Partners Praise Level 3, Global Crossing Deal for Creating Channel-Friendly Tier 1

Telecom agents praised Level 3 Communications Inc.s plans to acquire Global Crossing Ltd. primarily for its potential to create a channel-friendly Tier 1 competitor to AT&T Inc. and Verizon Communications Inc.  At the same time, some remain skeptical about the companies abilities to successfully integrate their operations, brands and channel programs.

Level 3 announced April 11 an agreement to acquire Global Crossing in a tax-free, stock-for-stock transaction valued at $3 billion that would create a $6 billion company with ownership over networks in more than 50 countries and connections to more than 70 countries. Level 3 said the buy would allow it to better serve enterprises, content providers, carriers and governments throughout North America, Latin America and Europe. The transaction is expected to close by the end of the year.

I see the Level 3 acquisition of Global Crossing as a big win for both companies,” said Brad Miehl, president and CEO of master agency MicroCorp Inc. The combined entity creates a serious global carrier that also has an incredible domestic network.  From a financial perspective, the purchase helps Level 3 improve its debt-to-equity ratio resulting in lower bowering costs and a stronger balance sheet.  Finally from a channel perspective, we have a true global Tier 1 carrier that is truly committed to the success of the channel and can deliver products and services that can compete head-to-head with companies like AT&T and Verizon.”

Josh Anderson, founder and CEO, Telephony Partners, agreed: The new entitys strength in international and data services could be leveraged to give AT&T and Verizon a run for their money in the coveted enterprise market,” Anderson said.

Ken Mercer, senior vice president for master agency Telecom Brokerage Inc. (TBI), shored up the assessment by noting that Level 3 has more access lines than AT&T, Global Crossing is a top choice for international service, and both companies have Tier 1 brands.

That said, several agents Channel Partners interviewed raised concerns about Level 3s ability to integrate Global Crossing. Level3 has had some tough integrations in its past, and Ill be curious to see if they can successfully apply to this merger any lessons learned,” Anderson said.

Level 3 was widely criticized by agents for the back-office and operational issues resulting from the carriers M&A spree in 2005-2007 when it rolled up eight companies, including CLECs ICG Communications Inc. and Broadwing Corp. The problems, some said, were attributable in part to the clash between the wholesale, big bandwidth carrier and the low-end local retail carriers it purchased.

One agent, who spoke on background, said Level 3 did a terrible job integrating Broadwing until maybe a year ago.” In his opinion Level 3 should have stuck with the wholesale business.  Level 3 didnt start pushing its CLEC services through the channel until 2009, a fundamental strategy shift following the installation of Jeff Storey as the new president and COO.

Agents fear the carriers carrier legacy goes beyond its operations to its branding strategy. We still encounter large clients that perceive Level3 as a fringe player because they have had very little retail exposure,” said Anderson. I hope they dont just kill the Global Crossing brand, because it has definite value, especially in the higher-end space.”

While both carriers are considered pro-channel today, both have experienced false starts with their partner programs. Level 3 came out with a program in 2004 to push its recently acquired hosted PBX service (3)Tone through service provider and VAR channel. By 2005, it pulled back from that product, leaving a nascent partner program with egg on its face. But then vice president of national partner sales Craig Schlagbaum revamped the program and by 2007 he was named channel chief. Under Schlagbaum, the company instituted a two-tier distribution strategy, which it tightened over time, cutting its roster of master agents from 10 to four in summer 2009. It has invested in its back office; MasterStream now supports a majority of Level 3s services. The programs and companys earlier woes seemed to be fading when the program suiffered another blow with Schlagbaums resignation in fall 2010. (Schlagbaum later took the channel chief post at Comcast Business.) Nigel Williams, then senior vice president of enterprise sales, stepped in as interim channel chief and in February made it official and is now senior vice president of enterprise sales and strategic alliances. He brought in Wayne Dietrich as vice president of channel sales for indirect and strategic alliances on April 1. Williams has said he expects to grow the Level 3 channel from 5 percent of sales recording in 2009 to 10-15 percent by the end of 2012.

Global Crossings history with the channel is equally eventful. For example, the channel leadership position at Global Crossing has been a revolving door, leading to ongoing questions about the carriers commitment to the indirect sales channel. Since summer 2009, the vice president of channel sales post has been held by Mike Jerich. Thats the longest tenure among the last three channel leaders. Prior to Jerich, Charles Murray held the post for just 10 months and Jeff Callahan for only a year. Previously, the role was held by James DArcangelo for three years, but he divided his time, serving simultaneously as vice president of strategic marketing. Whats different now is that Jerich appointment was preceded by the naming of Craig Butrym to a newly created post as group vice president of government services, indirect/channel partner and inside sales; in other words, the channel finally got a seat at the executive table.

The partner programs as they stand today are very different in structure. Level 3s relies on only four master agents (Intelisys, World Telecom Group, MicroCorp and TBI) while Global Crossings is less rigid and compensates partners based on sales volume. Which structure will prevail is a concern to master agents like Anderson, who said his companys ability to improve its compensation percentages at Level3 is limited. The assumption in the marketplace is that the Level 3 model will prevail since it is the acquiring company.

Partners said they hoped the combined program would include strengths of each namely Level 3s systems and Global Crossings people.  I would love to see Level 3 keep all the Global Crossing people in place,” said one agent, who spoke on condition of anonymity. Global Crossing needs a quoting tool in a bad way, and Scott Mull did a very good job with building it at Level 3.”

Partners also said they are optimistic that the integration of the two channel programs will be aided by the fact that Global Crossings channel executives Jerich and Butrym are Level 3 alumni. We feel that the familiarity that [Global Crossings] channel leadership has with Level 3 will be an asset to a smooth integration and a voice for the channel during the process,” said Curt Allen, president of master agency X4 Solutions Inc.

The companies executives were prevented from offering any clarification. At this point in time and until the close, we have to maintain business as usual principles,” said Level 3s Williams. At Level 3 and clearly at Global Crossing, we are both really excited about the opportunity that this acquisition will bring in terms of the expanded footprint and services and solutions we can take to the enterprise market. In addition to that, the opportunity that it provides for the channel community can only be a significant upside and benefit.”

Neil Barua, managing director of North America for Global Crossing, was equally mum on its channel programs future, but instead offered what may be an overdue endorsement for its contributions: Global Crossings indirect sales channel has been having a great year,” Barua said.  Mike Jerich, and his team, have been doing a great job of building momentum and have the full support of our senior leadership team, which has been very helpful in capturing greater market share.” 

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