Partner Channel - Agents Eye CLECs with Caution

Channel Partners

August 1, 2001

12 Min Read
Partner Channel - Agents Eye CLECs with Caution

Posted: 08/2001

Partner Channel

Agents Eye CLECs with Caution
By Josh Long

As a doomsday asteroid bears down on Earth in the motion picture “Armageddon,” one of the movie’s heroes advises his crew to “embrace the horror.”

The phrase captures the attitude many agents have adopted as they take stock of what’s happening with CLECs. In one of the most severe downturns ever experienced within the communications industry, CLECs are fleeing markets, negotiating with creditors in bankruptcy court and disappearing from the telecom market on a weekly basis.

Twenty percent of the largest CLECs likely will file for bankruptcy protection or go out of business by the end of the year, according to Peter Jarich, director of broadband research at The Strategis Group ( At least 10 percent of the top competitors already have skidded down that road, he notes.

Meanwhile, as CLECs have bounced checks, agents are named on lists in bankruptcy files with hundreds of other creditors. But many sales representatives underscored that losing future commissions with regional and national service providers is a bigger concern.

Image: CLEC Revenues are expected to grow at a CAGR of 27% to
reach $61.6 billion by 2006

The shakeout clearly has skewed perceptions of CLECs on Wall Street and on agent alley. Sales representatives are calling their master agents every week with resounding questions: “Who are these guys and can they be trusted?”

“We have been hesitant from day one about opening up the floodgates,” says Jonathan Marder, president and CEO of El Segundo, Calif.-based Carrier Consulting ( “Being a master agent in the business for 15 years, I am extremely leery about giving CLECs business because of a number of reasons.”

Reluctance to Deal with CLECs

Many agents say they are reluctant to sign new contracts with CLECs, especially until the shakeout winds down.

“I think because agents are a little scared and jaded they don’t really have the confidence there and they are not selling as much as they could be,” says Vince Bradley, president and CEO of

Malibu, Calif.-based World Telecom Group (

Financial insolvency is a huge impediment to garnering sales commissions.

Once the darlings of Wall Street, many CLECs have squandered billions of dollars to build their own networks. National providers such as ICG Communications Inc. (, Teligent Inc. ( and Winstar Communications Inc. ( have filed for bankruptcy protection as they seek to reorganize.

CLECs have scaled back their network build-outs and fled markets, notifying agents that they have 30 days to 60 days to find a new provider for their customers, according to some accounts.

Englewood, Colo.-based ICG, which is $2.8 billion in debt with $2.7 billion in assets, is expected to emerge from bankruptcy later this year. The company has received $350 million in debt-in-possession financing, and creditors have approved a revised business plan that focuses more on data services than on voice for medium- to large-sized business market, says ICG spokeswoman Susan Koehler.

It is rumored that ICG released 80 percent of its agent partners after it filed last November for bankruptcy protection. The figure “may be correct”, says Koehler. “We kept the best of the best.”

“Future relationships are to be determined,” she notes. “We are definitely committed to channel programs, but we do not know at this point what that will look like specifically.”

In May, Vienna, Va.-based Teligent announced it planned to disconnect local exchange and Internet services by June 25 in Orange County, San Diego and San Jose, Calif. Teligent filed in May for bankruptcy protection. In a letter dated May 22, Teligent told customers long-distance service would not be affected.

Teligent spokeswoman Tita Thompson says business customers, property owners and agents were notified. She doesn’t say which markets the company is leaving or to what extent the company’s relationship with agents would continue.

“We are not closing any markets down [completely], so we have not released any information as to which facilities and which markets are going to be impacted–only to the people who are affected by it,” Thompson says. “Obviously, it’s very important to us to maintain those relationships [with agents], but with regard to a decision [on] whether or not we will continue to use agents beyond Chapter 11, that is something I can’t speculate on at this time.”

Image: Top players’ revenues have grown substantially in
recent years and are likely to continue to account for most of the industry
growth. AT&T, WorldCom and Sprint only include local services operations.

Once treasured on Wall Street, New York, N.Y.-based Winstar also is seeking to emerge from bankruptcy court. The fixed wireless provider also received debtor-in-possession financing. Winstar spokeswoman Laura Kline said the CLEC has few relationships with agents and has not disrupted service as a result of the Chapter 11 process. Winstar filed in April for Chapter 11 after the company did not receive an expected loan disbursement from Lucent Technologies (, resulting in a missed interest payment (in April, the company said it has a business customer base of 30,000).

