North State remains independent amid giant telecoms

 In August 2018

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Photo of Royster Tucker III by John Gessner

By Jim Pomeranz

It was a much simpler world during the quarter-century in which Royster Tucker II led North State Telephone Co. From 1980 to 2008, the Duke University engineering graduate was a CEO overseeing periodic rate filings, investing in cellular partnerships and improving the business’ network in a regulated market focused on local telephone service. BellSouth ruled over Greensboro, while North State had its niche in High Point.

A dozen years later, the pace has quickened, as evidenced by the changing scene at the company’s headquarters offices and the increased complexity of its business. Three men have served as North State CEO in that period, including Tucker’s son, Royster Tucker III, who has held the post since 2014. A new team of senior executives arrived in the last 18 months. And since 2006, the company has expanded its scope and geography, laying thousands of miles of fiber and offering technology services used by clients in 31 states. By investing more than $200 million in that period and retaining family control of a nominally public company, North State has beaten the odds by developing a locally owned telecom business that retains a healthy market share in parts of Davidson, Forsyth, Guilford and Randolph counties.

“I spend a lot of time coming up with ideas to make us bigger and better, ideas about the core products we concentrate on and new offerings so we can please our customers,” the younger Tucker, 59, says.

The company is a rarity in North Carolina, where few locally owned telecoms exist, most much smaller than North State. An exception is Rock Hill, S.C.-based Comporium Inc., which has been family-owned since 1894, does business in Mecklenburg County and employs nearly 1,200 people. While consolidation has sliced competition in many sectors, shrinkage in telecommunications is particularly striking. AT&T, Verizon, Comcast and a few other giants dominate the U.S. phone, broadband and cable TV business, having rolled up or overrun regional companies that played key roles in the industry for decades.

Before 2006, North State Communications was delivering telephone service and internet access through copper wire to homes and businesses in a defined area, mostly in Guilford County. Since then, the company has installed more than 400 miles of fiber around the Triad to stay competitive with AT&T, Charter Communications Inc. and other rivals that provide internet access and digital-television service. The company is planning to invest $5 million to $10 million for broadband expansion in Forsyth County in the next few years. It’s quite a shift for what started out as a mom-and-pop local exchange telephone company in 1895.

Providing local service remains a core business for North State, though revenue is declining as more people ditch their landline service and rely on smartphones to scroll the internet and make calls. The company is one of 16 incumbent local exchange carriers still regulated by the N.C. Utilities Commission, down from 28 in 1993. The company’s main growth potential involves its expansion outside its defined area and its newer technologies.

Tucker has aspirations to extend business to 50 states, U.S. territories, and other nations. Including acquisitions and other new products and services, North State has spent about $80 million to broaden its offerings since 2005. That includes the $55 million acquisition of Winston-Salem-based DataChambers, a data center and cloud-services provider, in December 2011. Four years later, North State spent $9.7 million on Charlotte-based Stalwart Systems, an information-technology services and cloud-integration supplier. The two units were later combined to create NorthState Technology Solutions, which now has customers in 31 states.

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While the efforts have boosted revenue by 60% since 2011 to $123 million, profitability hasn’t improved. Annual earnings have mostly ranged from $8.5 million to $10 million since 2011. That includes about $7 million in annual pretax income from its 5.8% stake in Alltel of North Carolina LP, a wireless company owned by Verizon.
In 2017, the company reported a record net profit of $22.2 million, which included a $14 million gain because of federal tax reform that required a revaluation of deferred tax liabilities.

North State’s thinly traded shares haven’t budged much. Yahoo! Finance data shows that after trading at about $100 in 2004, North State has mainly changed hands for $50 to $65 per share over the last two years. Because of its limited number of shareholders, the company doesn’t file a proxy listing its major owners, and Tucker wouldn’t provide details. The 406-employee company’s board is made up of family members or longtime employees, including Chairman Patrick Harman, a cousin of Tucker who was CEO from 2012-14.

But while profits are flat, the company’s shareholders are receiving hefty dividends. The annual payout expense totals about $11.9 million. The yearly dividend of $5.20 per share hasn’t changed in more than six years. “We are somewhat of a hybrid of a public and private company,” Tucker says. “We are a function of small volume trading.”

North State’s success largely relies on customers like Raleigh information-technology executive Hubert Barkley. He recently met Marc Montoro, who manages NorthState Technology’s Raleigh-area market. Barkley knew that North State offered phone service and offered some technology solutions.

“From what I knew, North State didn’t have any services we need,” says Barkley, a vice president at Waste Industries USA Inc., a sanitation company. “But there was one thing we were missing: cybersecurity. So, almost as an afterthought, I asked Marc if he knew of any company that could help us.”

That was music to Montoro’s ears — Waste Industries now relies on North State to test its systems to ensure security and avoid much-publicized breaches. “We may have found another company for this service, but we’re glad we found North State, and we’re glad they’ve reinvented themselves,” Barkley says. “They’ve stayed relevant by expanding from a telecommunications company to a technology-solutions company.”

North State dates to 1895, when local businessmen established the High Point Telephone Exchange. Four years later, J.F. Hayden acquired the company to complement his nearby Thomasville telephone business, then kept on growing. In 1905, he changed the name to North State Telephone Co. This happened as High Point’s population soared, growing sixfold between 1890 and 1910 to about 12,000 people, according to census data.

In 1919, Hayden bought rights to High Point’s telephone franchise that had been held by the Southern Bell system. A year later, North State became the first telephone company in North Carolina to have an automatic-dial system instead of ringing up an operator to connect a call. The company’s region spread to include parts of Greensboro, Jamestown, Kernersville, Randleman and other adjoining areas.

After Hayden died in 1952, his wife, Velva Green Hayden, led the company for the next 21 years. She was one of North Carolina’s few female CEOs. Her successor, Robbins Tilden, was in charge for seven years, followed by grandson Royster Tucker Jr., who led the company from 1980 until his death in 2008.

His son, Royster Tucker III, started working at the family business in high school, then joined full time in 1981 after earning a bachelor’s degree in business administration at Lenoir-Rhyne College. He became president and chief operating officer in 2008, then succeeded Harman as CEO in 2014.

Veteran technology executive Joel Lemke was working as a consultant when Tucker asked him to join North State last year. He is now president of NorthState Technology Solutions, after departures last year of the founders of DataChambers and Stalwart. “The key to our success is growing this aspect of our business … where everything fits together.”

Cybersecurity has been a growth area for North State. “If an attack happens, if someone gets through, maybe asking for a ransom to return the data, it’s our job to recover the data,” Lemke says. With back-up systems at customers’ offices and the three North State data centers — Winston-Salem, Kannapolis and Raleigh — data recovery without paying off hackers is the norm for North State customers, he says.

“We are technology enablers,” Tucker says. “We’re not just adding technology for technology’s sake. Our company has two major focuses. There’s the fiber side in the Triad region. That’s what drives people’s lives. And there’s the technology-solutions side, where our footprint is unlimited and where we can grow faster, grow quicker.”

Two of Tucker’s four sons work for him, one in marketing and the other in network design. Unlike their father, neither has had to climb a telephone pole, one of his early tasks — it’s rarely done anymore. To be sure, telecom consolidation remains rampant. But given the family history, don’t be surprised if the Tuckers remain at the helm for decades to come.

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