Shenandoah Telecommunications Company

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Shenandoah Telecommunications Company

500 Shentel Way
Edinburg, Virginia 22824
U.S.A.
Telephone: (540) 984-4141
Fax: (540) 984-8192
Web site: http://www.shentel.com

Public Company
Incorporated: 1902 as Farmers Mutual Telephone System of Shenandoah County
Employees: 387
Sales: $169.1 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: SHEN
NAIC: 517110 Wired Telecommunications Carriers

ORIGINS

1902–54: ESTABLISHING A FOUNDATION

1954: WARREN B. FRENCH, JR., JOINS FARMERS MUTUAL

1981: SHENTEL TAKES SHAPE

100TH ANNIVERSARY IN 2002

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

The communities served by Shentel underwent profound change during the company’s first century of business. Shenandoah County, the birthplace of Shentel, lacked any sort of electricity, either for public or private use, when a group of farmers joined together in 1902 to form Shentel’s predecessor, Farmers Mutual Telephone System of Shenandoah County. The county, except for the town of Woodstock, was without running water, and a single dirt road, bereft of automobiles, traversed the region from north to south. Rural delivery of the mail had yet to be introduced countywide.

In 1902 a group of farmers sought to bring one technological advancement, the 26-year-old telephone, to the residents of Shenandoah County, more than 90 percent of whom subsisted as farmers. At the time, telephone service was not entirely unknown in the county. The Shenandoah County Telephone Company, based in Woodstock, had been formed in 1897, giving its residents the twin pleasures of running water and telephone service. By 1902, the company had established at least a dozen telephone lines connecting homes to a main line stretching from Staunton to Winchester, but the efforts fell far short of extending service to large numbers of rural subscribers, the aim of the Farmers Mutual founding group in Edinburg. The founders of Farmers Mutual, four residents of Edinburg and one resident of Lantz’s Mills, realized they could not rely on telephone entrepreneurs to bring service to the region’s most sparsely populated areas, so they took it upon themselves to build and maintain their own lines, forming a nonprofit entity in which each subscriber was a stockholder.

During the first century of the Edinburg-based company’s development, the service provided to subscribers evolved dramatically. A century of progress witnessed the magneto, hand-cranked telephones and locally operated switchboards of 1902 evolve into the full gamut of 21st-century telecommunications offerings, from cellular telephones, to broadband Internet access, to a comprehensive suite of voice, video, and data services transmitted via fiber-optic cable. The advancement of the technology underpinning the company’s service was massive, representing the driving force behind Farmers Mutual’s transformation into Shentel, but aside from technology, there was another seminal force propelling the company’s evolution: Warren B. French, Jr. French’s influence, which began in the mid-1950s and stretched, through the leadership of his son, into the 21st century, made the history of Shentel’s development a two-chapter story. Significant strides were achieved in the pre-French era, but it was the leadership of the former AT&T employee and Woodstock native that turned Farmers Mutual into Shentel. The period from 1902 to 1954 established a foundation for French, one he would use to turn Farmers Mutual into a technologically sophisticated and diverse enterprise that ranked as one of the 100 largest independent telecommunications companies in the United States.

1902–54: ESTABLISHING A FOUNDATION

The farmer-owned, farmer-operated venture launched in 1902 achieved steady progress toward delivering telephone service to its rural customers. By 1906, Farmers Mutual served roughly 400 customers through 50 grounded lines. In 1911, the company completed its first major acquisition by purchasing Woodstock’s Shenandoah County Telephone Company, which made it the only provider of telephone service to all the districts of the county. (Farmers Mutual acquired the last remaining independent telephone company in Shenandoah County in 1945, when it purchased the Ashby Lee Telephone System.)

The company’s 20th anniversary in 1922 marked the introduction of long distance service to its customers, a service available for a flat, $5 fee. Farmers Mutual generated more than $12,000 in revenues during its 20th anniversary, and would see that total double by the end of the decade before the Great Depression delivered a shuddering blow to the communities in Shenandoah County. Farmers suffered from the toll exacted by the financial crisis—the price of certain crops fell to levels not seen since the end of the 18th century—but Farmers Mutual survived, earmarking funds for the purchase of new equipment and new lines by 1936.

