Surviving Carrier Consolidation

By Michael Murphy

It seems to be one of the most popular buzzwords in the industry these days consolidation. Everyone seems to be buying someone else. CenturyLink is trying to buy Qwest. PAETEC bought Cavalier. MegaPath now includes Covad and Speakeasy. Who knows what next month will bring? And more importantly, how does it impact agents?

While many people get caught up in the size of the deals or the names involved, it is actually the ramifications of each deal that could prove much more interesting. Consolidation results in many changes/consequences within the industry, not the least of which is fewer options for agents, master agents, carrier wholesalers and even clients. Economics 101 tells us that fewer options equal less supply, which can result in higher prices and potentially lower SLAs. In addition to price and service considerations for end-users, M&A activity means companies joining forces must determine which companys agent philosophy and solution set to embrace, which affects the indirect channel. 

As networks consolidate, channel programs will be affected.  What happens if one organization currently offers an agent program, but the other one doesnt? Which approach will dominate?

Lets say a provider that has a formal channel program acquires a carrier with an informal agent program, or none at all. In this case, the acquisition means that agents can participate in a well-developed and mature channel program and benefit from additional resources and support from the carrier with the formal indirect channel. But this cuts both ways, so agents could be facing the elimination of a channel program. Either way, questions remain. Will the compensation plan change? What about the level of agent support? If your current agent program is absorbed into the other one, is there room in the new program for you and the types of business you generate?

In addition, each company will have a different approach in selling the same products, and one may sell products that the other has never offered. Will the new entity sell everything or will some products go away? Will each product still be supported to the same extent as it was prior to the consolidation, or will the priorities change significantly? 

These are the questions agents must ask when their carriers come together, but what can agents do about it?

Be Proactive. The best strategy during this uncertain time is to be proactive. You dont have to wait for a sale to be announced to take action. Start your survival plan now and you might go beyond surviving to thriving in the indirect channel.

Work with multiple carriers. Instead of being at the mercy of a single carrier, enjoy the freedom to switch between several companies, securing your business as a result. If you havent already done so, make diversifying your agent agreements a priority.

Confirm that all of your contracts are transferrable. This industry practice is frequently overlooked, but can make all the difference for you during a consolidation.

Be watchful of industry rumors, announcements and ownership status. The involvement of private equity is a significant clue.

For example, a carrier that is currently owned by a private equity firm could mean that it is only a matter of time until the company is sold as part of the firms exit strategy. This doesnt mean that you shouldnt work with the carrier, but rather that you should ensure that all of your agreements will guarantee your survival if/when they undergo significant change in the future.

Establish a strong relationship with your vendors so that when something happens, you may get the inside scoop or be on a protected” list.

After the Announcement. Once an announcement of a pending merger has been made, you will have a short period of time to secure your position before the ink dries on the final papers.  This is your opportunity to take several critical actions.

Speak with your vendor about the impact of the merger and acquisition activity. Try to ascertain what the plans may be and how they will affect your business with the company. While your contacts may be limited in what they can share, their tone may speak volumes about the future.

Contact all of your existing customers about updating their services and your contract. This is your chance to re-contract them for the maximum time allowable, and lock in any projects they were considering for future times. In fact, it is appropriate to use a bit of FUD (fear, uncertainty and doubt) because things are definitely changing, but by locking in an agreement now, it is possible to garner a secure position through the turmoil.

Consolidation definitely has its pros and cons. Your willingness to prepare yourself, diversify within the industry and maintain strong client and vendor relationships will help you succeed no matter how the landscape changes.

Michael Murphy is president of NEF Inc., a master agent specializing in high capacity optical networks and dark fiber, as well as colocation solutions including data center space, managed services and enterprise cloud services. In addition, NEF maintains a database of thousands of data center and colocation facilities across the country.

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