Fifteen years ago, Bell Canada was in the final stages of deregulation. That mighty monopoly, founded in 1880, would, on its 100th anniversary, start a deregulation program that, when completed in 1997, would leave it a fraction of what it once was. During the later years of the program, entrepreneurs scrambled to find their place.

This is a story about two friends turned entrepreneurs.

Deregulation triggered an unprecedented interest in telecommunication. Opportunity was the driver: if you could digitize it, transmit it and decode it, you could make a lot of money. This was three years before the launch of the Blackberry, the very beginning of a cellular revolution. It was a time when digital technologies were leapfrogging analog competitors. The computer was establishing itself in consumer markets. It was a time for innovative ideas. “Back then we were scared,” says Jody Schnarr, CEO of Fibernetics. He and long time friend/business partner John Stix, who is Marketing Director of their Kitchener-Waterloo based Competitive Local Exchange Carrier (CLEC), were worried about the challenges of self employment, about risks involved in creating a working business model that would generate income for the two. It was a “healthy scare,” because it raised concern and generated a willingness to learn from the daily rigors of sales and marketing.

Their learned approach helped them design a communication empire that today goes head to head against Rogers, Bell and Telus.

While working for separate companies, the friends started to dabble in the long distance calling business. Schnarr, who is a gifted technological tinkerer, said they “found out you can buy and sell long distance service,” which in 1994, was very new. Trying to access grant money, the two developed a long distance business strategy. The process included identifying the potential market, so “we went and knocked on doors to find who would take the service,” says Schnarr.

They hypothesized people in Stratford wanted to call people in Kitchener-Waterloo “because there was a very close tie.” “We knocked on about 700 doors and most said they wanted it,” so Schnarr and Stix were empowered with a list of 700 people apparently willing to pay $10 a month to call the Waterloo area. They found a supplier to provide technology that Schnarr could use to connect the two locales together. The cost was about $15,000. “We put the service in, got it running” … and “none of them took it.”

They spent two months “calling, begging.” In the end, they signed up 70 customers. “We had $10 a month from 70 customers – $700 a month. There was a flat cost of $1000 a month.” They had developed a formula to go broke. Scrambling to leverage what they built, they developed an idea: instead of selling a long distance service to the households, people could listen to an advertisement prior to connecting and receive a free long distance call. In 1994, long distance cost about 40 cents a minute. Their research said, while Stratford residents wanted to buy the $10 service, they didn’t want to sign up with a new company. “Everyone wants to use it, but they didn’t want to change. All we had to do was come up with a way that everybody would use it,” explains Schnarr.

That adaptation turned a quickly failing business into a fledgling communications/ advertising company. “We thought about getting someone to pay the $1000 monthly bill, to let everybody use it for free.” The advertiser would get a new forum to communicate their message, and the public, after hearing the advertisement, will be able to make a free long distance call. Car dealer Gary Stockie bought the concept. They changed the phone number to 662-GARY, and launched their first PR campaign. Next-day coverage in the local newspaper prompted 4000 households to use it that first day. “The town just went nuts. At the end of it, we had 8000 household using it a day,” says Stix. “We started, we were bankrupt in two months, then we were back up in three months,” says Schnarr. The future was brighter.

“Out of necessity, we came up with the idea that everybody in the Stratford area wanted.” Further, what they created was scalable. “The service was up, working and there was nothing for us to do,” says Stix, “So we just started going to every single tiedin area. We brought Guelph into Kitchener/ Waterloo, and looked at Greater Toronto. We basically did 40 to 50 sites. We were channeling a tremendous amount of calls per day at the time.”

They looked at revenue streams, creating a “wheel” where 20-25 ads would go into a rotation. “We went on building those out, and once we had them all covered we sat back and wondered, ‘what can we do next?’” says Schnarr. By 1996 Schnarr and Stix were fully entrenched within the telecommunications industry. They were hearing rumblings about “voice over internet protocol” (VOIP). The vision was great, but the equipment wasn’t available. So Schnarr started to fabricate their own equipment to convert analog into digital and transmit between two cities. They made it work, but found that the integrity of the internet lines were “pretty awful”.

