April 8, 2021
Channel partners are closely watching master agents to see how consolidation impacts them.
Last week Channel Futures discussed the growing trend of consolidation in the agent channel. M&A has impacted several prominent master agents, including MicroCorp, CNSG, Telarus and TCG. The article featured commentary from national and regional master agents, in addition to some subagents. Their reactions ranged from extremely positive to cautiously interested to extremely negative.
An incredibly comprehensive look at telecom and master agent consolidation courtesy @JamesAndersonCP. A ton of master agents and analysts weighed in. @IntelisysCorp @TBImasteragent @AnuragTechaisle @PlanetOneComm @TCGPartners https://t.co/CxDEZnYiBW
— Craig Galbraith (@Craig_Galbraith) April 1, 2021
However, we’re focusing on subagent reactions in the second installment of this series. We asked partners who represent the channel to end customers about how consolidation makes them feel. Which aspects concern them? What excites them? Moreover, what do they hope to see? Note that in the following paragraphs, we will use the terms “subagent,” “direct selling agent” and “channel partner” synonymously.
Christopher Scott, principal owner at StratoNet, said we need to talk about carrier M&A when we talk about master agent M&A. The accelerating agent channel consolidation comes after a long series of transactions between carriers. For example, CenturyLink bought Qwest, which had merged with U.S. West, and Level 3, which had bought Broadwing and TW Telecom. Fusion Connect bought Birch Communications, which had bought Cbeyond. Charter Communications bought Time Warner Cable, which had bought DukeNet Communications. Countless purchases occurred in the wireless space, including AT&T buying BellSouth, Verizon buying MCI WorldCom and most recently T-Mobile buying Sprint.
You get the idea; consolidation has occurred all across the board. Moreover, it has come with consequences.
Keep up with the latest channel-impacting mergers and acquisitions in our M&A roundup.
“Carrier consolidation, like airline consolidation, has created an end-user customer service gap that I think should have involved the FCC and FTC a long time ago,” Scott said.
StratoNet’s Christopher Scott
Scott said that his firm must engage very differently with carriers than it did five years ago. Previously, he could have more easily turned to a competitor if a supplier treated him poorly. But in 2021, his choices are slimming.
“Today the answer is, ‘Oh yeah, we bought all those companies. So sit down, shut up and get up when we tell you,'” Scott said.
Barrier to Entry
Scott in last week’s article pointed to an increasingly high barrier to entry for signing a contract with a supplier. Scott, who sometimes seeks out direct contracts for StratoNet, said it’s “near to impossible” to sign one with the largest carriers. In some cases, they require a minimum $100,000 in new monthly billings, he said.
Thus, carrier consolidation sets a precarious stage for master agent consolidation. Now more than ever, channel partners need master-agent partners to go to bat for them with these large providers. Will this advocacy decrease as master agent competition decreases and the remaining master agents enjoy more exclusive privileges with the carriers? Will they keep the suppliers accountable?
Scott said no particular acquisition troubles him; however, he expressed concerns about the broader impact of carrier consolidation paired with agent consolidation.
“No one thing is really a terrible ill. It’s the way that they all fit together that is putting the end user – our clients – and subagents at risk, and limiting the degree to which we can …
… do something about it,” he said.
iTelecom’s Micah Bevitz
iTelecom CEO Micah Bevitz agreed that consolidation removes choices.
“The upside is that this consolidation will provide space for other MSPs who offer agents a different and superior experience to be heard and grow,” he said.
Advocacy Gone Right
Complete Communications’ Blake Darling
Blake Darling, president and CEO of Complete Communications, said his company only holds two or three direct supplier contracts with vendors that sell fully through the channel. Otherwise, he said most direct contracts present risk for a small company. Darling said working with a master agent gives channel partners “herd immunity.” The master agent’s large book of business gives it credibility when it argues the agent’s case to the supplier.
“These carriers love you on the front end, and they hate paying you on the back end,” Darling said. “They want you to sell like crazy, then they want to potentially cut you off on the back end. The volume is a necessity.”
For example, Complete Communications recently found itself competing against a supplier’s direct team. That supplier happens to belong to the Telarus portfolio. Telarus leadership got involved to settle the channel conflict. As a result of mediation, Complete will walk away with a commission.
“Now that’s real value; that’s the real value of what a master can and should do for you,” Darling said.
We ultimately work in a relationship business, Bevitz said.
“If you alienate the selling partners of a master that you just purchased, don’t expect to see future sales. Agents work with people they like and know — master agencies that are responsive and attentive,” Bevitz said.
