By Khali Henderson

EXCLUSIVE INTERVIEW

FOR THE PARTNER COMMUNITY

, no situation has caused as much concern this year as the January 2006 merger between Verizon Communications Inc. and MCI. The uncertainty about the terms of the combined companys partner program have led to a healthy rumor mill both verbally and on industry blogs at www.phoneplusmag.com and elsewhere. To set the record straight, Verizon Telecom executives Mike Hassett and Shelley Murphy agreed to talk to PHONE+ about their unfolding plans for the 2007 Verizon Solutions Partner Program (VSPP), including terms decided as of mid-September, the process for on-boarding new partners and, more importantly, the context in which the decisions are being made.

The final program structure and terms will be announced in November, which is when agents will be invited to participate. Leading up to that, Verizon has set some other milestone dates. In mid-August, it distributed a Q&A document that answers many, but not all, the partners questions about the program. Murphy, who is vice president of marketing operations and alternate channels, held follow-up meetings during the Fall 2006 Channel Partners Conference & Expo in Washington, D.C., Aug. 23-25. On Aug. 30, conference calls with partners were held to describe the one-on-one interview process that Verizon executives developed to evaluate partners during September. This month, Verizon will be conducting site visits with select agents.

Getting to this point has been an arduous process, primarily because of the chasm that existed between the partner models employed by legacy MCI and Verizon. Our partner programs couldnt have been more different, admits Hassett, who is Murphys boss and senior vice president of business services for Verizon Telecom, one of three business units along with Verizon Business and Verizon Wireless that make up the new company.Verizon Telecom includes consumer, SOHO and SMB targets; large national and international enterprises are served by Verizon Business. The Verizon Solutions Partner Program is under Verizon Telecom and Hassetts purview.

We took the best of both, we think, and tried to build something that represents the fact that we are no longer just a local telephone company, nor are we just a long-distance company, says Hassett.

Whether the partners will agree is another story. At press time, there were several unanswered questions about key points namely commission percentages and renewal policies of concern to agents who spoke to PHONE+ on the condition of anonymity. Hassett and Murphy concede that part of the reason there are still information gaps is because of an ongoing dialogue with its partners.

Whenever you make changes, some people like the old way, says Hassett. Even if I think the best of the best looks like this, you still may not like it. These are the conversations we are having with partners and we are trying to figure out business models that work for both of us because, at the end of the day, it has to work for both of us.

We really want to have the best program we can have with the best partners we can find in a business arrangement that serves the interest of both parties and services the customers the best way we can. Thats the bottom line how we serve the customer, adds Murphy.

So, what will VSPP look like in 2007? A partial answer to this question filled a six-page Q&A and 10 pages of interview notes, so lets review the highlights of the proposed program:

Here are some items that are yet to be determined:

Going into the interview phase a kind of courtship, if you will not knowing this information has some agents PHONE+ spoke to expressing concern about their ability to make a sound decision and others proclaiming Verizons arrogance.

I understand the concern of the partners, adds Hassett. We are trying not to be arrogant and say, Tough. Well call you Dec. 1. We are going to try to accelerate the timeline [prior to November] because I understand the issue when you are potentially asking someone to go to a completely different model than what they are on, its very concerning.

Murphy also acknowledges the awkward time frames, but notes the announcement of changes already has been ratcheted back from January when normal program changes would be announced to November because of the extent of the modifications. Meanwhile, she says VSPP can offer agents, on an individual basis, ranges with which to perform modeling. She says these conversations also will inform the final values.

Aside from not having definitive numbers, former MCI Solutions Partners have voiced concern over many of the policies; they have been particularly vocal about two points of difference from their former program exclusivity requirements and lower commissions on contract renewals.

The exclusivity question was one of the major sticking points (see table below) between the two programs that VSPP executives have had to grapple with over the past nine months. In the legacy Verizon program, we had exclusivity options where many of our partners have built their business model around the fact that they were exclusive to Verizon. In the former MCI program, the partners are all nonexclusive, explains Murphy. So we needed to figure out how [to] rationalize that so that we can have the best of the best partners and not damage partners who may have built their models discretely one way or another.

The solution, as noted, is a tiered program that favors exclusivity, but does not abandon partners with multivendor models.

Defending the lower compensation rate on renewals, Murphy says, Its not that we are disincenting renewals; we are trying to make sure the partners are focused on acquisition of new business. Thats the value they bring to us, she says, adding VSPP is looking at other promotions that may help to soften the perceived blow to revenue streams.

Indeed, contract renewal policy may still be in play, Hassett concedes. I think the renewal question is one we have gotten a lot of feedback on from partners in the last 10 days, he says in an interview on Aug. 30. I am not going to announce today that we are changing our mind. We are looking at [whether there are] ways to tweak it or modify it given their input.

While partners begin to digest the irregular flow of information about the 2007 VSPP program, Verizon also will be evaluating their businesses. What are they looking for?

Aside from obvious criteria, like billings, one characteristic VSPP prefers is a strong back office, says Murphy. As much as we have improved the partner tools and we work hard to provide best-in-class support, it still requires fairly robust capabilities on the part of the partners if they are going to be successful in driving revenue without a long ramp-up time, she says.

Such back-office capabilities could include staff dedicated to project management, processes by which partners oversee implementation of services, or systems that automate processes, explains Hassett.

He says partners that meet other preferred criteria, but have yet to develop a back office might be referred to work underneath another Verizon partner that already has made the investment. This clear endorsement of the two-tier distribution model is an about-face for legacy Verizon, which has a long-held prohibition on subagents. Hassett describes the ban as a visceral reaction to a few subcontractors who misrepresented the company and landed Verizon in legal trouble. I think some people think we have some philosophical hatred of subagents. I think its a function of our experience with a few bad apples a few years ago, he says. I think my sense on this is you cant punish the good ones for the bad ones forever. … Now, as we look at the legacy MCI partners who manage it well, manage brand quality, manage the customer experience well, we are willing to kind of go back into that space and allow our partners to have subagents.

Murphy says she also will be looking at criteria such as geographic coverage and target market. After reconciling all the legacy Verizon and MCI partners, she says she may end up with too much coverage in a certain geographic area or vertical market, or not enough. Thats going to be another area that we are going to look real hard at, she says. Whats the geographic coverage area for the partners? What are their sweet spots? Where are they particularly strong and how does that map against what we see as our market opportunity?

The evaluation process itself has sounded alarm bells for some agents that expect the VSPP to dump a large number of partners. What gets communicated sometimes is that we are whacking, we are cutting. I would rather say we are pruning, says Hassett. I will be very candid, very blunt and honest on this: I have not told Shelley, Cap the program at 50. I have told Shelly, Go get me the best of the best and go get me deep market coverage. Then, when you are done, tell me how big you think the program should be. I know a lot of people think that I have a number in my head, and the simple fact is, I dont. With the changes that have been made and those yet to be made to rationalize the Verizon and MCI partner programs, Hassett says he is looking forward to 07 being the most lucrative year in the last five or six years of the partner program.

Hassett says VSPP accounts for 35 percent to 40 percent of sales for Verizon Telecom and is a primary driver of the companys success with SMBs. He is not setting limits on its contribution, however. There is no reason that could not be 45 or 50 [percent], he says. Ultimately, I think customers will decide how big my channel has to be.

Some of them will choose to do business with me directly. Some of them prefer to do business with partners. I am going to let the partner program get as big as customers demand it to be. I dont have any really set notion of how big or small it can be. To me, its just another way to meet customers on their terms.

Whos Who at VSPP