Telco Startup Raises $100M for Northeast Buildout

att12150Pocket Communications Northeast, a subsidiary of San Antonio-based cellular operator Pocket Communications, has raised a first round of $100 million to build out a five-city CDMA network in the Northeast that will join an existing network and customer base in South Texas. The Northeast expansion is the first one outside of Texas for the two-year-old PCS operator. Pocket Northeast raised the money from Battery Ventures, Charles River Ventures and Pocket’s CEO, Paul Posner.
Posner, an entrepreneur who has done several things, from selling billboard space to operating a paging company, created Pocket in 2006 using AWS spectrum purchased at auction. Posner started the Pocket network build-out in San Antonio, the former home turf of AT&T, offering a $25 per month unlimited local calling, text and picture mail service on an advance pay basis. Pocket’s 300,000 customers pay between $25 and $40 at the beginning of the month with no contract. If they don’t pay, they don’t get service.
The company broke even in its first nine months, and Posner says it makes about $140 million a year based on its annual revenue per user of $35. The service has more in common with low-cost wireless carriers competitors such as, MetroPCS (s PCS), which was also backed by Battery Ventures, and Leap Wireless (s LEAP). Posner says he can undercut them on pricing (Metro PCS plans start at $30 per month and Leap’s Cricket plans start at $35) and still make similar net margins.
Posner is clearly keeping his costs in line by operating a no-frills network. The CDMA 1xRTT network isn’t set up for wireless data and Posner doesn’t plan to add that offering as Leap did earlier this year, saying, “I don’t think it’s a profitable proposition for us. The bigger carriers have scooped up a large portion of that market.”
Pocket is a private company, so it’s hard to know if its net margins are similar to those of MetroPCS and Leap, but Matt Niehaus, a partner at Battery Ventures, says Posner keeps a close eye on costs, noting that at small companies that’s easier to do. However, that level of scrutiny could get more difficult as Pocket begins its expansion into Hartford and New Haven, Conn., Springfield and Pittsfield, Mass., and Poughkeepsie, N.Y. But if it can keep up the growth and profits, Pocket might make it an eventual target for the regional consolidation that periodically grips the communications market.