Tech survivor: John Carter's Tier Zero provides T1 service for companies. After two rounds of layoffs in the post-boom years, he's now making a profit.

WHEN the Internet bubble burst, John Carter did what he had to do to make it through the decline: He cut his staff to the bone.

"It was brutal," said Carter. "It was a bummer."

But letting go nearly half of the 35 people at his high-speed Internet service provider, Tier Zero, also saved the company.

The two rounds of layoffs culminated in 2001 and claimed 15 people. Carter said Tier Zero has been turning a profit ever since.

Surviving a crash that took down many better-funded operations is one thing, but Carter has managed to steer Tier Zero through a business dominated by much larger telecom firms on his way to a projected $7.2 million in revenue this year, an 11 percent increase over 2003.

Tier Zero's narrow locus is providing high-speed T1 Internet service, which he calls the "Internet Diamond Lane," and server hosting to businesses and government agencies that demand reliable Internet access.

T1, which transfers digital signals at 1.5 megabits per second on a wire that goes directly to the customer, is more popular among some businesses than the competitive digital subscriber line technology that uses existing phone lines. Though their data transfer speeds can be comparable, DSL can get congested when co-mingled with other data flowing through the same phone line.

Tier Zero spends $2 million annually to lease the lines from local owners, reselling the access for a base monthly fee of $600 that covers the T1 line and a tech staff housed at its downtown L.A. offices.

That package, said Matthew Davis, director of broadband access technologies at Boston-based Yankee Group, is the kind that gives smaller firms like Carter's a leg up on larger enterprises. "Six hundred dollars a month is when you go whole hog and get it managed, mission critical, top-of-the-line T1," be said.

Tier Zero generates additional revenue from firewall, virus protection and enhanced Web hosting services. It also maintains servers for high volume users including the Los Angeles Unified School District and California institute of Technology's Jet Propulsion Laboratory in Pasadena.

Modest start

Carter's path to form Tier Zero started with a computer degree from an Anaheim trade school and gigs in the 1980s as an airport maintenance worker and traffic signal repairman for the City of Long Beach.

"I wanted to get more into the computer systems field, not just specialized in traffic," he said.

Alter several tries at starting up computer retail operations, Carter got crushed by the high-volume likes of Costco and CompUSA. He learned that if he couldn't compete on volume, he had to be sure his margins could carry the business.

Carter then hooked up with Patrick Guthrie, a former client at an Internet service provider in Fountain Valley, and they went alter a slice of the high-speed Internet market.

At the time, everybody was launching DSL service because they could charge $30 to $40 per month for services that cost only $25. But because DSL was focused on a new market of businesses and individuals with little to no understanding of technology, Carter envisioned that customer service would be a significant cost burden for DSL providers.

"Our customer is the technology guy at the business," he said of those who purchase T1 service. "He runs the network. We can have an intelligent conversation with him."

In 1997 the duo took their plan to an angel investor in search of $1 million to get the business off the ground.

Several T1 providers, including AT&T and Pacific Bell, were offering packages for $1,500 to $1,600 at the time. "I came up with a plan to offer everything for $999 a month," said Caner. "The angel investor said, 'I don't see the future in this.'"

He spent a week cold calling businesses with the $999 offer. When he came back with 20 customers, the angel, whom he declined to name, was convinced.

By 2000, there was a staff of 35 in sales, marketing and tech support. Then, Carter said, they "hit the wall."

His competitors had lowered their prices, so he was forced to do the same--and in the process had to lay off employees in late 2000 and 2001. (In April 2003, Carter bought out Guthrie, who moved to Lompoc to start a family.)

Now, with its base of 700 business customers, Caner wants to grow the company both internally and through acquisitions. He also plans to provide a service that allows users to make phone calls over their Internet connections, substantially reducing the price of long distance, with added options.

He said he hopes to sell the services at half the price of his competitors. But Carter hesitates to project too far in the future. "It's been a year-by-year thing," he said of his business. "We just try to keep our eye on the ball."

PROFILE

Tier Zero

Year Founded: 1997

Core Business: Provider of T1 services and server hosting

Revenues in 2002:$5.8 million

Revenues in 2003:$6.5 million

Employees in 2002:20

Employees in 2003:20

Goal: To become the premier independent communications company in California

Driving Force: To sell to more customers and acquire other companies