AND WHAT ABOUT THE CHANNEL ...

With fresh memories of telecom bust era acquisitions out of bankruptcy and current concerns over the mega-telcos’ efforts to reconcile diverse partner programs, agents are understandably anxious about consolidation and, frankly, how it impacts their revenue streams.

So, how does the channel figure into the recent CLEC mergers? Was it top of mind or an afterthought?

Arunas Chesonis, Chairman and CEO of PAETEC Communications Inc., told PHONE+ that “was part of the conversations” with US LEC before the companies announced their merger intentions in August. “I think we both have an opportunity to make the distribution channel stronger in the combined company than either of us had alone,” he says, noting the discussion “was about the fact that we like the agent channel, that we want to get it bigger, we want to add geographies and give them more products they can sell.”

Chris Bantoft, president of alternate channels for PAETEC, says, “In both companies, the share of revenue and the contribution of the channel is very significant, so when you stick the two together, you are looking at a big chunk of revenue.” PAETEC says agents account for 35 percent of its retail sales; US LEC says partners contribute 50 percent.

Jeffrey Blackey, US LEC’s senior vice president of marketing and business development, says the overlap between the companies’ agents is minimal. There are none overlapping among US LEC’s top 30 agents, “so the merger will be additive to both companies for their largest 60 agents combined.”

Blackey says companies will be looking at the differences between the programs and implementing the best practices going forward. Bantoft says the companies have similar roots with founders hailing from ACC, so there are a lot of cultural similarities that work in “new PAETEC’s” favor. One difference, however, is that US LEC’s channel is governed by the direct sales hierarchy rather than a dedicated channel team as PAETEC has. “I think US LEC was favoring a move toward channelizing anyway,” he says. “It is likely that will be the direction for the future.”

Blackey says the companies tried to anticipate agents’ questions and that has alleviated any initial concerns. One, for example, was whether PAETEC’s equipment vendor relationships would compete or supplant partners’ own. “The reality is that while equipment is provided, it’s an option,” says Blackey. “Agents aren’t required to use it.”

While US LEC and PAETEC — two channel-friendly CLECs — are not raising too many questions among partners, the pairing between Time Warner Telecom Inc. and Xspedius Communications is. As PHONE+ reported in September’s issue, Xspedius agents expressed concern that Time Warner Telecom will not value their contributions to the merged company.

“I fear ... that Time Warner may take a ‘not invented here’ attitude as do many large companies and try to force Xspedius agents into its fledgling program, which I understand is a referral program, not an agent program,” says Adam Edwards, CEO for master agency Telarus Inc.

Time Warner Telecom would not confirm details about its existing program, e.g. if it is in fact a referral program. Spokesperson Bob Meldrum told PHONE+, “It’s a comprehensive channel strategy that involves direct sales, strategic marketing partners, joint channel partners and authorized reps.” Regarding its position on the channel, Michael Rouleau, Time Warner Telecom’s senior vice president of business development and strategy, says,“We haven’t talked externally about how big or small or what key role it plays one way or another. ... But it is one of the ways we go to market.”

While it remains to be seen how Time Warner Telecom will handle the combined agent program, industry executives say consolidation among CLECs generally translates into stronger programs for the channel.

Agents will be able to count on a company that will invest in tools that make partnerships easier, says Ray Allieri, president of business services for One Communications, which combined CTC, Choice One and Conversent Communications. “Now, wherever an agent is located, they don’t need to maintain relationships with two or even three different product sets, channel managers, rate structures, etc.,” says Jeff Howe, vice president of Alternate Channels for One Communications.

Ken Bisnoff, senior vice president of strategic opportunities for TelePacific Communications, agrees. Mergers give channel partners “deeper product sets, better service, with sometimes bigger footprints so they don’t have to do business with five carriers,” he adds.