PACIFIC TELECOM, INC. History

Address:

805 Broadway
P.O. Box 9901
Vancouver, Washington 98668
U.S.A.

Telephone: (206) 696-0983
Fax: (206) 696-6925

Public Company
Incorporated: 1955 as Telephone Utilities, Inc.
Employees: 3,050
Sales: $724 million
Stock Exchange: OTC

Company History:

Pacific Telecom is a telecommunications company that provides local telephone service in 11 states in the Midwest and West, cellular telephone service in nine states in the same area, and long distance service to the state of Alaska. Majority owned by utilities conglomerate PacifiCorp, which controls 87 percent of the company's outstanding shares, Pacific Telecom began as a small local telephone company in the early years of the twentieth century. The company acquired other similar properties in the 1950s and 1960s and diversified to encompass a broad array of technological activities in the 1980s before scaling back to concentrate once again on the telecommunications field in the 1990s.

Pacific Telecom got its start in 1903 in the small Washington coastal town of Ilwaco when J. A. Howerton's brother-in-law needed a way to contact his fishing scow on the waterfront. Howerton rigged up a line between the scow and his brother-in-law's home and installed a two-way crank telephone. When other local businessmen decided they, too, wanted phones, the Ilwaco Telephone and Telegraph Company was born.

Four years later Howerton's enterprise made its first long-distance connection when the system was hooked into Pacific Telegraph and Telephone lines by means of an underwater cable to Astoria, Oregon. For the next several decades the company grew slowly. The enterprise remained in the hands of the Howerton family, as its founder passed it on to his son Norman.

By the mid-1940s Ilwaco Telephone and Telegraph had 230 subscribers, who placed their calls through an antiquated switchboard. Within ten years the number of telephones had expanded to 400. At that time, Norman Howerton decided to update his family's obsolete operation. To raise funds for the modernization he rounded up several local investors, and together they formed Telephone Utilities, Inc. The firm was capitalized with $140,000.

Once Telephone Utilities had improved its system, new subscribers signed on. With the revenue generated by these new customers, the company was able to begin a program of expansion through acquisition in the late 1960s. The company sought to purchase small, independent telephone companies--similar to its own operations in the Northwest--that had not been absorbed by the Bell system. Its first purchase, in 1966, was Gem State Utilities of Idaho. Acquisition of the Rainier Telephone Company, the Olympic Telephone Company, and the Kahlotus-Washtucna Telephone Company followed the next year. Three more companies were purchased in 1968, and five were added the following year. Throughout this period the company also undertook construction to upgrade and expand its existing facilities.

By 1972 Telephone Utilities had obtained 22 subsidiaries that provided service to 60,000 customers in four states. The company had begun to centralize its operations into semi-autonomous districts, which allowed for greater efficiency than that prevailing in its existing patchwork of subsidiaries, many of which duplicated each others efforts.

In 1973 Telephone Utilities was purchased by the Pacific Power & Light Company of Portland, Oregon. Pacific Power also owned telephone companies based in Kalispell, Montana, and Lebanon, Oregon, both of which had been acquired in 1954 when the company merged with the Mountain States Power Company. The telephone properties had been combined at that time into Northwestern Telephone Systems. By 1973 Northwestern Telephone served 40,000 customers across western Oregon and northwestern Montana.

Pacific Power consolidated its telephone holdings into one company in 1973 by placing Northwestern Telephone under the control of Telephone Utilities. The company now had twice as many customers as it had previously. This newly constituted company continued to grow through acquisitions throughout the mid-1970s. In 1975 Blue Mountain Telephone, Inc., and Fossil Telephone Exchange were purchased. During this time the company also continued to invest in construction to modernize its equipment. Electronic switching was introduced in 1975 in the Kalispell, Montana, telephone system.

The following year Telephone Utilities acquired Eastern Oregon Telephone at a cost of $1.4 million. In 1977 the Cresswell Telephone Company was brought on line. Toward the end of the decade Telephone Utilities moved to further consolidate its holdings, rearranging its operations into regional subdivisions based on state boundaries. This activity continued in 1979, as 14 separate telephone companies were merged into Telephone Utilities of Washington.

