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Channel Leaders Discuss Mega Mergers Part II: Channel Impact

The channel has witnessed several major mergers among its carrier suppliers in the past two years. The largest was the $22 billion acquisition of Qwest Communications by CenturyLink in spring 2011, followed by its $2.5 billion Savvis purchase. In the fall, Level 3 Communications finalized its acquisition of Global Crossing Ltd. and Windstream Corp. closed its purchase of PAETEC. In 2010, MegaPath merged with Covad Communications and Speakeasy in September. during the past 24 months, EarthLink rolled up a number of companies, including One Communications, STS Communications and DeltaCom, to add to its earlier New Edge Networks acquisition, forming EarthLink Business.

Windstream's John Leach, CenturyLink's Blake Wetzel and MegaPath's Dan Foster

The channel leaders of these organizations got together at Nov. 9 channel event hosted by PlanetOne Communications at the Talking Stick Resort, Scottsdale, Ariz.  PlanetOne CEO Ted Schuman moderated a discussion, which included CenturyLinks Blake Wetzel, vice president of alternate channels for the Business Markets Group; Windstreams John Leach, executive vice president of business sales and marketing; EarthLink Businesss Cardi Prinzi, executive vice president of marketing; MegaPaths Dan Foster, president of business markets; and Level 3’s Garret Gee, director, sales engineering partner channel.

What follows is an edited transcript of that roundtable discussion concerning changes to the post-merger channel programs, including support, personnel, channel integration policies, performance expectations and recruiting strategies.

For a status report on the integration of the merging carriers operations, back offices, networks and product road map, see Part I.

Schuman: Have there been any changes  or changes coming in the next six to 12 months as it relates to the channel?


EarthLink's Cardi Prinzi and Level 3's GarrettGeeLeach:
Windstream didn’t have a channel when I got there. So when we bought NuVox, there was a lot of consternation from the channel about whether an ILEC was going to support the channel. That was a big change for us. When I got there, Windstream C-level execs knew that we wanted to grow the channel. The NuVox acquisition helped us do that more quickly. We’ve proven that we’ve put our weight behind it and view the channel positively and it’s going to be a significant part of our revenue going forward. That was a big change internal to Windstream when I got there.

Wetzel: Qwest obviously had a strong program. CenturyLink had not invested as much time and energy into their indirect channels. We are doing a lot of education with CenturyLink people. They are seeing the power and strength of the channel, which has been an extremely positive thing sitting in my chair. A lot of eyes are opening to truly the strength and scale that he indirect channels have.

When we acquired Savvis, they also had a strong indirect channel. So, the CenturyLink organization is looking at this as a good go-to-market strategy and it has been part of the evolution of customer buying premises to talk to someone who is an independent consultant that can offer multiple services and solutions to a customer.

As far as future changes, we’ve continued to evolve since legacy Qwest Partner Program, now CenturyLink Channel Alliance, has taken a leadership role. We rolled out our first mobile app. We did our data center initiative, to be the preferred provider at 250 data centers. Our partners have been at the forefront with us to help design, develop and grow the model. We continue to do development in our marketing systems and platforms. We are deploying Salesforce; we are in the midst of that with our partners. Our channel is so strong and complicated that we are developing things even Salesforce didn’t think about.

The positive thing that we have seen and will continue to see is that the indirect channel has a very strong position within CenturyLink and a strong voice to say, “Here’s how we need to evolve ourselves.” It’s not just talking to our direct sales force. We have been able to create advancements in our product suite, how we go to market and our marketing. Our advisory council has a strong voice. We meet at least four times a year. They are giving us coaching and we are acting on that.

As far as the future goes, we will continue to evolve. Our hope is to quickly integrate the legacy CenturyLink and legacy Qwest programs together. We are working on that and hope to have an answer on that shortly. We are educating a national organization to the strength of the channel.

Foster: I want to go back to what Blake left off with the advisory board. It’s an absolutely critical function that advisory boards play in the evolution of all the folks here on the panel. We just had one a few weeks ago. In that environment we share our product road map, our systems road map and go-to-market strategy and vet it. From that, we take almost a subgroup if you will on the systems  and back office. For us, we look at the changes we have made and where those map to where you want us to go.

