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Level 3 Works Out the Kinks

It’s no secret that with growth comes pain. In the case of Level 3 Communications Inc., a two-year M&A spree culminated this summer in back-office and operational problems that had a lot of agents grumbling. Some were past the complaints stage and said they’d stopped sending business to Level 3, although that doesn’t seem to have impacted Level 3 much – executives say sales from indirect partners have gone up, almost doubling, in some cases.

Since 2005, Level 3 has snapped up eight companies, including ICG Communications Inc. and Broadwing Corp. With those acquisitions, it inherited some agents and employees more accustomed to working with low-end voice than with big pipes, which are the company’s forte. Combine that with Level 3’s focus on selling through a few select agents, and you have a recipe for discomfort.

Level 3’s Official Master Agents

AB&T Telecom Sales Corp.
Business Communications Management
Communication Management Services
Intelisys
MicroCorp
partnerTel Inc.
Telecom Brokerage Inc.
Venture Group Enterprises Inc.
World Telecom Group
x4 Communications LLC

The operational hurdles have been the root of most complaints. Level 3 has stumbled on quoting and installation turnaround times, and made customer service, billing and commission mistakes. That has made some agents unhappy. “We are putting them on a hold for new business at this point because the situation has gotten that bad,” says one master agent executive, citing complications with provisioning, support and pricing. That agent is not one of Level 3’s official agents — the company has decided to take on only a handful, another bone of contention for partners. Another anonymous agent — also not one of the official Level 3 partners — said the carrier’s performance is “average at best” right now, but the agent is hopeful the situation will improve. “I think they are trying to get the right people, tools and processes in place,” the agent says, “but they have a long way to go.”

That’s part of M&A fallout, say other agents. “There have been some challenges on the commissioning front and provisioning front, but it’s all getting worked through,” says Brad Miehl, president and CEO of MicroCorp., which is one of Level 3’s approved master agencies. He says some compensation numbers have come back wrong, but that’s being corrected.

Communication Management Services (CMS), also an official Level 3 agent, had some post-sales troubles, too. In response, the California-based agency logged all its issues, then met with Level 3. “The end result netted us a weekly meeting with several Level 3 managers to review all pre- and post-sales activities,” says Gene Foster, president, CEO and CFO.

Vince Bradley, CEO of World Telecom Group, another official agent, says WTG has experienced the same issues others have complained about. “We have asked our agents to create realistic expectations with their customers on provisioning timeframes and be patient while Level 3 completes the integration of these acquired company systems,” he says.

Indeed, Level 3 has acknowledged the problems and is taking steps to repair them. For example, the carrier recently reorganized its agent support team, reacting to feedback that support personnel didn’t understand agent needs. So, Level 3 replaced less channel-experienced Level 3 staff with former Broadwing personnel in positions of direct contact with master agents.

It’s also shoring up the back-office snafus. Masterstream, Level 3’s quoting tool, should be tied into the integrated back-office system of the combined companies and ready for use by the end of the fourth quarter. Engineers also hope to have an on-net portal available in the first quarter, so agents don’t have to do estimates manually.

Such moves should make it easier for master agents to do business with Level 3. But there are some other matters of strategy that Level 3 won’t be changing, and those seem to be points of contention for some indirect partners: Level 3 intends to serve a certain level of customer and will only take on a certain number of master agents.

Level 3 has made it clear for some time that it intends to target enterprise customers with services such as Ethernet, VPN and private line. Those clients ideally will bring in $3,000 to $25,000 per month. The company is experiencing growth in its enterprise market share as a result of the acquisitions; it’s at about 25 percent, compared to the approximate 8 percent it had previously, says Current Analysis analyst David Hold. However, many of the agents and employees Level 3 inherited through acquisitions are accustomed to selling more traditional, lower-end voice products.

“Our goal is not to offer all services to all people,” Kevin O’Hara, president and COO of Level 3, told attendees at the Fall 2007 Channel Partners Conference & Expo.

That shouldn’t come as a surprise, some say. “It was never really in their business model to serve smaller businesses,” analyst Hold says.

CMS’ Foster agrees. “We knew there would be numerous products and services that would be decommissioned,” he says, adding the marching orders are “don’t sell products like switched voice services and small DIA pipes.”

It’s a big change from what many partners are used to offering. “I suspect that some of the legacy partners are troubled because they wanted us to stay in that low-end marketplace,” says Craig Schlagbaum, vice president of indirect channel sales.

Level 3’s Kevin O’Hara says the carrier doesn’t plan to “offer all services to all people.”

Another shift is Level 3’s plan to emulate partner models perfected by manufacturers such as Cisco Systems Inc. These companies authorize only a few distributors. “It’s kind of a pushpull strategy, which is unique in the industry, where we support master agents as a vehicle for distribution to subagents and then, in the field, those subagents and direct agents get direct, hands-on support from our partner sales managers,” Schlagbaum explained to PHONE+ in an interview last February.

The companies Level 3 has so far chosen as its official master agents “are the ones we believe are the most committed,” Schlagbaum says. He speculates this has led to some hard feelings among some agencies that aren’t on the list. That’s not to say Level 3 won’t add to the list of approved agents, because it probably will, he says, noting the carrier doesn’t “intend to have 40 or 50 masters like some other carriers do.”

Several agents say they’ve rolled their contracts into those held by Level 3 approved master agents. They say that takes the pressure off them to meet quotas, with the bonus of not having to deal directly with the carrier.


A View From the Top

Level 3 President and COO Kevin O’Hara spoke to attendees during the industry keynote address at the Channel Partners Conference & Expo in September. Hear his comments about the company’s integration challenges and their impact on the channel at http://channelpartners.phoneplusmag.com/video.

Links
Communication Management Services www.cmstelcom.com
Level 3 Communications Inc. www.level3.com
MicroCorp www.microcorp.com
World Telecom Group www.worldtelecomgroup.com

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