Of greater significance for the long-term future of the company, however, was Pacific Power's purchase of RCA Alaska Communications from the RCA Corporation in 1979. This system had gotten its start in 1971 when the United States government sold its outmoded Alaska Communications System, designed for military traffic, to RCA Global Communications, Inc., for $28.5 million. RCA renamed the system Alascom and set about upgrading it from a system based on radio links to one dependent on satellite transmission. In 1973 satellite service for long distance calls from Alaska was inaugurated when signals were transmitted by Canada's Anik II satellite. In the following years additional satellite earth stations were constructed, along with microwave radio telecommunications facilities and additional call switching centers. In 1977, at the peak of Alaska's oil boom, Alascom provided equipment to monitor and control operations along the 800-mile Trans Alaska Pipeline. By the end of its first decade, when Pacific Power & Light purchased Alascom, the company had constructed 134 satellite earth stations, which enabled it to introduce telephone and television service to almost all of Alaska's residents--no matter how remote.

In 1980 Telephone Utilities acquired the Greatland Telephone Company and the Sitka Telephone Company, based in Alaska. By the following year, Pacific Power & Light had begun to merge the corporate activities of its two communications subsidiaries, Telephone Utilities and Alascom, bringing their operations together in Portland, Oregon. With an eye toward further consolidation, the company selected Vancouver, Washington, as headquarters site for the new company, and in 1982 the two were officially joined under the name Pacific Telecom. At the same time, Pacific Telecom's parent corporation, Pacific Power & Light, changed its name to PacifiCorp.

PacifiCorp merged its telephone holdings into Pacific Telecom at a time when the telecommunications industry was undergoing a great deal of change. In the early 1980s American Telephone & Telegraph (AT&T), the giant telecommunications conglomerate that had dominated the American market as the Bell system for many decades, was broken up into eight smaller companies under court order. With this move, the once highly regulated telephone industry was opened up to competition on many levels. Although, as a non-Bell company, Pacific Telecom was not directly affected by these events, the changing climate of business in which it found itself led the company to diversify its operations. By moving into non-regulated, competitive arenas of business, Pacific Telecom gained the opportunity to reap higher profits from its operations. In addition, the company was able to insulate itself from downturns in its core businesses through its involvement in a broader range of activities.

One of Pacific Telecom's first moves in its process of diversification was to enter the cable television field by purchasing 80 percent of CableBus Systems, a cable equipment manufacturer, in late 1982. Pacific Telecom used this acquisition to form CableBus Labs. The company also continued to expand its traditional areas of operation by snapping up local telephone companies, just as Telephone Utilities had for many years. Inter Island Telephone, which provided communications services to the San Juan Islands in northwest Washington, joined the Pacific Telecom network that year. Also in 1982, Alascom launched its own satellite, Aurora, into orbit from the space center at Cape Canaveral, Florida, further expanding service to its Alaska customers.

The following year, the administration of Pacific Telecom moved into a new 10-story headquarters building in Vancouver, Washington, physically cementing the union of Telephone Utilities and Alascom. Meanwhile, the company continued its acquisitions in the cable television field, purchasing Bethel Cablevision. At the end of 1983, Pacific Telecom reported revenues of $341 million.

Pacific Telecom diversified its operations further in 1984 when it entered the international telecommunications gateway business. The company formed a subsidiary for this purpose, National Gateway Telecom , and bought an East Coast satellite transmission facility, or 'teleport,' which was able to handle both domestic and international calls.

Acquisitions continued that year as Pacific Telecom increased its holdings in Alaska. In October of 1984 the company announced that it would buy the Glacier State Telephone Company and the Juneau Douglas Telephone Company. Since this meant that Pacific Telecom would have interests in both the long distance and local exchange markets, the sale elicited opposition from the United States Justice Department, which charged that Pacific Telecom's purchase of the two companies would reduce competition in the telephone market and thus violate antitrust laws. In an effort to win Justice Department approval for the move, Pacific Telecom sued the government, which dropped its objections to the purchase after the Alaska Public Utilities Commission gave its approval to Pacific Telecom's plan; the sale was finalized the following year. This gave the company 40,000 local access lines in Alaska, in addition to Alascom's long-distance operations. Pacific Telecom also purchased Multivision, Inc., an Alaska cable television concern, at that time.

