Beltsville company carves niche by providing services to customers INTERNET AS A BUSINESS TOOL

THE BALTIMORE SUN

Digital Express Group, a company that until March made its headquarters above a Chinese restaurant in Greenbelt, is getting ready to crack open its fortune cookie.

The Beltsville-based Internet access provider, born with four phone lines in founder Doug Humphrey's basement four years ago, is growing at a pace that rivals the expansion of the Internet itself.

Started as a regional connection to the international network of computer networks, Digital Express' reach now extends from New York to Washington. It's planning on adding Boston, Pittsburgh, Richmond, Va., and Charlotte, N.C., this quarter. A year ago it had 15 employees; now it has 70 and expects to reach 100 by the end of the year.

Last year, trying to serve all comers, Digital Express had revenues of $2 million. This year, with its focus firmly on the high-volume business, government and educational markets, the privately held company surpassed that mark in its first quarter and could quadruple it by the end of the year, said spokesman Doug Mohney.

Last week, Digital Express learned it has apparently landed its largest customer to date. The University of Maryland decided to recommend to the Board of Public Works that the company, also known as Digex, receive two lucrative contracts, including one that could let it become one of two preferred Internet service providers for state agencies and local governments. Meanwhile, its international division has recently given the nations of Barbados and Georgia their first links to the Internet.

Clyde A. Heintzelman, the former Bell Atlantic executive who recently took over as Digex's chief operating officer, figures it's time to make a move that could vault the company into the ranks of the top Internet service providers.

For legal reasons, Mr. Heintzelman won't come out and say that Digex will soon go public. But he is acutely aware of Wall Street's fascination with the Internet -- the burgeoning international network of computer networks.

Sitting in Digex's spacious new headquarters in an industrial park off U.S. 1 -- space formerly occupied by the National Rifle Association's data processing center -- Mr. Heintzelman rattled off the numbers from the increasingly lucrative deals involving Internet access companies: Netcom On-Line Communication went public in December for six times trailing revenues; Performance Systems International for 22 times trailing revenues in May; UnNet Technologies Inc. at 26 times later that month.

Frank Adams, president of Grotech Capital Group in Baltimore, thinks enough of Digex that his venture capital firm became the Internet provider's lead financial backer. He said Digex would have little difficulty selling stock.

But before Digex makes a move toward the public markets, Mr. Heintzelman wants to find a well-heeled partner to give the company added credibility. It's a strategy that worked wonders for its larger rivals: UnNet, which teamed up with Microsoft before its IPO, and BBN Planet, whose parent company's stock soared after it found a partner in AT&T; Corp.

Mr. Heintzelman is not coy about whom he'd like to link up with: his old employer.

"It makes a lot more sense for Bell Atlantic to have us than for some other party to have us," he said.

Mr. Heintzelman, who left the telephone giant in 1991 to join a start-up telecommunications company in Virginia, reasons that Digex could give Bell Atlantic a significant boost toward its stated goal of providing Internet access.

He then rattled off reasons why it would make sense for Bell Atlantic and Digex to get together: Digex could help Bell Atlantic bypass the big long-distance companies. Digex has experience Bell Atlantic lacks in selling Internet services to businesses. An investment in Digex could block a path another regional Bell could use to poach on Bell Atlantic's turf. Meanwhile, Bell Atlantic could even make money on the deal if it invests in Digex before an IPO.

Bell Atlantic was more reticent. "We don't discuss any deals that may or may not be in process," said Eric Rabe, a Bell Atlantic spokesman. He confirmed that Bell Atlantic is very interested in the Internet but added that "there are a million ways we could possibly do this."

Whether it comes to an agreement with Bell Atlantic or not, Digex will find a way to expand, said Mr. Heintzelman.

"In this industry you either grow or die, and it's going to be a reasonably early decision," he said.

Mr. Heintzelman came aboard Digex a little more than a month ago after Mr. Humphrey decided the company needed a professional management team to complement his technological abilities.

In Mr. Heintzelman, who gave his age as "mid-50s," Mr. Humphrey has recruited more than 30 years of experience in the telecommunications industry. During his career with Bell Atlantic, Mr. Heintzelman served in a succession of high-profile jobs, including chief of the company's Federal Systems Division and general manager of the Directory Division.

Mr. Heintzelman said his most important task now is to remedy Digex's shortcomings in customer service -- a problem he called endemic to undercapitalized companies in a high growth industry.

Now, with the backing of Grotech and its partners, Digex has the resources to beef up its customer support staff, Mr. Heintzelman said. Since his arrival, he said, the company has created a 24-hour, seven-day-a-week "help desk" for its 300 high-volume users and added operators to serve its 5,000 residential customers.

"My focus is first and foremost that I want to bring our service level and experience to something that they've come to take for granted in the telephone industry," he said. "I don't think we're there yet at all."

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