First and foremost, it’s customer experience. It’s the ability to give the customer mobile apps to look at their network, to have “find me, follow me” mobile integration, embrace the cloud. There is a lot of that capability that’s in the hype stage or in reality.

What we did is we took channel integration to another level. When we brought these companies together we had almost five call centers that were working on mostly direct. We took those folks and we turn them into partner managers.  What we’ve done is take a bunch of folks on the east coast and west coast so there are butts in seats ready to answer phones. Sure I have a channel team, but I want to have  from 4 a.m. PT to 6 p.m. PT someone to answer your questions. We have accomplished that. That’s something we feel good about. …We created an agent call center with specific folks focused on your business. That was a fun win for us right away. As we look forward, it will be more go-to-market innovation and system innovation. …

Prinzi: We basically built a channel from the ground up. We literally merged four channel programs that were already owned or acquired by EarthLink within a four month period of time. We combined them into one program. The four companies were Deltacom, New Edge Networks, One Communications and STS in South Florida. Not all of those four companies were of like mind from an agent perspective. And, so that’s probably the biggest thing that we have changed the cultural focus in the company with regard to the channel.

Myself and JR [Cook, vice president of sales channel partners,] and even our CEO Rolla Huff have experience with the channel for years now and came out of New Edge, where we had a very partner-friendly program. On the other extreme was Deltacom, which as many of you know in 2009 for the most part shut its program down completely in the Southeast. We are ratcheting hat program back up.

We also have many of our agents with multiple contract s with us. They might have been selling New Edge and maybe a contract with One Comm or Deltacom or STS. So we are rationalizing all of those contracts. And, with the launch of our nationwide products that we just announced, we are going back to all of our agents and getting a new EarthLink Business agreement signed. We’ve already completed quite a few and are in negotiations to finalize the rest.

There has been a lot of work going on and a lot of changes in our program. It starts at the top of the company and changing the focus and how we are going to work with the partner community. We had a lot of extremes. STS was all agent; 100 percent of sales came from partners. We had four very distinct programs. We’ve got more to come.

Gee: On the Level 3 front, the first big change is from a leadership perspective. Some of you may know Michael Jerich, who was the channel chief at Global Crossing. He has assumed responsibility for the indirect program at Level 3, which includes agents and our VAR/SI strategy and our Strategic Alliance strategy. That’s the first major change. A lot of the existing Level 3 leadership team worked with Mike previously because he ran indirect sales at Level 3 three years ago, so there are some good cultural fits there day one.

The next thing I would say would be size. Level 3 had about 55 people in the channel. Global Crossing brings about 30. We see fantastic synergies between the two teams. There’s really not much overlap whatsoever. And, the business is looking to invest in us. So, you have 80-plus strong people to support you from a channel management, sales engineering, support perspective.

Looking forward over the next six to 12 months is to have a single integrated channel. So, looking at portal access and quoting tools and merging them as soon as possible. Those are top priorities in the next year.

Schuman: Let’s talk about things that have changed in your [channel support] organization so far or that we can expect?

Wetzel: Ours hasn’t changed at all. Because we were the predominant organization, we are still between 150-200 people in my organization. If anything we have grown; we have opened up new markets. We put in a channel manager in Baltimore. We are adding in different markets. Nothing has changed other than that. We are growing the organization; we are adding engineers in specific markets because what we are finding is that our partners can do a lot without our direct organization. We are adding more resources to support partners in the field.

Leach: I think we’ve done historically a really good job in our integrations of keeping some of the talent of the acquired companies … and also giving the people that we keep a leadership role. We’ve done that with Dan [Sterling]from NuVox, who continues to lead  the channel and will continue to. But in the PAETEC acquisition, we have a lot of overlap on the direct sales side and overlap on some channel managers and a lot of overlap in middle management. There will be synergy targets that we have for that.  …We do have a number of channel managers that there will be synergies for. That’s a part of the acquisition that is a reality. We are going through that with the PAETEC side now to figure out who those people are. There are a lot more of those that happen on the back-office side, the non-revenue-generating side. People that have a quota on their head it’s a lot easier to keep them than if they are just a salary.