In 1985 Pacific Telecom laid its first underwater fiber-optic telecommunications cable when it installed a link to its telephone system in the San Juan Islands. The next year, the company built on that experience when it embarked on a much more ambitious cable project; in June of 1986 Pacific Telecom applied to the Federal Communications Commission for permission to link the United States and Japan with the first private trans-oceanic telecommunications cable. The company formed a subsidiary, Pacific Telecom Cable, of which it owned 80 percent, with the British firm Cable and Wireless and began looking for a Japanese partner.

In late 1986 Pacific Telecom further expanded its involvement in the non-regulated international telecommunications field when its subsidiary National Gateway Telecom purchased a controlling interest in the FTCC McDonnell Douglas International Telecommunications Company from the McDonnell Douglas Corporation. This company brought with it direct operating agreements to provide telecommunications services in more than 40 countries. It had grown out of the firm that laid the first transatlantic undersea telegraph cable between America and France in 1889 and went on to provide early transatlantic telephone service in the 1950s. After its purchase by Pacific Telecom the company's name was altered to FTC Communications, and its operations were integrated into those of National Gateway.

Building on FTC's historical role as a provider of communications links between France and the United States, National Gateway began offering direct dial service to France and England in 1987 and planned expansion of these operations to other European countries and the Far East after the company added a second international antenna at its New York satellite facility. Two more satellite dishes were installed at the company's West Coast site near San Francisco, which increased international capacity in that market as well.

In addition to handling international telephone traffic, Pacific Telecom's National Gateway subsidiary also offered private communication networks to businesses and governmental agencies. This branch of the company won contracts from the Boeing Company, the United States Department of Defense, and NASA, in 1987.

In April of that year Pacific Telecom's cable subsidiary received approval from the Federal Communications Commission and the United States State Department to construct the American half of its planned trans-Pacific cable. To complete the Japanese half of the project, which was slated to cost $500 million, the company enlisted the help of a consortium of Japanese businesses, including Toyota, NEC, and several Japanese banks, which together formed International Digital Communications, Inc.

In addition to its participation in these international ventures, Pacific Telecom made investments in a number of companies marketing technology and information systems in diverse fields: its holdings included Flight Dynamics, a company that made aviation guidance systems, EyeDentify/CardKey Systems, Comdial, manufacturers of electronic security equipment, and Paccom Leasing.

By 1987, however, it had become clear that Pacific Telecom's corporate strategy of diversification had failed. Although the company's more far-flung holdings had made small gains, overall they represented a drain on the firm's income. Recognizing this, Pacific Telecom began to divest itself of operations outside its core areas of business. The company sold off its cable television and utility construction operations in 1987 and discontinued other activities.

Pacific Telecom's Alaskan long distance business also suffered during this time as the company found itself locked in a battle to maintain its dominant share of the market. Alascom's challenger was a small local phone company, General Communications, Inc., of Anchorage, Alaska, which had first entered the fray when it filed an antitrust suit against Alascom in 1984. In 1987, when Alaskan telephone users were given the opportunity to choose their long distance carrier, General Communications was able to offer much lower rates for long distance calls as a result of an agreement it had made with AT&T to distribute calls throughout the continental United States. Although Alascom launched an extensive advertising campaign, the company lost a significant amount of ground to its competitor.

The bright spot in Pacific Telecom's operations remained its steadily growing local phone business. The company continued to add local access lines as its geographic base of business, the Pacific Northwest, experienced rapid economic growth and a corresponding boom in population. The company invested nearly $40 million in construction expenditures to upgrade facilities with digital switching and fiber-optic cables.

In May of 1988 Pacific Telecom's long-pending legal action over the Alaskan long-distance market was resolved when Alascom was ordered to pay a $27.5 million settlement to its competitor. Putting this disappointment behind it, Alascom turned to arbitration pending by a government board set up to handle questions concerning Alaskan telecommunications with an eye toward stabilizing the long distance market.

