Divide & Conquer

Photographed by Alex Koloskov

Steve Gareleck at PartnerTEL headquarters in Atlanta
Photographed by Sean Egan

Dan Bommer at the Venetian Hotel during the Spring 2007 Channel Partners Conference & Expo

ITS BEEN A LITTLE MORE THAN a year since PartnerTEL Inc. and Telesis Management Corp. merged Jan. 16, 2006, to form one of the countrys largest master agencies. From the outside looking in, it seems as if the companies are continuing business as usual the individual Web sites remain operational, the owners still keep their respective Reston, Va., and Atlanta addresses and concede they only recently decided to consolidate their marketing under the PartnerTEL brand.

Behind the scenes, a different story is unfolding. Besides PartnerTEL and Telesis, the owners also operate a data services reseller called Telcentrex Inc. And, they maintain an off-shore outsourcing company that handles back-office functions for both the master agency and the reseller. By coming together, PartnerTEL and Telesis have been able to reallocate resources to better grow both businesses a move they believe will give them greater control over their futures as part of the telecom channel.

Practically speaking, the way this plan is taking shape is that Dan Bommer, former president of Telesis, has assumed the role of president for the new PartnerTEL. This, in turn, has freed up Steve Gareleck, former PartnerTEL president, to devote a majority of his time to responsibilities as president of the fledgling Telcentrex. A third partner, Remington Reynolds, former CEO of PartnerTEL, is running Cost Management Group, a holding company set up to facilitate the merger of the companies.

The owners are quick to point out that the agency remains the center of the companies activities. Its sister companies existences are in support of PartnerTELs growth. Business Process Outsourcing International, for one, was set up in Costa Rica by Gareleck and Reynolds in 2004 to provide support for the companys agents at a more affordable cost structure than was possible in the United States. Similarly, Telcentrex, which operates out of Alpharetta, Ga., was formed by Gareleck and Reynolds in mid-2004 to help PartnerTELs indirect and direct sales reps better answer requirements of cost-conscious customers.

Post-merger, PartnerTEL serves more than 7,000 commercial accounts and supports about 450 subagents nationwide. The companys predecessors came together after successful solo stints because of increasing pressure on agents to perform on a grander scale. We were both of the mindset that it was getting tougher and tougher with these carriers as they got gobbled up and the contracts got worse and worse, recalls Gareleck of the summer of 2005 when he began talking to Bommer about merging. You have to have some big numbers to be a player. So we figured it was a good time to merge.

Cutting Costs

In addition to growing its businesses and protecting its customer relationships, PartnerTEL executives are focused on cost-cutting. Significantly, the company has moved its backoffice operations off-shore a move that is likely unduplicated in the agent community. About two years ago, another light bulb went off that margins were getting compressed, so we opened up an operations center in Costa Rica, says Gareleck. The center is staffed by 25 people that manage ordering and provisioning. Of those, three are developers who maintain the companys proprietary agent portal, TEM and Telecom Online Management System software programs.

The execs chose Costa Rica after checking out cities in eight different countries and finding Costa Rica had a high literacy rate and English fluency. In addition, most of the employees in Costa Rica have advanced degrees some from U.S. schools. A few of the U.S. staff members were relocated to Costa Rica, but most were hired in country.

Even after the merger, staff was not laid off to shift to the new model; vacated positions were not filled and others were retasked to other jobs, says Bommer.

Gareleck says the prime motivation for off-shoring was to provide the proper support to PartnerTELs agent base. We could not afford to do it with the compression of margins from the carriers, he says.

While setting up shop in a foreign country was timeconsuming (the company ran double staffs for nearly a year) and pricey (more than $700,000), Gareleck says that the payback came in about two years. When you have 20-25 people in an office and you are saving half their salary, your ROI is pretty quick, he says.

Indeed, one of the drivers of the merger, says Bommer, was to consolidate carrier contracts. The two agencies already were working toward that goal by becoming subagents of one another prior to joining forces. Telesis represented 25 service providers while PartnerTEL represented about 40. The combined company now represents 50, he says.