Foster: With us, we are through the synergies. As I said, we achieved 90 percent of them within nine months. It’s in a growth phase now. We are adding. We added in Chicago, Southeast, Atlanta  and someone is coming on in the Northeast. In our enterprise team, we are putting more feet on the street. this past month we closed five deals over $70,000 with partners. These are folks that are out on the street experienced closers and they work on your behalf.

Prinzi: We are really taking a best-of-breed approach as far as the integration of all the channels. We had four distinct channels. We took the best elements of each and already restructured the channel. JR [Cook] has put together his team. As we do geographic expansion, we are looking to add more people, particularly in the Western half of the U.S.

Gee: At Level 3, we have a good news story as well. We don’t expect synergy reductions at this point. The channels were pretty different in regard to the strategy. A lot of the Global Crossing channel managers focused way up market , international, a lot of business development work. At Level 3, we were up there but we were also tactical and in the field. Our strategy is to increase the field-based channel managers and, for select partners ,the business development overlay. There is investment going on above and beyond what was brought to the table by Level 3 and Global Crossing. We expect to be adding heads and getting channel managers and engineers in the field closer to customers and partners so we can help you close business.

Schuman: Let’s talk about channel integration. Are there any changes and, if so, what are they?

Gee: So for teaming/collaboration/channel integration, whatever you want to call it, Level 3 took an aggressive approach this last year. We had some pretty good success with teaming with the direct teams. Global Crossing not so much. I would say at this point it’s  to be determined. It’s a key priority for Mike Jerich and the leadership team to define rules of engagement going forward so we can get those our to our partners. Again, we have seen some good success. We don’t want to get into a model where we are teaming on everything, but in a lot of cases there is a good value proposition for us to team with the direct teams. We have an “ink rules” policy for a majority of our accounts so our partners are able to call on the same accounts as our direct sales force. There are a few select accounts namely Fortune 500 that are protected in nature. There are instances where partners come with a relationship that our direct sales force  [doesn’t have].  We have worked through an  ICB process where our partners can team with direct. That may be a leading indicator of where we are going for 2012. But that’s going to be a top priority for us from a planning perspective for the tail end of the year.

Prinzi: From a channel integration perspective, we are well on our way to completing all of our integration activities. Where it makes sense for us to work with a direct sales person with a partner, we will make those exceptions as needed. I am sure that’s fairly consistent. We have taken a different approach. We’ve created some overlay sales organizations within our company focused on MPLS, hosted voice (which we will be rolling out here in the coming weeks), and a systems group where we sell some phone systems in the Southeast. That systems group is an interconnect group and they will be turning their attention more toward hosted voice. As we get opportunities in from the channel, particularly larger opportunities, we will be assigning those individuals to partner  with your channel manager and you to help you go out and close the deal. We’ve had a lot of success with that. That was a best-of-breed [practice] from New Edge Network. We are spreading that program out now to all of the sales organizations across the company.

Schuman:  Is there any commission hit or is it ICB on the opportunity and margin?

Prinzi: It’s ICB.

Foster: They are agnostic about whether it comes through the channel or brining partners into deals. We have been doing that with our strategic national accounts, our top 300 customers. We have call centers that are working on behalf of the partners. What we do is split quota. We retire both. It’s worked out well.

Wetzel: We are proud of our channel integration strategy. We’ve had it for years and are not planning to change it. We do a 10 percent hit when we channel integrate, but the direct side takes the hit too. It’s not punitive; it’s to make sure that we think about it and that we need to use the resources. Frankly, we close a significant amount without the direct sales force. We don’t see any changes coming down the pike, but we are always reviewing that.

Schuman: What percentage of your sales are channel integrated?

Wetzel: We don’t share numbers publicly. I am happy with the non channel integrated deals we do. It’s not insignificant.