Also in 1988 Pacific Telecom's leaders reaffirmed their intention to focus the company's energies exclusively on telecommunications. In an effort to strengthen the company's international operations, Pacific Telecom purchased TRT Communications from UNC Inc., a Maryland firm, for $95 million. This acquisition more than doubled Pacific Telecom's international holdings. The company was subsequently merged with Pacific Telecom's other properties in this field and placed into a holding company that was 15 percent owned by a French firm.

Early in 1989 Pacific Telecom continued the process of selling off its money-losing diversified holdings, shedding its Paccom Leasing, Flight Dynamics, EyeDentify, and Comdial subsidiaries. Instead, the company branched out into a new field, cellular telephone service, which was more closely related to its traditional telecommunications activities. Pacific Telecom made its first significant purchase in this area when it bought North-West Telecommunications for $250 million in December of 1989. This acquisition more than doubled its cellular holdings.

As the 1990s dawned Pacific Telecom concentrated chiefly on building its cellular network. The company emphasized service in areas near its local exchange telephone operations in the West and Midwest--in Alaska, Montana, Minnesota, and Wisconsin. In January of 1990 Pacific Telecom traded service areas with another cellular operator in an effort to assemble contiguous areas of coverage.

In May of 1991 Pacific Telecom's long involvement in its Pacific cable project came to fruition as commercial traffic across the cable was inaugurated. The underseas fiber-optic cable was two and a half inches thick and 5,200 miles long. It was capable of carrying 80,000 conversations at once, as well as digital and video transmissions. Introduction of service on the cable, however, brought smaller rewards to Pacific Telecom than had been anticipated, as part of the cable's capacity went unsold.

In addition to a link between Japan and America, the North Pacific cable incorporated a spur that ran to Seward, Alaska, which provided the state's first fiber-optic connection with the continental United States. This facility was augmented in July of 1991 by Aurora II, Alascom's second communications satellite, which was activated to replace its outmoded predecessor, Aurora I.

Pacific Telecom continued its policy of phasing out its diversified holdings during this year as well, turning even to its international operations. The company sold Cidcom, a subsidiary based in Santiago, Chile, and attempted to divest itself of TRT/FTC Communications, its international division, in 1991 in an effort to generate cash to reduce its debt. Negotiations fell through in November, however, and the price of the company's stock suffered as a result.

Cellular operations continued to grow during 1991, and Pacific Telecom increased its holdings in this field by one-third, adding two northern Michigan rural service areas (RSAs) to reach a total of 28 RSAs and six urban centers. In its more traditional local telephone operations, Pacific Telecom began to introduce customized calling services and changed the name under which it conducted local exchange activities to PTI Communications Previously, local operations had been carried out under 19 separate variations of the name Telephone Utilities, Inc., and the standardization allowed for greater marketing efficiency and a stronger corporate identity. Under its new name the company moved to centralize its activities by forming regional operating units in the 11 states it served. In 1992, with a newly affirmed focus on core telephone services, Pacific Telecom appeared prepared to thrive in the future.

Principal Subsidiaries: Alascom; Bay Area Teleport; Cascade Autovon; Cencom of Wisconsin; Eagle Telecommunications; Footville Telephone; Gem State Utilities; Inter Island Telephone; Niles Canyon Earth Station; Northland Telephone; North-West Telephone; Northwestern Telephone Systems; Pacific Telecom Cable; Pacific Telecom Cellular; Pacific Telecom Transmission Services; Platteville Telephone; Postville Telephone; PTI Broadcasting; Sullivan Telephone; Telephone Utilities of Alaska; Telephone Utilities of Eastern Oregon; Telephone Utilities of the Northland; Telephone Utilities of Oregon; Telephone Utilities of Washington; Telephone Utilities of Wyoming; Thorpe Telephone; Turtle Lake Telephone; Upsouth; Wayside Telecom.

PACIFIC TELECOM, INC. History

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