telecom wrecks builder deal with Cox
Unraveling proves windfall for Accipiter
By Ken Alltucker
The Arizona Republic
Wednesday, July 5, 2006
It was such a sweetheart deal, even Ma Bell would blush.
Cox Communications struck a profit-sharing pact with
developer Shea-Sunbelt to ensure that no other phone company
would sell voice or high-speed Internet service to the
17,000-home Vistancia community in Peoria.
The deal hardly seemed necessary.
Cox boasts hundreds of thousands of Arizona customers,
statewide political clout and strong ties with developers
across the Valley.
Its speck of a competitor, Accipiter Communications, counts
fewer than 100 customers in a territory so barren that
coyotes outnumber people.
Yet the deal eventually brightened the prospects of the
small company with a lofty goal of connecting calls
throughout 1,100 square miles of Sonoran Desert.
The Cox-Shea deal triggered inquiries from the Department of
Justice antitrust division and Arizona's attorney general.
State regulators have recommended a $2 million fine. And a
lawsuit settlement with Cox and Shea gave Accipiter $1
million and access to Vistancia, including Cox's pricey
infrastructure leading to the development.
Now, using Cox's cash and equipment, Accipiter has big plans
for Vistancia and other communities popping up on the
Valley's western fringes.
Growth is spilling over into Accipiter's territory near the
White Tank Mountains with master-planned communities that
will bring thousands of homes. Accipiter is counting on
that growth to pick away customers from the Valley's telecom
powerhouses, Cox and Qwest.
"This is a significant opportunity for Accipiter," said
Charlie Gowder, Accipiter's chief executive officer. "This
is what we've been looking for."
Banking on growth
Growth is key
for Accipiter, because the company can't get much smaller.
It counts just four employees, 80 customers and 200 lines in
the Lake Pleasant and Castle Hot Springs areas.
The company was formed more than a decade ago after two of
its founders, Lewis van Amerongen and Phil Sotel, were
amazed by the call quality on their remote ranch in
Colorado. They thought that providing similar service in a
growing area could be profitable.
Along with former Southwestern Bell engineer and wireless
entrepreneur David Sharbutt, the trio started Accipiter and
secured the rights to serve nearly 700 square miles in
northern Maricopa and southern Yavapai counties.
The company's growth has been slow but calculated . It has
plodded along, investing more than $5.4 million in the
latest fiber-optic equipment.
Accipiter knows it will never rival Qwest or Cox, at least
when measured by numbers of customers or financial
strength. That's not its mission.
Rural telephone companies such as Accipiter are the Buicks
of this text-message era of telecommunications. They're not
sexy, but they provide service for the shrinking percentage
of Americans who choose the hinterlands over city or
The federal government has established grants and loan
programs for rural phone companies to ensure that people who
live in such areas have access to phone service. State
regulatory agencies assign territories to companies, which
become responsible for providing telephone service.
As van Amerongen and Sotel learned more about the generous
subsidies for rural carriers, the idea of launching such a
company in the Arizona desert didn't seem like such a
The funds could help offset the costly job of building the
infrastructure needed to run a phone company. The payoff
would come when Phoenix's growth reached Accipiter's
doorstep, giving it thousands of potential customers.
"We were amazed by the business model," said Sotel,
Accipiter's general counsel. "We started it because we
thought there would be growth in Phoenix, and we could make
some money if we're patient."
Shut out of Vistancia
As Phoenix's growth machine continued to churn desert into
dollars, Accipiter thought it was poised to wire its first
major project: the Vistancia community in Peoria.
In 2002, developer Shea-Sunbelt was crafting its plan for
the massive community, and a key part of that was selecting
a company to provide telephone, cable and high-speed
Internet for up to 45,000 residents.
Accipiter soon learned that the developer had no intention
of selecting the small company.
Shea-Sunbelt was negotiating a profit-sharing pact with
Cox. Under the deal, the more customers Cox could sign up,
the more money would be funneled back to the developer.
Notes and e-mail exchanges between employees of Cox and the
developer talked of a strategy to exclude competitors.
"Shea can guarantee to keep out competition. Cox can
purchase the knowledge. What is it worth to us?" one
Under the agreement, the developer gained control of the
public right of way, called an easement. These easements,
usually controlled by a city or town, allow communications
companies to install the wires needed to provide service.
In July 2003, Peoria took the unprecedented step of handing
over the easement to the developer. So at Vistancia,
Shea-Sunbelt could decide who would provide
Sotel and other representatives of Accipiter became aware of
the arrangement after plowing through public records. They
urged Peoria to reject the private easement, but the city
So Accipiter saw the possibility that nearly a decade of
planning could have been crushed. If Cox and Shea-Sunbelt
could exclude competitors, why wouldn't every developer in
the Valley follow?
"We weren't sure what to do next," Sotel said. "There would
be no competition."
Accipiter's principals mulled their next move.
Although Accipiter is small, the owners' business careers
cut across many disciplines, including oil and gas, hostile
takeovers, telecommunications and transportation.
Van Amerongen spent more than 25 years in the world of
leveraged buyouts. Among his firm's deals are $6.9 billion
worth of buyouts involving firms such as Syracuse China,
Ecko Housewares, Wells Aluminum and Budget Rent-a-Car.
Sotel's legal career includes a stint representing several
multinational corporations as well as Dallas' Hunt family,
which once attempted to corner the world silver market.
Sharbutt has been a heavyweight in his own right. He guided
wireless provider Alamosa PCS from an initial public
offering in February 2000 through its sale to Sprint this
year. The deal netted Sharbutt, as Alamosa's chief
executive officer, more than $25 million.
Rather than let the Vistancia deal go unchallenged, they
filed a lawsuit in Maricopa County Superior Court and a
complaint with the Arizona Corporation Commission.
The court case has been settled. Shea and Cox agreed to pay
Accipiter $1 million and allow it to compete in Vistancia.
The Corporation Commission case is ongoing. The state
recommended a $2 million fine; Cox has indicated that it
will argue that the fine should be reduced or eliminated.
State regulators want to scrutinize the types of special
deals that developers and communications companies reach.
The main thing regulators want to eliminate: profit-sharing
agreements that encourage anti-competitive steps.
Up next: More customers
With this battle complete, Accipiter has zeroed in on its
immediate goal: capitalizing on the West Valley's growth.
Accipiter is awaiting final approval from the Corporation
Commission to provide service near Buckeye, a wide looping
territory abutting the White Tank Mountains.
Accipiter has received initial approval for a $21.2 million,
low-interest loan through the U.S. Department of
Agriculture's rural utilities service. The company will use
the loan to build about 130 miles of fiber-optic line
capable of delivering voice, high-speed data and video
service to thousands of homes. Some estimates are that
developments planned along Sun Valley Parkway, once known as
the Road to Nowhere, will be home to 500,000 or more
residents by 2050.
It would seem like a golden opportunity for Qwest, the
Valley's major land-line phone company, which has grappled
with customers switching over to Cox or wireless
But for now, Qwest is satisfied with giving much of the
territory up to Accipiter.
"A lot of these smaller companies can (build new lines)
because they get help from the federal government," said
Jeff Mirasola, a Qwest spokesman. "We're not in the
business of giving up lines, but it's one of those cases
where we had to make a decision. We have a good
relationship with Accipiter."
Gowder and Sotel know that developers will be reluctant to
rely solely on Accipiter to serve a large area because of
the company's size. Still, retailers, government agencies
and others will need phone service in the rapidly expanding
area. And as the company grows, more developers will
"We feel once they know Lew, David and myself and the types
of backgrounds we have, people will be more willing to do
business with us," Sotel said.
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