’t you guys have an 800MHz license? We could come up with maybe $1 million. Couldn’t we plug into your system to solve our immediate problems, then pay you a monthly access fee until we find a way to get the rest of the money?”

“It sounded pretty good to us,” Miller said. “So that’s how we got into the business. The more we got into it, the more interesting it looked as a business direction in itself.”

From accident to business strategy

An accidental situation generated the idea, but it was no accident the way Miller picked up the idea and ran with it. In about 1995, Blackhawk County, IA, was going through a similar process. Outside bidders set a system price of $7 million, but Racom bid $3 million, plus annual maintenance costs. Racom also offered access to a network that would soon spread throughout the state into neighboring states.

The system soon received a serious trial and validation in Blackhawk County when the area was ravaged by a series of severe floods. One small town, Dunkerton, was almost completely inundated. The utility companies had to go out in boats to disconnect gas and electricity. Racom’s system enabled integrated communications among law enforcement, utility companies, rescue teams, hospitals and other entities.

“Usually, if there’s a fire, one of the first things the firefighters have to do when they arrive on the scene is call their dispatcher to call the utility companies and tell them to turn off their power,” Miller said. “But now, they can make that call over the same network.” The channels are integrated, but are also prioritized, with law enforcement having top priority.

Continued growth

Racom recently completed a project for the picturesque Dubuque County, setting for the movie “Field of Dreams.” Outside bidders offered to create a radio system for $9 million, but Racom came in with a bid of $3 million, with $250,000 a year for ongoing expenses. So much for the “economies of scale” that allow large companies to underbid smaller ones. Although Miller had been a bit piqued at Motorola over that first encounter back in Polk County, now he says “I could go back and give Motorola a big kiss.”

Racom now has 14 branch offices and more than 8,000 customers in Iowa, Minnesota, Nebraska, South Dakota, Wisconsin and Illinois. Racom continues to build out its digital network, which represents an investment of about $50 million.

“Our extensive infrastructure of towers, facilities and T1 networks, as well as a highly skilled workforce, creates a dual network synergy that is unique in the industry,” Miller said. “The two-way radio business is undergoing significant change, both in the types of technology offered and the method of purchasing radio systems, which will create tremendous opportunities for the limited number of companies with capital and/or frequency spectrum.”

Miller said that the industry’s migration from older analog equipment to newer digital technologies means more efficient use of spectrum and the capability to handle voice and data simultaneously. Currently, Racom handles about 20 million connections a month, about three million of which are data transmissions. Miller predicted that within a few years this proportion will be reversed, with about 17 million being data calls.

Capabilities of the network are constantly being enhanced, such as a cooperative effort that began in 1998 with Fargo, ND-based IDA to create a GPS/AVL fleet management system compatible with EDACS technology. That first project, for Sioux Valley Southwestern Electric, in Coleman, SD, has been expanded to other places, like Blackhawk County.

“That’s a real deal now,” said Miller citing applications for ambulances and other public safety uses. “As GPS continues to comes down in price, and we figure out how better to integrate all that, I think that’s going to become a standard, built-in feature.”

Providing wireless content

Other wireless applications are also likely to be offered by the corporation in the future. Miller foresees providing CAD systems, 9-1-1 phone systems and mapping systems, with Racom becoming more of a systems integrator.

“I’ve got a whole floor of this building that I’m trying to hold open for what I call my ‘content’ floor.” Miller said. “We’re sort of a ‘pipe’ provider now, but I think the future holds a mix of providing not only the pipe, but what flows through the pipe.” ESMRs can become data warehouses for mission-critical customers, he said. He gave as an example becoming a depository for pawnshop records, so police departments can cross-check surrounding towns to track stolen property. Wireless 9-1-1 and map-centric applications are expensive for individual comm centers, but affordable when centralized, he said. “There are a lot of opportunities for content and massaging content, putting it together in unique and needed ways.”

Corporate changes

Racom has gone through a number of corporate changes over the years. When Miller got the idea to build out an 800MHz system, he capitalized the plan by selling one-third of the company to General Electric. G.E. later combined with L. M. Ericsson to become Ericsson G.E. This business relationship, which resulted in Racom being the exclusive distributor of EDACS technology in the states of Iowa, Minnesota, Nebraska, North Dakota and South Dakota, has been responsible for much of the corporation’s growth.

Racom still uses EDACS systems, even though Ericsson is no longer a part-owner of Racom. (Ericsson’s Private Radio Systems Division has itself recently been acquired by Com-Net, and the new entity is known as Com-Net Ericsson Critical Radio Systems.) Currently, American Energy Holdings, an $11 billion diversified utility company with worldwide operations, owns 31% of Racom. American Energy, in turn, was recently bought out by Warren Buffet’s group, Berkshire Hathaway, and taken private. Miller joked that Buffet obviously wanted to get his hands on Racom’s management team. That team owns 69%, with Miller as the majority shareholder. His son, Michael Miller, now vice president of corporate development, joined the company in 1996 after five years with General Electric.

There is also no enmity between Racom and Motorola. Miller hopes to expand the business to include systems that use infrastructure and equipment produced by the former rival. “We’d very much like to; I think the whole industry is ripe for that kind of consolidation,” Miller said. “I think our industry has matured to the point so that only makes sense, so that we who are the local sales and service organizations ought not be tied to one manufacturer but to ‘What does the customer really need?’ and ‘How is his problem solved in the best way?'”

If you build it, they will come

Miller’s foresight in acquiring 800MHz spectrum, the strategic partnerships he forged with suppliers and customers, and his innovative move in leasing network space gives him a competitive advantage. He estimated that Racom is about 24 months ahead of its nearest competitor in building a wide- area, shared, digital voice and data, radio-dispatch and telephone-interconnect communications system.

Which is another way of saying that Gregg Miller no longer works out of his farmhouse attic.