Sonic battles AT&T, Comcast to bring fiber-optic cable to California neighborhoods

Six years after entering the fiber-optic internet business, Santa Rosa-based Sonic has reached a level of growth that rivals the blazing speed it touts in its advertisements.

“We would like to ramp up everywhere we can as fast as we can,” said Dane Jasper, co-founder and CEO.

The company nearly doubled the size of its workforce last year, hiring 188 people to bring its total headcount to 418, and now serves 100,000 subscribers across California.

“We finally reached a point where we are at scale,” said Jasper, who started the company in 1994 with Scott Doty while they worked at Santa Rosa Junior College’s computer services department. “With that scale comes more customers, more staff, more financing. … I feel really lucky to be in the position we are in.”

The company has evolved through several different business models over the past two decades.

It started off as a dial-up internet service provider, then morphed into a digital subscriber line provider as the technology improved. It then became a telephone company, placing its equipment in exchanges across California to serve 125 cities.

Fiber-optic internet service is its fourth iteration. Sonic is building out its own fiber network, providing download speeds of 1 gigabit per second - 50 times faster than the average download speed in America, enough bandwidth to bring joy to any Netflix binge watcher.

San Francisco has been the focus of Sonic’s most recent expansion. The city offers a ready subscriber base eager for more competition in a dense urban environment that makes installation much more economical.

Sonic’s efforts, however, are up against a stark reality: The $104 billion industry that provides internet and other telecommunications services through landlines is dominated by a handful of large companies. There are also many infrastructure and regulatory barriers that make it difficult to grow.

In essence, Sonic is waging a David versus Goliath battle.

“Unfortunately, internet access is dominated by a duopoly or oligarchy. Or, if you want really fast service in a lot of places, a monopoly,” said Jasper.

Nationwide, AT&T has captured 32 percent of the market for internet service, followed by Verizon Communications at 18 percent and Comcast at 17 percent, according to IBISWorld, a Los Angeles market research firm. AT&T and Comcast have a large presence in Northern California, including San Francisco.

“While it’s difficult, we are seeing more and more regional players trying to compete with the huge players,” said Andrew Krabeepetcharat, an analyst at IBISWorld. The firm projects the internet service provider industry will grow ?4.2 percent annually through 2022, driven by fiber-optic service.

Sonic was an early entrant in the fiber-optic market.

The company used downtown Sebastopol as a fiber-optic pilot project in 2011 and then in 2014 entered into a public-?private partnership with the city of Brentwood to build an underground network, which is much more expensive than attaching the cable line to utility or telephone poles.

The company has turned to business customers to drive growth in its fiber-optic business. Those customers have greater demand for such things as cloud storage services and more financial resources to pay for the faster connection. Installations are mostly located in business parks, offering a concentration of customers away from downtown cores.

Sonic went into its sixth business park in Sonoma County earlier this year, serving 258 businesses along the South McDowell Boulevard corridor in Petaluma.

For residential service, Sonic targets areas where it has a significant number of current subscribers and neighborhoods where it is easy to run a fiber-optic cable into homes from a nearby distribution hub. San Francisco fit the bill because about 5 percent of the market already received Sonic service and homes are much more concentrated, compared to those in Bay Area suburbs, Jasper said. San Francisco neighborhoods feature a large number of apartment complexes as well as homes that are packed closely together, with widths as short as 25 feet across.

In contrast, installation in Santa Rosa or Petaluma would cost two to three times as much because residences are much more spread out and do not have as dense a population base, Jasper said.

The company started in San Francisco with the Sunset and Richmond districts in 2016. In May, it announced it was expanding into the Mission district and then into the neighborhoods of Noe Valley, the Castro, Dolores Heights, Glen Park, Potrero Hill and Sunnyside.

In its San Francisco push, Sonic was helped by two circumstances that were outside its control. First, there was the growing number of “cord-cutters,” who are ditching their cable TV packages but keeping their high-speed internet service. They use their Amazon Prime, Netflix or Apple TV accounts to watch TV, not Comcast or AT&T cable packages.