Over the next few years they continued to play with evolving technology. “It was the only way we could bridge two sites together, without having to pay a tremendous amount of money for long distances.” Standards had not been set in the internet world and there were too many variables, so they created their own network and started to tie together communities in southern Ontario. “We tied in London, Kitchener, Toronto , Ottawa, Hamilton and a couple of others in a giant, VOIP mesh, and we launched the Labatt Blue line.” The Labatt Blue line was a promotion network where a person would call the number 664-BLUE and then in turn call select major cities. “We built that company up and called it Onlinetel Corp.” They sold it in 2001, to a company operating out of Toronto, for an undisclosed amount.

The building of that network taught Schnarr and Stix some core principles about their industry, most importantly, that networks must be sustainable. The Labatt Blue Line was supposed to last two months, but it functioned for 14 months, generating 300,000 calls a day and the interest of a buyer. In the end Labatt executives didn’t want to write that big of a cheque – “so it ended,” says Stix.

When Onlinetel was sold in 2001, the two took a break. But after two years of golf and sunshine – the fulfillment of their non-compete clause – they started another company, Worldline, a residential service offering long distance service for $3.95 a month. “It’s basically very low cost, with almost zero margin.” The goal was to go big. “I always wanted to get into telecommunications in a deeper level. I had a goal to be a CLEC, a Competitive Local Exchange Carrier – basically, you could put your own fiber in the ground, you connect to Bell and you have your own phone lines. We know we were fantastic customers for Bell, we had given them $15-$20 million for phone lines in our time, we know what the perfect customer is like,” said Schnarr.

The long distance service was just the new beginning. “We started our dial-up internet service called 295.ca. The internet is a perfect customer for a CLEC.” When the separate companies combined users , they have tremendous volume. “We built up $2.95 and Worldline into a good revenue base, and used that revenue and buying power to build our CLEC. We called it Fibernetics, then we simply switched from other carriers to our CLEC – Fibernetics.” In essence they bought lines from themselves. “Those two customers [Worldline& 295.ca] didn’t make a great deal of money on the market, but they spent a great deal of money on the carriers, so now they spend a great deal of money with Fibernetics. We have two great customers, it’s laterally integrated. We control every piece of the puzzle,” says Schnarr.

In July 2007, through their Worldline operation, Schnarr and Stix bought back Onlinetel, the former Labatt Blue Line company for what is described in a Newlook Industry press release as a “$2,250,000 aggregate consideration”. “We’re approaching 100,000 Worldline customers paying flat fees like $3.95 for all of Canada … You can call anywhere in the United States, and 50 international countries for $13.95 a month, nobody has every offered that before, and that is unlimited,” says Stix.

Infrastructure is one thing, marketing the structure once built is a different process altogether. But the two learn quickly. Expanding the model designed with the Labatt Blue Line campaign, Stix developed a unique affiliate program that works with media outlets and associations throughout Canada. “We had an idea of going to the Toronto Sun, and said you can provide value added services to your readers and in turn you can also share in the revenue. So [the Sun] put up the media dollars to help promote the service.

“Fibernetics is the phone company, all the services ride on this network, there are thoughts that this would become the number one brand,” says Stix. Fibernetics is a new service, but Stix says, the product is not new: “our first press release said that we have a new business gateway that makes business calls over the internet – that was in 2002.”

The whole industry had some difficult times trying to make VOIP work. “We feel it ‘s taken us the last three years to get it just right,” says Schnarr. “We created a new approach to a phone system that uses our network with the concepts of digital voice. The advantages of having our own network, and coming up with a model where someone can buy one of our phone systems, and cancel all their phone lines so they don’t have to pay us for their phone lines, is new.”

Throughout 2008, Fibernetics beta-tested both residential and commercial applications in Waterloo Region. Economical Insurance was a beta site and liked it so much they held an event to encourage 2500 broker offices to take advantage of the offer. As a subscriber with Worldline for over a year, they’ve developed their own service called Economic Call, “which is our residential service, they promote it, customers call us, and we sign them up.”

Fibernetics officially launched on January 5, 2008, as they placed the phone system and internet service in 70 beta sites. Currently, they’re installing 4-5 units a day. Interested readers can call 1-877-406-1333 for more info about the service.

