Bait and switch

Dan Merzetti’s start-up telco is banking on a cloud-based future of bespoke digital services for fast-growing customers
by Quentin Casey, Published in Progress Magazine, Vol. 18 No. 8

Like most entrepreneurs, Dan Merzetti faces established competitors. The difference is that Merzetti’s rivals are two of the biggest players in the Atlantic Canadian economy: EastLink and Bell Aliant Inc. “There’s always that question,” he says. “Can the big guys crush you?”

So why did Merzetti put up $100,000 of his own cash (and guarantee debt on top of that) to become a phone provider for Atlantic Canadian businesses? “People want an alternative to the big guys,” says the president of Halifax-based DSM Telecom, an independent operator with just a dozen employees. “There’s a certain part of the market that wants to deal with a new player with a new technology.”

DSM’s main offering is digital phone for business. Gone are the traditional phone lines and boxes used by the large carriers. Instead, DSM’s digital phone service is run through a private digital data connection. That dedicated digital phone link ensures that calls aren’t patchy because of a slow connection, as opposed to services such as Skype, which run over public Internet connections.

The pumping heart of the DSM system is its MetaSwitch, a piece of equipment that processes and distributes all of the calls flowing to and from DSM customers. The MetaSwitch is housed at a secure location in downtown Halifax and, according to Merzetti, it has the capacity to process the phone calls of every business in Atlantic Canada. Translation: DSM has the ability to handle “thousands and thousands” of subscribers.

DSM’s phone service is currently available in Halifax, Moncton, and Fredericton. Saint John will be added to that list sometime this spring, and there are plans to enter the Newfoundland and Labrador market. Merzetti won’t reveal how many clients DSM has, saying only that the number is growing each quarter.

Because it’s based in the Internet “cloud,” DSM’s phone service is available beyond the office. Using an app, DSM customers can access their phone connection through a laptop, smartphone, or tablet. Other options include web conferencing and voicemails that go directly to your email inbox. Merzetti’s pitch is simple: DSM offers businesses more services at a price 30% to 40% below the traditional phone companies. “Our costs are lower because we are a smaller, boutique phone carrier,” he says. “That means we can offer rates that are better than the bigger guys.”

Originally from Saint John, Merzetti, 42, entered the telecom field in the late 1990s, eventually heading Sprint Canada’s Atlantic operations. Sprint ultimately pulled out of the region, prompting Merzetti to launch DSM Telecom in 2001. Under that banner he was a Rogers wireless dealer, and he later sold long-distance and conferencing services. Then in 2010 he decided to push his small decade-old company into the business phone market. His aim: to be the first Atlantic Canadian provider of digital phone, a service he says is already well established in Europe and other parts of North America.

There was just one major obstacle: financing. “There was a day when you wrote a strong business plan, took it to a bank, and they’d say, ‘We’re going to lend you money, and someday we’ll all reap the reward of big profits.’ But traditional banks don’t finance start-ups anymore,” says Merzetti from his downtown Halifax office. He did manage to secure some assistance from Nova Scotia Business Inc., the Business Development Bank of Canada, and a group of independent investors.

But Merzetti took the biggest risk, backing large loans and personally putting up $100,000. In all, he says it cost between $1 million and $2 million to launch DSM’s digital phone service. “You put your life on the line,” he says. “That’s the nature of an entrepreneur.”

By September of 2010, DSM had its first digital phone customer. The company’s client list now includes Destination Halifax and SheepDog Inc., a Halifax-based IT company. Earlier this year, DSM won Small Business of the Year at the Halifax Business Awards, organized by the Halifax Chamber of Commerce. “We don’t yet have the same client size as the bigger telcos do,” says Merzetti. “But if there’s one thing I’m confident of, it’s that traditional analog services and phone lines aren’t going to be a thing of the future.”