Partner Channel: Qwest Master Agents Butt Heads Over Contract

Posted: 03/2002


Qwest Master Agents Butt Heads Over Contract
Based on Market Conditions, Carrier Says Agreement is Fair

By Josh Long

Michael McDonnell makes no pretense about the dwindling margins at Qwest Communications International Inc. and other maturing carrier organizations. In fact, it’s one reason he uses to explain why the carrier has drawn up a new premier master agent contract that pays big agencies smaller monthly residuals on existing business than in years past but further compensates sales representatives based on growth.

“There is a whole lot less margin in our products and services today than there were three years ago, four years ago, or in the instance of some of these agents that have contracts that are 10 and 12 years old,” says McDonnell, vice president of Qwest’s Business Partner Program.

Qwest officials say most agents have signed and returned the revised contracts, which include three levels: premier master, premier and elite.

But agency gripes regarding the premier master contract have reached Qwest’s upper-management. Three large master agents who spoke in January to PHONE+ on condition

of anonymity explained why the contract terms have raised

their tempers.

One master agent, who books a lot of business with Qwest, says the contract is riddled with one-sided clauses that put the agent and its long-term revenue stream at risk. The agent says “there is not really a sense of fair play and it is very ambiguous.”

On paper, the master agent contends, a large agency that retains a customer for more than 18 months will lose money relative to the old contract. Master agents who are responsible for booking the largest amount of business will be hurt “early and often,” he says.

“The new agreement is horrible,” says another master agent who alleged he can’t afford to send any new business Qwest’s way. “The new agreement is one of the most anti-friendly, agent-threatening agreements I have ever seen.”

Among this agent’s complaints:

  • Premier master agents are paid a 12 percent monthly residual, down from 20 percent.

  • Master agents are compensated based on incremental growth each month, yet holiday months in which billing typically drops could negate any bonus.

  • It is difficult to compensate subagents; while a particular sub may generate several new accounts one month, the agency he or she represents might earn no upfront payments based on Qwest’s compensation plan.

McDonnell responded to these complaints by saying master agents who have signed the new contract can make the same money — and even more — as long as they grow their businesses. He also says Qwest would not pay agencies any less money on prior business contracts. Those contracts, as one agent points out, are written only for one to three years and will begin expiring this year.

“We are not looking to try to damage anyone,” McDonnell says. “What we are trying to do is to align them with the risks that exist in the industry, which are very real for all corporations.

“We reward those people who are bringing the business incrementally to us,” McDonnell continues. “We do not hurt anyone that doesn’t. And we’ve been very careful that we do not damage them in one way going backwards.”

McDonnell also says the contract terms tied to new business are not unfair because sales representatives always are susceptible to seasonal revenue fluctuations. On the flip side, he says agencies have peak months in which they can earn more money without even selling new accounts due to business customers’ high use of services.

Responding to the complaint that it will be difficult to compensate subagents, McDonnell says agencies can use various formulas to pay their sales representatives. For example, the master agent could pay a low-performing sub a higher monthly residual each month while the agency snatched incoming bonuses. Or the master agent could pay an aggressive independent represenative willing to take a risk a smaller residual while sharing the more lucrative bonus payments.

Emmet Tydings, a part-owner at family-owned agency AB&T Telecom agreed Qwest had made the program very complicated for masters to pay their agents. Still, Gaithersburg, Md.-based AB&T Telecom will benefit because the premier master agency contract is geared toward sales organizations engaged in a steep growth curve rather than agencies with legacy business, he says. “It’s going to cause a bit of a pinch a year or plus down the road but it’s great for me now,” he says.

Out of the Blue

One large master agent says the agreement landed on his desk in mid-December and his agency was expected to comply with the new terms by the end of the month.

Some agents say Qwest did not advise them it was developing a new contract nor did it ask them for their opinions regarding the new terms. McDonnell denied that claim, noting Qwest sought agents’ recommendations on certain aspects of the contract.

“Those four or five people felt they should have written the contract for us, and it would have included the terms which they had in their old contract, and that is just not something that is going to happen,” he says.

Representing a broader channel initiative, Qwest is requiring that partners become more aligned with their internal sales staff. For instance, Qwest now requires direct partners to receive certification by the end of the year. To support agents, Qwest is providing partners dedicated national channel managers, sales engineering support and account consultants, McDonnell says. The initiatives are part of the carrier’s goal to make its agents more valuable to businesses as they collaborate with internal represenatives, McDonnell explains.

But the conflict raised over the new contract underscores the quagmire carriers encounter at a time when they are relying on indirect sales channels more than ever in the face of shrinking margins.

“Let’s be brutally honest. Three years from now commissions are going to be less than they are today,” McDonnell says. “Unless somebody can explain to me why they believe that the margins in this industry are going to quit going down, I think we are going to become just like supermarkets.

“We are going to work on very thin margins and in order for us to keep the channel viable we are trying to enhance their [the agents’] value to the end user through increasing their education, through giving them large revenue streams that

are going to be earned through not just being a sales agent but actually being an extension of Qwest’s sales organization and having the same types of capabilities as our direct organization.”

McDonnell adds the agencies that are not happy with the new agreement have been booking business under old contracts that don’t represent today’s market conditions. He noted some terms were “onerous” to the company, citing old clauses that guarantee a sales agent a residual for the life of an account, even if the agency does not have a current contract with Qwest.

“I’m not really looking for anyone to acknowledge right or wrong because this isn’t a right or wrong,” McDonnell says. “This is a business decision. It’s what’s appropriate given how we see the market.”

Master agency BIS Inc.’s general manager Gary Clark says the contract has “motivated us to look for new revenue.” Minneapolis-based BIS, one of AT&T Corp’s largest data agents, has been representing Qwest since last June.

But while Qwest’s newer agents are gearing up for a growth spurt, the RBOC is at risk of losing the loyalties of its legacy agencies.

“Qwest is burning its bridges with the big agents,” says one master who books business on behalf of other agencies.

Still, AB&T Telecom’s Tydings asserts Qwest operates better channel programs than other tier-one providers. “Nobody does it like Qwest at this point in terms of dealing with partners,” he says.

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