To highlight the flexibility of their phone system, “We’ve put a couple in trucks,” says Stix. The cost of the phone system is $1295 and includes a PBX box and phone units. The system is feature rich, says Stix. “It’s a fantastic product on its own even if you have to pay for your phone lines …. We’re going to marry it all together into one solution.”

“Phone lines are going to go away over time. We know that’s going to happen, so that’s what we’re going to do, what we want to be is a internet provider. This whole exercise is to get all the internet customers out there by helping them get off their phone lines and getting them a proper, phone system that has the features and technology built into it. Instead of waiting for it to just happen, we’re striking first.” The company is hiring aggressively. They already have a fairly substantial team, and are looking to expand their operations locally and across North America. Fibernetics is a international CLEC, with offices in Montreal, Dominican Republic and Bulgaria. Gary Handleman, Senior PBX Engineer, is in Montreal. “He’s been working on our phone system since 2004, when we expanded to Dominican Republic, and in Bulgaria,” says Schnarr. “He’s been working on our own system and at the same time putting together the feature sets, one by one to get to our final product.”

“Although we’ve been in business for a while, we feel like we’re just launching. Really this is the dream,” says Stix, “where we feel like we’ve accomplished what we wanted to be. It took a long time, there was so much build up, paying for the network, raising a pile of capital, developing our own residential business line, crossing that over to our own network – it’s a dream,”he repeats. “We’re going to go from $10 million, through the roof,” says Stix. “We’re channeling $5 million worth of minutes of long distance a day on this network.”

“We’re born and raised in Waterloo, we all live here, we have our families here, we don’t plan on going anywhere,” adds Stix. For the time being, the two will focus on expanding their networks. “We have applications for CLEC in New York City, and we’re looking at a number of sites internationally to build our international CLEC service.” Schnarr says, “the end goal is to be a very large internet provider, because that‘s what people will be buying, with applications on top of it.”

Stix adds, “I don‘t know where the end is but I do know, when the majority of people in Canada, in the same breath, can say, ‘Telus, Bell, and Fibernetics’, I will know that we have accomplished our goals.”

It’s an offer that sounds almost too good to be true.

Fibernetics Corp. will give you free business phone lines with no recurring monthly cost, when you purchase their IP phone system.

The process is surprisingly simple. After paying a one-time cost for the phone system and the number of handsets you need, a phone box system is deployed in your office and you can log onto the system through a private network connection to control extensions and phone features.

One interesting aspect of IP based phones is that you do not need additional numbers with a roll over system to handle simultaneous calls. The basic SOHO system, which currently sells for $1295 (not including handsets), is automatically designed to handle two concurrent calls and can be expanded to allow for up to 12 concurrent calls. Their higher priced SMB system automatically includes up to 9 lines, but can be expanded to allow up to 72 concurrent calls.

Mike Brown, a company representative, explained that the system comes with a lot of features that would normally only be available in more expensive mid-range systems. Voicemail, voice to email, unlimited auto attendants, advanced call forwarding, conference bridge and even a find me / follow me option are just a few of the features that come with the basic package.

When we spoke to Brown he was using the system and the voice quality was excellent.

Brown noted that because Fibernetics has phone company status, just like Bell, Telus and AT&T, they are able to offer services not available to many other IP based phone companies. One helpful feature is number portability; the company can port your current business numbers to their system.

Another interesting feature is the ability to have local calling numbers in different cities in Canada without a physical location. You can purchase additional phone numbers – for example a phone number in Toronto, Montreal and Vancouver – for a one-time fee plus a small additional monthly fee (currently $25 to add a phone number and $2/month to maintain that number). Even better, a local call placed in Vancouver to your Vancouver line but answered in Montreal will not have long distance charges.

The long distance rates are also very attractive. Fibernetics currently charges 2 cents per minute for calls in Canada and the US and 2.9 cents per minute for international calls.

One catch with the system is that you do need to purchase DSL Internet access from the company, which is currently set at $89.95 per month. When you do the math, however, you should find that there is still a rapid pay back for your investment, especially for businesses that require more than the 2 lines automatically packaged with the system.