Leach: Our management team works very closely to handle deals on an integration basis that make sense. We have a large equipment business. PAETEC has a large equipment business.  We are very sensitive when we are dealing with channel partners that also have equipment businesses that we don’t bring that to bear in the appointment. If it’s a network appointment, they have the equipment sale. We work closely to make sure we are not infringing on that part of their business.  …There is channel conflict, but we don’t have an awful lot of deals that don’t come to a successful outcome because we are both motivated. In cases where it makes sense to keep both sides whole, we do, but we do it on an ICB basis to determine what we have to do deal by deal.

Schuman: What percentage of your sales for the combined company today are coming from the channel?

Gee: We don’t share that publicly, but I can say that we are in single digits in sales  and revenue from the channel at this point, but there is a big push to get into the double digits with Level 3, so that means good things for all of us.

Prinzi: We are running in the mid 30 percent range 33 to 36 percent. The percentages by legacy company vary dramatically. In the Southeast, we are running maybe 20 percent so we are expecting to see a lot more growth in the channel as we move forward. I have full expectations that the percentage will increase over the next year.

Foster: We are running anywhere from 20-35 percent on a given month. Last month it was down; it was our lowest month of the year. Three very large enterprise deals that had been in the pipeline for almost a year came in and hit the books. Typically 30 percent is the high water mark we want to exceed in 2012. We have about 35 percent in the plan for 2012. We are just going through that budgeting process.

Wetzel:  We don’t share those numbers publicly. We don’t look at targets or what we think the percentage should be. We just want our sales channels direct and indirect acquire as many customers as they can.

Leach: Come on, Blake. We are about 35 percent of the combined. I think PAETEC is similar without knowing the details.

Schuman: Are you seeing fairly dynamic growth in the channel? Is this a strong growth engine for you?

Leach: Much to [Dan] Sterling’s chagrin, we raised his expectations in 2011 and they are outperforming. I’ve seen PAETEC’s reporting; their channel is thriving and doing better. We are doing more numbers on a new sales basis than we’ve ever done at legacy NuVox. I know PAETEC is also seeing real robust growth. We are very positive on what we think the outlook is. We think there is a whole new sector going into cloud and virtualization and managed services that have been either not penetrated or very lowly penetrated that the folks that have been selling traditional telecom can move into but also we can get a different group of folks to sell into that space. We are very optimistic.

Wetzel: We are extremely bullish with the growth what we are seeing today and what we see in the future. It’s coming from traditional partners and a new models. We are creating with an organization completely dedicated to expanding into new models of partnership. That’s everything from VARs, systems integrators and other innovative models that we’ve got created. we are extremely bullish. CenturyLInk in total in the enterprise space is a share taker. We have the third largest market share in the enterprise market and we want to get closer to No. 2. We are in aggressive growth mode and our partners are going to participate heavily in that.

Foster: When we look at our business plan for 2012, it is the upside in our business plan. We are very bullish. We come out of a legacy managed services play. There has been an education gap, I think,  in some cases with the traditional telecom agent moving into that space, so we are very bullish as folks starting thinking about more advanced services. … We have a lot of upside in the 2012 plan.

Prinzi: We expect to see a lot of growth. What we are all seeing from a macroeconomic perspective, most of the LECs or the CLECs in the business of selling network services have not seen a lot of growth in their business over the last three or four years. Most growth has been inorganic. That’s starting to change. We are all revamping all of our product lines. The world has obviously gone IP. You are going to see customers starting to upgrade their services to newer services. Customers that have been sitting on the sidelines for the last two or three years are getting back into the business, so we see a lot of opportunity. then when you start thinking of layering in the cloud and IT services over the top of the network we are really counting on the channel to be a significant distribution channel.

Gee: I can share numbers here. On the Global Crossing side, year over year, indirect growth is close to 10 percent. On the Level 3 side, it’s in the mid 20s. Aggregate, we are north of 20 percent year over year. That’s one of the reasons we are getting so much investment from our executive team.

Schuman: Where is the growth coming from in the channel? Is the average revenue per order growing?