Although consolidation may lead to better tools and resources, the agents don’t always use them. What partners are more concerned about, however, is how consolidation changes the way the master agent advocates for its agent partners. Intelisys president Mark Morgan said the entire agent model relies on agents trusting that their commissions will get to them accurately and promptly.
“One of the first and foremost things as a master agent or agent is their ability to track commissions,” Darling said. “Being able to make sure they get theirs and I get mine.”
In conversations with subagents, we discussed the possibility of master agents buying them. However, most partners scoffed at the notion that a master agent would want to acquire direct selling agents. Such a move looks like suicide in the eyes of the thousands of channel partners that the master agent wants to court. Nevertheless, subagents are watching to see if such a phenomenon does occur.
Scott said he doesn’t worry much about a one-off vertical acquisition, but he hopes that doesn’t become a trend.
“If someone says, ‘Let’s buy out our top 10 contributors, and then we’re frenemies, that’s going to be a problem,'” he said.
Such a move would go against the very nature of the relationship.
“It’s like my dad trying to steal my girlfriend,” Scott said. “Don’t think that you’re going to swipe deals out from under me. We’re going to win them together.”
PlanetOne’s Chris Werpy
Although the hypothetical Scott described is just that – a hypothetical – it gives us a good opportunity to pause and think. Channel partners, how closely have you read your master agent contract? Does it include stipulations about them selling directly?
“Are we still protecting the agents and their business, and are we still focused on growing their business and supporting them the way we always have?” queried Chris Werpy, PlanetOne‘s chief operating officer.
Master Agent Perspectives
Alan Sandler said multiple agents have approached Sandler Partners in the wake of acquisitions involving their previous master agent. He said they cited a lack of “personal touch” in how …
… the transactions occurred.
Sandler Partners’ Alan Sandler
“Regardless of if it’s a private equity or a publicly traded new entity, acquisitions like the ones we’ve been seeing recently come with investor demands and returns — losing sight of a partner-centric mindset. This leaves agents feeling uncared for, confused with commission challenges, and just feeling left out in the cold,” Sandler said.
Pacific Northwest Telco (PNT) owner and president John Bogaty expressed a similar concern that master agents will prioritize investors and potential buyers over subagents.
PNT’s John Bogaty
“In my experience, when investors get involved with companies and M&A activity increases, the focus tends to change to growth and scalability and away from service to individual customers and subagents,” Bogaty said.
Bogaty suggested a solution that would increase subagent enthusiasm for M&A: Reward them financially.
“Since subagents provide the revenue to master agents and an acquisition is likely based on a multiple of the master agent’s total revenue, how can a subagent participate in some of the proceeds of an acquisition? If the concept is to pass through compensation to subagents in the form of residuals, then some form of pass-through of the proceeds of an acquisition should be reasonable,” he said.
MetTel transacts through many of these master agents and subagents. Max Silber, MetTel’s vice president of mobility and IoT, said agents will benefit from improved tools and support. Silber noted that modern enterprise solutions “go well beyond a device or a connection,” requiring additional education and resources.
MetTel’s Max Silber
“Consolidation in the master agencies that support them translates to better automation tools, back-office systems and support staff, to empower them as a value-added piece of the technology solution puzzle. As a technology supplier to the channel for over 25 years, we see consolidation as a positive for the agent community, and a positive to us as a supplier, able to educate and communicate with a wider audience with [fewer] resources and less repetition. Ultimately, it’s about helping the agent provide better solutions to customers, by knowing what is available to them and having immediate access to support staff during the sales engagement process, as well as throughout the customer journey,” Silber said.
Micah Bevitz expressed a mixed opinion. He said that although tool consolidation can benefit partners, support is another matter.
“There is often a drop in the level of support due to losing staff and subsequently having to train new or current staff on new systems,” Bevitz said.
Avant CEO Ian Kieninger expressed a sentiment that we’ve heard from other master-agent leaders: that consolidation demonstrates the success of the channel. He predicted more “exciting and disruptive movements” to hit the news wires in 2021.
Avant’s Ian Kieninger
“I tell our partners that Wall Street is finally paying attention and seeing the immense value in our business models. You no longer have to bill the end customer or ship them products to create value in your organization,” Kieninger said. “I believe the maturity of the market and many of the business owners now lend a stronger voice and conversation around M&A. There is scale available through acquisitions, which lead to more growth and stronger earnings. These are some of the factors that attract outside investment.”
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