It wasn’t that the founders and owners of Fibernetics planned to launch during the first major recession of the new millennium. But, honestly, they couldn’t have picked a better time.

John Stix, co-founder, co-owner and executive vice-president for sales and marketing of the fledgling telecom firm says that it’s because of the recession that many corporations are eager to check out the cost savings that Fibernetics has to offer.

You may not have heard about Fibernetics yet, but that’s going to change. The Kitchener-based company has joined the hallowed ranks of CLECs (competitive local exchange carriers). There are only three in Ontario and the other two are Rogers and Telus. CLEC is the highest designation a phone company can reach in Canada. That designation given by the CRTC – which also regulates CLECs – gives Fibernetics the same rights and privileges as Bell Canada, and gives Fibernetics “a fibre connection into the heart of Bell,” explains Stix. “Vonage and companies like that buy Internet backbone from companies like us so they can provide customers services and charge for them.”

It hasn’t been easy. Stix and long-time friend Jody Schnarr, who is also Fibernetics president, CEO, and co-founder, have worked in the telecom industry since they left school. Stix describes it as an “arduous journey” of close to 15 years in a very capitalintensive industry. He says they flew under the radar for a long time, until the February launch of Fibernetics’ new services.

It starts with a box-like device that they designed and manufacture. It is packed with proprietary software. Plug a DSL connection into the back of it and your phone lines are on Fibernetics dedicated Internet connection. That gives you access to the Bell fibre optics system. It’s a closed network which allows Fibernetics to ensure call quality.

Stix estimates it cost about $10 million to develop the device and software, for which businesses pay a one-time fee of $1,295 that will get them two phone lines. Each additional phone line costs $295. Businesses can keep all their phone numbers – only their provider changes – and the cost.

“Businesses accept the cost of phone lines as a natural cost like heat and hydro,” says Stix. Transferring to Fibernetics dramatically reduces the cost of phone lines for everything from mom-and-pop pizza shops to major corporations.

They ran a pilot program in Kitchener, Waterloo and Cambridge this year with 40 companies and the response was big. “From small companies to a very large developer it worked beautifully,” says Stix. “The buzz is just amazing.”

Long distance calls, especially overseas, do cost, but a lot less than any other phone carrier, and in this economic climate that’s a huge plus. “It’s a fully sustainable business model,” explains Stix. Their continuing income comes from providing Internet services to clients. For $89.95 per month a business can get a DSL connection that will accommodate up to 20 phone lines. “We’re a new age telecom company,” he explains.

The $10 million investment it took to set up Fibernetics was self-generated private money. Stix and Schnarr already had steady revenue from a residential phone internet service company they had called Worldline. Actually the network for Fibernetics is paid for by that residential service – a network that has unlimited bandwidth available. They haven’t even fully rolled out their marketing campaign and they’re swamped with orders and inquiries – a major player in the financial industry that has 500 phones in 48 offices across Canada wanted to meet with Stix pronto. He believes that getting that meeting would have been a lot tougher before the economic downturn. Over the next year to year and a half, Stix fully expects they’ll be hiring 100 to 150 people. The future looks so bright they’re thinking of hiring a consulting firm to help them manage growth.

“We’re the first one-stop shop in the history of Canada for phone systems,” crows Stix. “We manufacture the phone system, we are the phone system provider, we are the telecom company that provides the phone lines, and we are the Internet service provider. We believe we’re on our way to being the next Bell.”

Currently Fibernetics has about 120 employees world-wide, about 25 are at their head office in Kitchener. They have Fibernetics offices in Toronto and in London, Ontario. They also have a call centre in the Dominican Republic and a software development firm in Sofia, Bulgaria. But it’s here that they need to hire, starting with developing a larger HR department to hire the computer science grads, customer service people, installers, sales people etc. they will need in the coming months.

Stix is determined to preserve their youth-oriented, open corporate culture through all this expansion. He really doesn’t want to lose the advantage of size that the company has now, so they’re keeping infrastructure costs down. “We can turn on a dime and we want to retain that in our company culture. We’re the Google of telecom.”

“Small businesses can compete against the big boys at a fraction of the cost.”

Fibernetics, a KW based technology firm, has developed a technology which leverages a business’s existing data/Internet connectivity to deliver free business phone lines.