Foster: When we first got into the channel, it was almost T1 and DSL access only. We are very excited about a new product coming out at the beginning of the year that will be a virtual server, hosted Exchange and hosted voice over an Ethernet connection. We put it out to our advisory board and they said it’s really where we need you guys going.

The agent today is a very different agent. It’s going in and offering solutions to the small or midsize business that’s growing and can’t afford to have phone and PBX changes every day. At our advisory board meeting, we had Nemertes Research coming in; IT spending is going up but hiring is not.  They are looking more for solutions from you. We are pretty excited about that.

Wetzel: We see the evolution of the partner being more of a consultant. You are not just bringing an individual solution to a customer; you are bringing a portfolio of solutions to a customer. We have seen some studies that have said the evolution of the buying in the IT world is migrating to an independent consultant model. We use the term partners, but at the end of the day they are independent contractors. I’ve been running this organization for two years and I have seen the evolution of our partners in that short time. You are bringing your own solutions to the customer. That’s incredible because its a deeper value that you bring every day. That’s where it aligns very well. It’s not just the T1 anymore. We are talking Fortune 500 customers who need to downsize their IT organization and need advice. That’s where we have seen a fair amount of our growth in Fortune 500 companies.

Leach: I think the convergence of the telecommunications services is a big part of the growth. Customers are making decisions based on more products because the products are more meshed and coming together. Fifteen years ago there was great divide between equipment providers who didn’t want to deal with the network piece of the business because they thought it might muck up their equipment sale. We’ve seen that go away. The majority of those providers are interested in tying the network together with the phone or a hosted solution. I think convergence of telecom network are making the deal sizes go up and the opportunities go up and we are seeing that growth.

Khali Henderson:  Are you going after VARs in greater numbers than the traditional partner and is that being fueled by the cloud product. And, secondly are you having success there?

Wetzel:  … We’ve actually helped [VARs]  get over the hurdle and the mindset by showing them models of how they can go to market and get away from the equipment sales. To some degree they are being driven there; with the equipment market drying up and the capital restraints in the market, they need to have other avenues. They are more apt to have the conversation. We have prepared discussion points on how to talk to a VAR. We also have actually structured a team … to help new models who aren’t  familiar with a heavy telecom sale to call in and have someone to support them through the selling process. We are doing that with not just VARs but anyone who is an innovative model. What we are seeing is they are nervous on the first opportunity. They are more comfortable with the second. As they get more and more comfortable, they understand there is infrastructure there and it is a logical next step. IT is technology that’s bringing them together; the economy is bringing us together. We all have to be prepared to broach the conversation. It’s not the same today as it was a year ago.

Foster: I think the customer is forcing it as well. We have been in several deals with $500 million VAR/integrators and the customer said they want to make a single decision here. I want the network and the data and the infrastructure all brought together. A lot of times it’s the customer driving that. The VAR is reacting in some cases to that. Blake is absolutely right. We did a deal about a year ago; it was magnifying glasses the entire time. We figured fatigue hit them and sure enough it did. They realized that we had the capability and that’s why they brought us into the deal.

Prinzi: I think the market is going to drive this and I think the next year or so is going to be the real challenges for all of us in that regard in education of the VARs and what’s in it for them is going to be the important thing for us to communicate to make them more comfortable to move forward with us.

Gee: I would agree as well. The one thing that we are looking at is how you approach a VAR. They are used to certifications and strict policies around training. not all of the carriers have had training programs and certifications that face the VARs. If we are going to jump in, we have to do a lot of investment on that side. The Platinum, Gold, Silver is the way they operate. We have to get into that mindset with them.

Leach: We saw the hesitancy when we bought Hosted Solutions from the employee base about a carrier buying their business. They did not have a good understanding of our business and didn’t think we had a good understanding of theirs. In working with them and once they understood our business, that their customers would benefit from the alliance and broaden their reach. We are going to do the same ting with the VAR base through some trainings and showing how the products complement each other. We think it’s going to be a no-brainer.


MORE INFO

Hear channel leaders from CenturyLink, Level 3 and Windstream live at the Keynote Roundtable at the spring Channel Partners Conference & Expo, March 26-29, in Las Vegas.


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