The increase in scale was a clear upside for Telesis, which had 20 employees and 50 agents, in combining with the larger PartnerTEL with 45 employees and 400 agents. For PartnerTEL, gaining diversified revenue streams that Telesis developed sweetened the deal. Telesis had grown successful managed service practices one for bill payment and another for telecom change management that provided income independent of carrier commissions. Its a great business, but long-term, we dont feel we can count on it, says Gareleck, of being a telecom agent.

Philosophically, the companies were in lock-step in seeking greater control over their revenue streams. Both companies were among the few master agencies at the time to have ventured into the telecom expense management space. Combining those practices and using the proprietary TEM software built by PartnerTEL also was an obvious synergy.

Both had developed successful subagency programs; PartnerTEL, in particular, cultivated a strong downline after 2001 when it became one of the first master agencies to deliver an agent portal, a $2 million custom program it calls Oasis.

By the time the two companies came together, Telesis agents contributed about 40 percent of the companys revenue while PartnerTEL agents delivered about 70 or 80 percent of the companys revenue. Bommer says the new PartnerTEL is not actively seeking agents, but only because there seem to be few new ones entering the marketplace. Instead, he says PartnerTEL will grow its direct sales force four in Reston and four in Atlanta with the addition of two or three more in each city by the end of the year. The reason for the renewed investment in the direct sales force is to aid growth of the companys managed services business or what it calls SPOC (single point of contact) Service Management. This includes bill payment (receipt and payment of invoices), trouble-ticketing and move/add/ change/delete management.

The SPOC service is a cornerstone for the new PartnerTEL, the owners say. We are picking up telecom revenue by managing bills and telecom services, says Bommer. Six to 12 months after we sign a customer, we end up managing their carrier contracts, too.

Gareleck says the SPOC service also helps retain customers longer and gives PartnerTEL more control over customer spending decisions. If we lose control of the revenues, then the carriers wont really need us, he reasons.

Starting a resale company is another way PartnerTELs owners are trying to win and retain new business. The strategy was designed to combat situations where PartnerTEL is unable to compete with other resellers pricing and to offer its direct and indirect sales channels a trusted, low-cost provider. Gareleck says certain clients dont care about brand names, but want to see financial statements attesting to the viability of the provider. Many times, PartnerTEL, as an agent of a reseller, is unable to provide such information and loses the deal. With Telcentrex, PartnerTEL is able to fulfill such requests.

Today, Telcentrex provides only data services through resale agreements with Level 3 Communications Inc. and Qwest Communications International Inc. Gareleck says he plans to expand the portfolio on a selective basis and will team with other resellers to get better pricing.

While Gareleck says they plan to grow Telcentrex, they dont want it to compete with or interfere with the agency business by sending a message to PartnerTELs suppliers that they are favoring Telcentrex, which is 10 percent to 20 percent less expensive, over other carrier services. We are very careful about when we bring Telcentrex into an opportunity, he says, noting they always disclose the relationship between PartnerTEL and Telcentrex to the customer. We are just treating Telcentrex as another vendor for PartnerTEL.

Presently, Telcentrex is sold only through PartnerTEL, but Gareleck says they are considering offering services to other master agencies. They also are considering bringing in some direct sales reps to manage larger deals. The number of customers Telcentrex has is fairly small, but they tend to be larger. Thats not the only difference: If you look at an agencys top line, they are getting 10-15 percent of the spend, says Gareleck. Telcentrex gets the entire spend, so it is growing eight times as fast.

Up Close & Personal
President: Dan Bommer  Steve Gareleck
Headquarters: Atlanta  Alpharetta, Ga.
Employees: 45  6
Suppliers: 50 service providers  Level 3, Qwest
Agents: 450 subagents PartnerTELs direct sales force and subagents


Level 3 Communications Inc.
PartnerTEL Inc.
Qwest Communications International Inc.
Telcentrex Inc.
Telesis Management Corp.

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