The channel community is bullish about Mondays announcement that Windstream Corp., an ILEC based in Little Rock, Ark., intends to buy CLEC PAETEC Holding Corp., Fairport, N.Y., in a $2.3 billion deal, creating a $6 billion competitive service provider focused primarily on the business segment the channel targets. The transaction is expected to close within six months.
The combined company would have $6.1 billion in total revenue about 63 percent of which would come from businesses. Alone, Windstreams $4 billion in annual revenue is half (49 percent) from businesses; the ILEC also offers broadband, digital phone and high-definition TV services to residential customers. PAETECs annual revenue of $1.6 billion (2010) is primarily from businesses.
Both companies have strong indirect sales programs: PAETECs since its founding in 1998 and Windstreams by acquisition of NuVox in 2009. PAETEC has 2,650 agents and has said in the past that about 30-35 percent of its retail revenue comes from the channel. Windstream has 1,100 partners; it did not disclose revenue from partners, but since 2009, it has expanded the acquired partner program throughout its ILEC territory. In addition, its channel chief, Dan Sterling, vice president of indirect sales for Windstream, was voted Channel Executive of the Year 2010 and a finalist for the same award in 2011 by readers of Channel Partners magazine.
PAETEC has always been a strong advocate for the channel,” said PAETEC chairman and CEO Arunas Chesonis in an interview with Channel Partners. John Leach, who runs sales for Windstream, has always been a strong advocate for the channel. I see us being very complementary there, and together we will be even stronger for the channel.”
Leach, who is executive vice president of business sales for Windstream, joined the ILEC in September 2009 after having spent three years as the South Region president for PAETEC. During that time, he had a dual role as the channel chief for the CLEC as well.
If nothing else, [my experience at PAETEC] gives me a step up on the integration because I understand and know a number of the players and I know and understand a number of their dealers and Im really familiar with the structure of the company,” said Leach in an interview with Channel Partners. When you go into these deals typically you dont have that insight and it makes it easier when you do.”
Leach said he has been part of the Windstream team that has been evaluating the opportunity to acquire PAETEC. I felt like from the beginning stages, it was a great fit for a number of reasons,” Leach said. In addition to a broader footprint, Leach points to the increased fiber and data-center capabilities as a plus for agents.
Both Windstream and PAETEC have ramped up their fiber holdings over the past year. Last August, for example, Windstream bought Kentucky Data Link, or KDL, whose fiber networks span 22 states. A month later, PAETEC bought Cavaliers Intellifiber subsidiary, with more than 37,000 fiber route miles. In addition, PAETECs seven data centers will be added to Windstreams 14 (one pending) for a total of 21.
Leach also said that culturally there is a match between Windstream and PAETEC: I think the culture the two companies have is very similar both are competitive, both are focused on growth. And they are very people-oriented companies.”
Agents Channel Partners contacted shared this assessment.
This new company will have a stronger footprint and underlying network efficiencies, but most importantly, should provide the channel a strong ally when competing for customer care,” said Alan Sandler, managing partner for master agency Sandler Partners, Manhattan Beach, Calif., which has been selling PAETEC services for about eight years and Windstream (via NuVox) for about three years. PAETEC, which has always been channel-friendly, is a textbook case study in how a company can focus on customer care to become a significant industry player. Windstream/NuVox also is very channel-friendly, flexible and quick moving.”
Ken Mercer, senior vice president of master agency Telecom Brokerage Inc., told Channel Partners that both companies have been standouts in the market due to their financial stability. In answer to calls from subagents inquiring about whether they will continue to be paid post-merger, Mercer has joked: Of course you are going to get paid, its called PAE-STREAM.”
Mercer praised the combination primarily for its unbelievable” footprint, saying that it will fill in the gaps for PAETEC, which is the marquee business brand of the two companies. He expects this reputation was a reason behind Windstreams interest in the CLEC, and expects the ILEC to continue PAETECs enterprise-class customer care.
He likens the deal to CenturyLinks recent purchase of Qwest Communications International Inc. in that Qwest was more prominent in the channel, but gained needed network from the deal.
Mercer also noted that while Windstreams partner program is newer and employs fewer people, its staff is really good” and comparable to those at PAETEC.
The Nuvox deal also has given Windstream additional experience integrating an acquisition. For its part, PAETEC has done it several times over. The CLEC bought rivals US LEC, in 2006, and McLeodUSA, in 2007, creating a national PAETEC footprint. In fall 2010, PAETEC snapped up Cavalier Telephone Corp.
With reporting from Kelly Teal
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