In 1941, the year the United States entered World War II, Farmers Mutual generated $40,000 in revenue, a total that would more than double during the war years. In 1948, Farmers Mutual was forced to change its status as a mutual to that of a public utility, which subjected it to federal regulation by the Federal Communications Commission (FCC), state regulation by the State Corporation Commission (SCC), and taxation by the Internal Revenue Service (mutuals were exempt from income tax). The increased scrutiny revealed a host of problems that French would inherit upon his arrival. He proved up to the test, taking Farmers Mutual to heights not imagined by the five directors who formed the company at the century’s start.

1954: WARREN B. FRENCH, JR., JOINS FARMERS MUTUAL

Hired as general manager in 1954, French joined a company suffering from dilapidated equipment, dissatisfied customers who were lodging complaints with the SCC, and in desperate need of capital. Farmers Mutual served 3,342 subscribers through ten manual switchboards when French joined the company, handling each call manually with a network of operators and providing only party-line service to its customers. Although the company had grown much larger during its first half-century of business, Farmers Mutual had not moved far beyond the magneto telephones used during its first years in operation. French brought technical expertise and a drive to push Farmers Mutual into the technological mainstream when he took over as general manager, injecting a somewhat sedate organization with vitality.

COMPANY PERSPECTIVES

Shentel provides the depth of services expected from a large telecommunications company coupled with the kind of thorough, reliable service that customers would expect from a neighborhood store. Shentel has many decades of experience tailoring communications solutions to meet the needs of virtually every type of dwelling unit. The range of offerings is comprehensive and scalable to keep pace with the constantly changing market. Shentel provides a blueprint for success with experience, reliability and leading edge converged broadband solutions.

French’s first major project began in 1956, when he secured a $2 million loan from the Rural Electrification Administration (REA). He used the money to convert Farmers Mutual to a dial system, a project that required replacing the company’s infrastructure, referred to as “outside plant,” switchboards, and central office equipment. By 1960, when Farmers Mutual changed its name to Shenandoah Telephone Company, the years of operators having to manually place calls on switchboards were over. After implementing the automatic switching of local calls systemwide, French focused his attention on the company’s long distance services. Like local calls before the installation of automatic switching equipment, long distance calls were handled manually by operators, who had to record the caller’s name and number, the number called, and exact length of the call for billing purposes. French streamlined the process in 1962 by installing automatic, long distance dialing equipment, making Shenandoah Telephone subscribers the first in the state of Virginia to dial their own person-to-person and collect long distance calls. Next, French sought to appease the company’s customers, who had grown tired of relying on party lines for their telephone service. The lines had become crowded, leading to unreliable service that French hoped to improve by using another low-interest loan from the REA to lay new telephone wires underground. Line crews, using a state-of-the-art cable plow, began burying wire in 1965, the same year French, distinguishing himself as a visionary, launched a study of cable television, intending to provide such service to Shenandoah Telephone customers. By the end of the decade, the company’s revenues eclipsed $1 million, driven upward by the major improvement projects completed under French’s supervision.

With a more modern and reliable system, Shenandoah Telephone enjoyed vigorous growth. The number of telephones within the company’s system nearly doubled during the 1970s, jumping from 11,000 to 19,287. The company began to branch out into new business areas during the decade, selling electronic pagers and answering machines, for instance, but its most significant moves on the diversification front occurred in the wake of the U.S. Justice Department’s antitrust suit against AT&T. The federal government filed its suit in 1974, touching off seven years of litigation that resulted in the breakup of AT&T into numerous independent companies. French, realizing everything in the telecommunications industry was about to change dramatically, decided to diversify in response to the divestiture of AT&T. His inquiry into providing cable television bore fruit in 1980, when the FCC, which did not allow public utilities to enter the cable television market, granted Shenandoah Telephone a waiver, giving French a license to provide cable television to his Edinburg subscribers.

KEY DATES

1902:: Farmers Mutual Telephone System of Shenandoah County is formed.
1922:: Farmers Mutual begins offering long distance service.
1954:: Warren B. French, Jr., is hired as general manager.
1960:: Farmers Mutual changes its name to Shenandoah Telephone Company.
1969:: Revenue exceeds $1 million for the first time in the company’s history.
1981:: To facilitate entry into the cable television market, French forms Shenandoah Telecommunications Company as a holding company.
1984:: Operating subsidiaries ShenTel Service Company and Shenandoah Mobile Company are formed.
1987:: Shenandoah Long Distance Company is established.
1988:: French retires as president and chief executive officer, appointing his son, Christopher E. French, as his successor.
1990:: Shentel is the first company in Virginia to provide cellular service to rural customers.
1994:: Shentel offers access to the Internet for the first time.
2002:: Shentel celebrates its centennial.
2004:: NTC Communications, LLC, is acquired.
2006:: Net income reaches a record high of $18 million.

