Deltacom Cuts Agent Roster

In December, several Deltacom (ITCD.OB) agents and master agents received termination letters from the Huntsville, Ala.-based CLEC that severed the relationships immediately.

Sources said the terminations impacted a large number of agents. An executive at Deltacom acknowledged cuts were made, but would not verify number of agents impacted. “New dealers are being added every month, however we have taken action to terminate underperforming dealers consistent with our agreements,” said Tony Tomae, Deltacom executive vice president of sales and marketing.

According to sources that chose to remain anonymous, Deltacom not only terminated the agreements without notice and without a grace period, but it also refused to honor evergreen agreements, immediately ceasing payment of monthly residual commissions.

“They took a lot of people who were coming off a tough year as it is, and put a nail in the coffin of a lot of folks by cutting residual commissions that people bank on,” one agent said.

One master agent told PHONE+ it was in the middle of renegotiating a years-old contract with Deltacom when it received the termination letter. The master agent did not make its quota, but said it was due to the commitment level being based on pricing from four or five years ago on products that now have been commoditized. Due to the price drop, the agent was about to sign a renegotiated contract when Deltacom told the master agency to wait because it was issuing a new contract. A month later, the master agent received the termination letter. “A little warning with some targets would have been nice,” said the master agent, adding that it had heard a similar story from several other agents.

One of the other agents impacted is Budget Telecom Inc. Greg Taylor, attorney at Technology Law Group LLC, which is representing Budget Telecom, said the agent received a letter from Deltacom, dated Dec. 11, 2009, wherein Deltacom alleged that Budget Telecom breached its dealer agreement obligations. Following the receipt of the letter, Technology Law Group attempted to negotiate directly with Deltacom. “We asked Deltacom to disclose the underlying facts supporting the allegations set forth in its termination letter, but it refused,” explained Taylor.

Instead, on Dec. 31, Deltacom filed a lawsuit against Budget Telecom in the General Court of Justice, Superior Court Division for Wake County, N.C. “In its lawsuit, Deltacom seeks declaratory judgment that Deltacom ‘properly terminated’ the dealer agreement and that ‘no further commissions are owed’ to our client,” said Taylor. “We believe Deltacom filed this suit primarily to secure jurisdiction in North Carolina. We intend to defend the allegations of the suit vigorously; we also intend to file substantial counterclaims against Deltacom.”

Deltacom executives did not respond to requests to comment on the case.

Taylor said his firm is aware of other Deltacom agents who have been terminated in a similar manner as his client, and he expects those agents will bring claims against the company as well. Deltacom declined to comment on the details of these agent cuts.

Deltacom also declined to comment on the company’s financial state or rumors of a potential buyout. The CLEC has yet to report its fourth-quarter results; its third-quarter numbers came in with net losses of $2.1 million, significantly lower than the $5.3 million in losses during the same period in 2008. The company said it continued to cut costs through “network optimization and process improvements,” terms that generally fall under the auspices of the selling, operations and administration units. Deltacom saw a drop in its wholesale revenue, but equipment sales and related services increased.

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