The small PBX device resides on a business’s network and offers a full range of PBX functionality.

“This device is a first in the Canadian marketplace and will change the way a small to medium sized business perceives its telecommunication costs,” said John Stix, Fibernetics Vice President of Marketing.

“The return on the investment is rapid, with long term savings which will allow for dollars to be spent elsewhere. Small businesses can compete against the big boys at a fraction of the cost.” After purchasing the device for $1,295.00, the business will not have to pay the normal monthly business line costs that average $55.00 to $75.00 per line, per month. The device starts at two lines and is scalable to accommodate other larger sized businesses.

The Fibernetics PBX not only delivers free business lines but an array of features which normally would cost too much for a small start up business to even think would be affordable. Unlimited extensions, unlimited local calling, voicemail to email, follow me feature, conferencing, music on hold, an automated attendant and many more great features are all included.

Fibernetics is a CRTC approved competitive local exchange carrier (CLEC) and delivers a full range of data and voice services. “We are a phone company who wants to replace your existing Internet supplier,” said Francisco Dominguez, Vice President of Technology. “We offer businesses the same Internet access they have now and in turn provide all these features and phone lines for free when buying one of our devices.”

“Fibernetics believes that reliability, scalability and call quality will satisfy even the most demanding business owner or VP of communications.” Said Stix. “All calls are over the business’s own private network and Fibernetics national infrastructure.”

By SAMARA CYGMAN

The digitized voice of John Stix came through the phone with unprecedented clarity and strength.

Paying high rates for long-distance calling is over in Calgary, says one of the founders of Worldline – a one-year-old venture new to the Calgary area, poised to abolish charging per minute for long-distance calling, using voice over Internet protocol (VOIP) technology.

How it works is simple – callers phone a local Worldline Calgary phone number, listen to a five-second greeting, and enter the Canadian long-distance number they want to reach, all for only $7.95 a month.

And long-distance calls to the U.S. and overseas are only a few months away.

“We take your analog voice, digitize it and send it out over our own Internet that we have right across Canada – we did that to ensure the call quality is fantastic and call security is good too,” says Stix.  “We are the first company to provide this kind of service in Canada nationwide.”

Started in Toronto, Worldline enjoyed tremendous growth within their first year as thousands signed up for their service, which has now expanded into every major city In Canada.  And now they are launching In Calgary.

Customers do not require a computer or an Internet connection to enjoy Worldline’s service, don’t have to change their regular telephone service providers and don’t have to worry about speaking into a specialized mouthpiece or attachment.

“We felt you simply can’t change the way people have been calling for 100 years,” says Stix.  “We didn’t want to teach people to dial differently so we decided to work on technology to access our service through your everyday home phone.”

What’s the catch, you might ask?

There isn’t one – unlimited long-distance calling, without restrictions, is at your fingertips, whether you’re at home or on a cellphone.

The success of Worldline marks a breakthrough for the 35-yearold Waterloo native, who joined forces with his best friend and business partner, Jody Schnarr, to bring the idea to fruition.  Stix and Schnarr jumped on the opportunity to test out the venture when deregulation was introduced in the telephone industry in 1994.

“We’ve been in telecommunications since 1994 when we got into the flat-rate, long-distance business and we noticed serious limitations to providing flat rate to customers – but in 1997 we realized the Internet can be used as an alternative network,” says Stix, adding the breakthrough came in 1998 with the first phone-to-phone VOIP call.  “The quality wasn’t good, but hey, we did it, and since 1998 we’ve been refining this technology and now with Worldline it’s working with tens of thousands of customers signing in just under one year.”

Stix and Schnarr came up with Worldline dial up – where people can purchase the most affordable dial-up Internet service in western Canada for only $5.95 per month.  He says it feels amazing to see something they have toiled over for so long finally take off and improve people’s lives.

“We’re fulfilling a need out there to help people communicate and at $7.95 a month you can talk, talk, talk and it doesn’t matter – otherwise you’re always watching your clock,” says Stix.

“This is huge for kids going to university to be able to talk to their parents as much as they need to – Worldline looks forward to providing the most least cost communication services to Calgary and the rest of Canada for many years to come.”