Dave LeBeau

Telco Systems President Dave LeBeau remembers a meeting he attended in Washington, D.C., five years ago as the moment he decided to not focus his company's efforts on the emerging CLEC market. The idea of smaller start-up companies succeeding through buying services from their behemoth RBOC competitors just didn't make sense, he says.

“There were a lot of people looking at me like I was nuts for not hiring another sales force and putting them on CLECs,” LeBeau recalls. “I can't tell you how I knew, but I knew.”

Whether by clairvoyance, luck, business acumen or a combination of all three, LeBeau conservatively ignored too-good-to-be-true capital-spending levels and stayed on course. Instead, he focused on a mix of profit, service and technology, and on sales to interexchange carriers and ILECs.

When the market's priority pendulum swung from network expansion to profit, LeBeau says his conservative business decisions paid off. As a result, Telco Systems isn't suffering as much as others from the U.S. market meltdown.

“We really didn't have a lot of risk financially because we hadn't invested in those [CLEC] markets and it wasn't strategically where we were headed,” LeBeau says. “I just hope we're able to capitalize on our investment and that the market doesn't drag those incumbent players down.”

One way Telco Systems kept long-term success in mind was by not trusting vendor financing. The company erred on the side of caution and did its homework to determine the financial risks associated with potential customers. “If the company couldn't afford the equipment, we couldn't afford to send them the equipment,” LeBeau says. “It's business. You have to stay alive for the long term.”

But LeBeau didn't rule out all high-risk companies and used indirect methods to reach CLECs while avoiding their financial problems. If a company showed potential risk, Telco Systems sold equipment directly to larger, competing vendors such as Lucent Technologies, which was more liberal in its vendor-financing decisions and is now paying with great exposure.

With heavyweight competitors such as Alcatel, Cisco Systems and Lucent, Telco Systems has maintained a relatively low profile but established a solid reputation with customers in its 25 years of business. Operating in the shadows of giants has its advantages, allowing the company to talk only when it has something to say.

“By the time you hear about it, it's over, sold and done,” LeBeau says. “We try to make sure that by the time we make a public release, we're pretty confident in what we're saying.”

Acquired in April 2000 by Israel-based BATM Advanced Communications as a wholly owned subsidiary, Telco Systems is traded on the London Exchange and is somewhat removed from the domestic market fracas. But even BATM, named “Best Technology Company of the Year” by the London Exchange in 1998, has taken its lumps over the past year, posting a year-end 2000 net loss of $26 million, compared with $8.3 million in profits the year before.

Though BATM is not subject to the same set of financial regulations as U.S.-traded companies — reporting twice rather than four times annually — LeBeau and analysts say it is not important where the company is traded because customers emphasize service and products over financials.

“Their customers are only going to be concerned with how their products do in a live environment and how the products are supported,” says Eric Keith, an analyst with Current Analysis. “It still comes down to the products and services the company can back the products up with, and Telco is strong in both categories.”

LeBeau says Telco Systems has cash on hand and eventually will trade on Nasdaq, though he provides no timetable. But LeBeau's decision-making criteria for entering the Nasdaq are as consistently conservative as other decisions he's made.

“Timing is everything with these kinds of things,” LeBeau says. “The reason we would do it is because we were ready to make a much larger strategic play.”