Qwest Contract Changes Talk of Q.Marketplace

A reduction in in-region commissions was the primary topic of conversation at the Qwest Business Partner Program kick-off meeting held in Denver in mid-January.

More than 350 partners from about 130 companies plus 120 Qwest channel and executive staff were in attendance at the Q.Marketplace annual partner meeting, making it one of the top agent events. The conferences move from the remote Omni hotel to the new stylish Hyatt downtown did not impact the attendance; if anything it was a bigger crowd than usual.

In-region agents in attendance at the event told PHONE+ they were concerned about changes to the compensation plan, lowering their commission rate from 15 percent to 14 percent, announced by the company in a Dec. 19 letter to partners.

Agents said they were dismayed primarily because the change impacts not only new business, but accounts already on the books. Essentially, they said it reduces the revenue they expected to make off their base by more than 6 percent.

QBPPs Tom McGrath talks to agents about the success of the channel in 2006, including a 15 percent increase in sales.

QBPP head Tom McGrath, vice president of business markets, told PHONE+ in an exclusive interview during Q.Marketplace that the commission cut was an expected part of an ongoing change in the way in-region agents are compensated. He explained that in 2003, compensation for in-region business was switched from upfront payments to residuals. At that time, a 1 percent premium was added to ease the transition for those partners. The reduction was a course correction designed to get back where we think we need to be in the marketplace, he said.

Partners have the option of canceling their contracts for convenience, in which case they will continue to get the original 15 percent commission for 24 months, agents told PHONE+ on background.

QBPPs Sandy Spencer chats with PHONE+ Group Publisher Mike Saxby at the Q.Marketplace welcome reception at the Hyatt in Denver.

McGrath said partners who were members of the Advisory Council told him QBPP could have communicated the changes better a charge he acknowledges. He also said the advisers wanted the chance to weigh in on such changes in advance, recognizing the final decision lies with the carrier.

Rick Dellar, co-founder of Intelisys Communications Inc., one of Qwests largest business partners and a member of its QBPP Advisory Council, said he received a number of concerned calls from QBPP partners following the December letter. In the six years that Dellar has served on the council, this is the first time the agent constituency, which the council represents, has contacted him in volume over actions taken by the carrier.

As a result of the outpouring of concern and questions over the changes, QBPP execs have asked Dellar to chair an agent committee that will advise the carrier on policies and ways to better communicate them to the partners. He said that Qwests goal is to find a way to articulate that it continues to be a safe place for agents to place business. He could not elaborate on the work of the committee at press time in early February.

Some Qwest agents told PHONE+ on background that they were concerned the changes would be the beginning of a trend of continual compensation reductions. McGrath said in an executive roundtable at Q.Marketplace that the carrier is considering a moratorium on in-region commission at the 14 percent rate through the terms of existing customer contracts. He did not address whether a similar freeze would be considered on out-of-region commissions.

While some agents have told PHONE+ they are considering moving business away from the carrier due to the in-region commission reduction, Dellar does not think many partners will choose to leave the program. He said a 1 percent point decrease alone will not cause partners to leave what is widely regarded as the best channel program in the industry, but he conceded that it is likely to affect sales. There are many partners who have said they have lost some degree of trust with Qwest and that its Qwests job to make the agent community understand the long-term intentions of the program, he said.

However, it seems Qwest may have anticipated a backlash, according to one anonymous agent who told PHONE+ about a new retention program that penalizes partners another two percentage points if theyve lost more than 10 percent of the names on their customer lists, when comparing third quarter 2007 with fourth quarter 2006.

The big question among agents who contacted him, Dellar noted, was when is the next shoe going to drop and further cuts take place? Personally, he said, he does not believe Qwest is looking to make this cutback a trend. I have so many more reasons to trust them than to not trust them, Dellar said. I believe their current intention is to run the program and try to prove through action that they want top performers in their program and that top producers will be made to feel safe in the program.

Vince Bradley, CEO of World Telecom Group is a newer Qwest agent. He said the change was understandable given that the company is trying to right its financial ship. It has shed half its debt and its stock is up 40 percent, he said, adding that compared to other large telcos, QBPP is still a better program.

Qwest recorded 32.5 percent margin in third quarter 2006, up from the low-to-mid-20s in 2002. It also had greater free cash flow (estimated to be somewhere between $1.3 billion and $1.5 billion) in 2006, versus a negative number in 2002, and it has reduced its debt 46 percent from $26 billion in 2002 to $13.7 billion in 2006.

However, Bradley said the 1 percent loss can put a major squeeze on a premier master agent offering typical subagent commissions at around 10 percent on local service. Many masters are likely to split the rate decrease with their subs to manage the loss, or reserve bonus revenue to fill in the gaps.

McGrath said Qwest is offering a bonus program that should make up any deficit from the 1 percent cut. He would not reveal details of the bonus program to PHONE+, but said it was based on the incremental total billed revenue that a partner brings in on an average monthly basis when compared to the average billed revenue they had in fourth quarter 2006. Advisory board members and partners recognized there was a lot more value in that financially than in the 1 percent, he said.

Intelisys Dellar said he could not speak to the bonus program. Other agents PHONE+ spoke to on background in early February said they were still waiting to hear the details and could not comment on its ability to compensate for the loss from the rate reduction. It doesnt directly replace the revenue since its all weighted to growing new business, one inregion agent said.

He also said the new quota is a concern. It requires agents to meet $18,000 on a three-month rolling basis (average of $6,000 per month compared to $5,000 last year). Agents are dinged another two points until they reach quota. The agent said the system penalizes agents even if they blow their quotas out of the water on one sale. The rolling system was in place in 2006. Between the higher quota and the retention plan, the new compensation program offers agents two ways to lose, the agent said, noting the now 14 percent commission, could end up as low as 10.

Meanwhile, QBPP is rolling out a new planning program to help agents, along with their channel managers, set goals and objectives for the year. Its a conversation to say, how can I better understand what it is you bring to the marketplace that differentiates you from other partners? And, how can we as team collaborate to mutually grow our businesses? said McGrath, noting that progress will be measured monthly or quarterly. It certainly is a process change for us in Qwest, he added. It will be an ongoing process to make sure we stay on track or we change our track because the goals and objectives change.

Intelisys Communications Inc.
World Telecom Group
Qwest Communications International Inc.

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