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PAETEC Responds to Agent Concerns Over VAR Channel Conflict

Channel partners agents and VARs alike have expressed concern over the potential channel conflict created by PAETEC Corp.s move to expand its VAR strategy nationwide. But PAETEC executives hope to assuage those fears by citing 10 years of experience and rules of engagement to avoid such situations.

PAETEC on June 8 said it planned to buy Quagga Corp., a top Avaya partner serving the West Coast, to broaden the coverage of its PAETECs Integrated Services Group (ISG), which heretofore has been delivering equipment-based communications solutions to businesses primarily on the East Coast.

It just reinforces my stand on not dealing with PAETEC for any of our carrier needs, said Michael D. Meldrum, president, Complete Communications Inc., a dealer/VAR based in Clinton Township, Mich., that also is a direct agent for a few carriers and a subagent for Telegration. Im going out to a customers site and they are my competition on the hardware and Local and LD, so I find it hard to use a carrier that is also my competitor.

Meldrum said his boycott began when PAETEC acquired IP PBX maker Allworx in fall 2007. He said other vendors that have begun to compete with their channels eventually have realized the folly of the strategy, i.e. the system integrators were there biggest customers not the end user.

PAETEC agent Ben Stiegler, CEO and founder of SynerTel, a VAR based in San Francisco, also is concerned about the channel conflict and said he needs an ironclad way to know that if we bring PAETEC to a customer, they wont in the future be drip-marketing their VAR and managed services into our base. He said he has requested such assurances from PAETEC, but has yet to get a response.

PAETEC spokesperson Chris Muller told PHONE+ the companys agent managers are fielding similar questions from its agents on the West Coast who dont realize PAETEC has been a VAR for a decade. ISG includes the assets of two earlier acquisitions of PBX dealers, including East Florida Communications Inc., Daytona Beach, Fla., in 1999 and Cisco VAR Data Voice Networks Inc., Springfield, Pa., in 2000.

Having an equipment subsidiary is nothing new for us, Muller said. We dont have any additional capabilities today that we didnt have last week.

Muller explained that PAETEC has rules of engagement in place to protect its VAR partners from competition from ISG. In addition, inside sales teams are aware of which accounts are being served by VARs so that ISG doesnt come into an account after the fact and try to upsell them gear. In the few cases where we make a mistake, we correct it, he said.

For PAETECs agents the acquisition has some upsides. Muller said Quagga may be called on the implement sales of the companys new IP Simple bundle, which combines PAETECs SIP products with its Allworx IP PBX a combo that has been popular with agents since it was rolled out in September 2009.

Whats less clear is how it will impact agents like ARG, which rely heavily on relationships with VARs to sell carriers services like PAETECs. Some PBX dealers express concern about introducing a carrier that manufactures and sells systems, said ARG CEO Greg Praske.  Have they just introduced a competitor?  Same goes for carriers that are hardware dealers, hosted services providers, etc.

So far ARG, which is based on the East Coast in McLean, Va., has not met ISG in the market, Praske said. But, he also said that a company like ARGs, which represents many carriers, also can insulate VARs from the unintended consequences of moves by carriers (not necessarily PAETECs, specifically) into competing business lines.  We can deliver that experience/expertise while also offering a level of protection for the VARs, he said. Well manage the relationships with the carriers, and if anyone fails to respect the VARs position with the customer, we will engage the carriers that do show respect.

Not all VARs are concerned about PAETECs moves, however. If through M&A [carriers] begin to compete with us standalone VARs/integrators, I definitely see it is as something to be wary of, but not entirely threatening at this point, said Cary Bush, sales director for voice services at Logista Solutions, a VAR based in Bessemer, Ala., and with offices throughout the southeastern United States.

To look at it from their perspective, it is probably an attempt to battle losses where VARs have — and continue — entering into the carrier realm through master agents and direct relationships with their competitors,” Bush said. “At the end of the day, the solution provider/agent that can provide a variety of options should still have the upper hand and PAETEC will still only be selling PAETEC.


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