1981: SHENTEL TAKES SHAPE

The foray into cable television forced the creation of a new corporate structure, establishing the organizational framework that described Shentel in the 21st century. The company originally intended to form a subsidiary to govern its cable television business, but the SCC objected. Shenandoah Telephone’s counsel recommended a holding company be formed, which would act as corporate umbrella for its regulated and unregulated businesses. French, who was intent on diversifying Shenandoah Telephone’s business, perceived the wisdom of the move and formed Shenandoah Telecommunications Company, or Shentel, in 1981. Shentel became the holding company for Shenandoah Telephone and Shenandoah Cable Television Company, giving French the vehicle to pursue his expansion goals. Numerous operating subsidiaries were established after Shentel was formed, as French enjoyed the freedom of diversifying without being restricted by state and federal telephone regulations. In 1984, one year after the company laid down its first fiber-optic cable, ShenTel Service Company and Shenandoah Mobile Company were formed. ShenTel Service, which later would govern the company’s Internet business, was established to provide discounted long distance service and to sell non-telephone equipment such as computers and alarm systems. Shenandoah Mobile was formed to preside over the company’s mobile and paging services. In 1987, Shenandoah Long Distance Company was formed, a subsidiary that captured 35 percent of the local market by the time Shenandoah Network Company, which was founded to participate in an interstate fiber-optic network, was launched the following year.

The formation of Shenandoah Network Company in 1988 marked the end of an era. French, after more than 30 years of service, retired as president and chief executive in May, passing the reins of command to his son, Christopher E. French. Shentel generated $8.5 million in revenue the year the leadership transition took place, a total that would increase substantially under the second generation of French management. A graduate of the University of Virginia, where he earned an undergraduate degree in electrical engineering and graduate degree in business administration, Christopher French continued with the diversification started by his father. In 1990, Shentel became the first company in Virginia to offer cellular service to rural customers. In 1994, through a partnership with Globalcom, an Internet service provider based in Falls Church, Virginia, the company began offering access to the Internet in a three-county area. By the end of the year, the creation of new revenue streams pushed sales above $20 million. By the end of the decade, as Shentel’s operating subsidiaries matured, sales doubled, reaching $42.2 million in 1999.

100TH ANNIVERSARY IN 2002

The ranks of independent telephone companies were thinning as Shentel entered the 21st century, continuing a trend that had existed throughout much of the company’s life. In 1930, there were roughly 8,000 independent telephone companies operating in the United States, a number cut by more than half by 1960, and reduced to approximately 1,300 by the time Shentel celebrated its centennial. Thanks to its armada of operating subsidiaries, the company not only survived but thrived in an increasingly competitive marketplace, generating $92 million in revenue in 2002, 35 percent more than it had recorded the previous year. Robust growth continued to characterize the company’s performance as it began its second century of business, a period highlighted by the acquisition of NTC Communications LLC in 2004. NTC provided Internet, video, and local and long distance voice services primarily to off-campus student housing in Virginia, Maryland, North Carolina, South Carolina, Georgia, and Florida. The addition of NTC combined with the growth achieved by Shentel’s operating subsidiaries lifted revenues to $146 million in 2005. The following year, when revenues swelled to $169 million, the company posted a record high $18 million in net income, more than double the amount Shentel grossed when Christopher French took command 18 years earlier. As the era of the French family’s control continued, there was every reason to expect energetic financial gains in the years ahead. Shentel evolved as other independent telephone companies collapsed, demonstrating a commitment to embracing new technology and new markets that inspired confidence in the company’s future.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Shenandoah Telephone Company; Shenandoah Cable Television Company; ShenTel Service Company; Shenandoah Long Distance Company; Shenandoah Mobile Company; Shenandoah Network Company; ShenTel Communications Company; Shenandoah Personal Communications Company; Shentel Management Company; Shentel Converged Services. Inc.; NTC Communications, LLC; Converged Service of West Virginia, Inc.