Not all embattled CLECs are cutting back their agent programs. Herndon, Va.-based e.spire Communications ( announced this summer a campaign to support its agents and garner additional channel partners, including master agents.

The company, which filed in March for Chapter 11 protection, has negotiated with its bondholders to renegotiate its debt and is in discussions with lending institutions to receive exit financing, according to e-spire spokeswoman Peggy Disney, who adds that the company hopes to come back from bankruptcy court by the end of summer or early fall.

Affirming that other CLECs have scaled back their agent programs, spokespeople at e-spire said the company has neither left markets nor cancelled agent contracts. Typical among companies, e-spire has lost some channel partners through natural attrition, they said.

Painstaking Process

But as other CLECs withdraw from markets, sales representatives are scrambling to retain business customers and set them up with another provider. The process can prove painstaking.

For starters, a new provider must obtain customer-service records from the CLEC. These records maintain an inventory of phone lines and associated features. Sometimes CLECs “do not respond in a timely manner,” and the customer is asked directly to send the records, according to a senior executive representing a master agent.

Another master agent says the glitches stall the sales process. “Customers don’t want to fax the entire bill or copy or mail [it],” he explains, speaking on background. “It is just an inhibitor to sales.”

In a final step to provisioning new

service, the old CLEC and new provider must coordinate and schedule a time to switch over a customer. Such formalities can drag on longer than the agent or customer anticipates.

Since its birth five years ago, the nascent CLEC sector has concentrated on acquiring new business, not handing it over, agents say.

Competing with the ILECs for business customers, CLECs have less than a 10 percent market share since the Telecommunications Act of 1996 became law, analysts add.

Perhaps because of this, CLECs typically have not staffed to manage attrition, agents say. Aggravating factors, such as low company morale, make it increasingly onerous to switch a customer to a new provider.

“When people are not happy, they don’t do their jobs well,” explains one master agent.

Won’t be Burned Again

Business customers also are reluctant or unwilling to return to CLECs.

When San Francisco-based DSL provider NorthPoint Communications shut down its circuits on businesses, many customers were peeved. Some of those customers told agents they would only sign a contract with the RBOCs in the future, according to master agent Bruce Kester, president and CEO of Austin, Texas-based Advanced Digital Communications (

However, the economic shakeout is not fully responsible for the tenuous relationship between CLECs and their sales partners. Agents cite instances of poor provisioning and inexperience on the job that predate the economic woes.

One argument goes like this: With the swift expansion into new and lucrative markets in the prosperous 1990s–such as competitive telecommunications–employers scrambled to find warm bodies. This hiring binge resulted in a diluted pool of talent. In some cases, employees with little or no experience represented CLECs’ key positions.

Image: Winstar: Down for the Count?

Bob Maguire, president of Advanced Telemanagement Group Inc. (, an agent and master agent in Scottsdale, Ariz., describes a woman who worked for a CLEC as a coordinator of installations for T-1 circuits and bandwidth. She had spent the previous eight years selling lumber.

“We basically had to train her,” Maguire says. “The talent pool is so watered down, you get people that don’t have the knowledge or ability.”

On the other hand, master agents say they are signing contracts with successful and reliable competitive providers.

“People are still interested in looking at alternatives,” says Nancy Schwartz, director of the CLEC division at master agent Intelisys Inc. ( In a manifestation of faith in the competitive sector, Petaluma, Calif.-based Intelisys hired Swartz this year to develop a CLEC division.

“If we are not out there proposing CLEC services, somebody else is,” says Schwartz, former channel sales manager at Qwest Communications International Inc. ( “It could be a potential loss of the account. We did feel it was a smart move for us to put more focus there, but we are moving cautiously.”

Schwartz says Intelysis is not pursuing new sales agreements at this time.

“We are really trying to get a hold of the suppliers we have in our portfolio and we will move cautiously into other relationships,” she says.

Advantages are Clear

Agents say there are clear advantages to signing agreements with competitive providers. For starters, the Bells pay agents a one-time commission, while CLECs compensate on what they bill out on a monthly basis. A payment plan continues throughout the life of the contract. In short, agents can earn a larger commission with a CLEC than with a Bell.

From a business customer’s standpoint, facilities-based CLECs remain alluring in many respects. For instance, while business customers may be wary of a CLEC’s financial stability, they pride themselves on customer service. Bells don’t have a stellar reputation for customer service.

“With a Bell, you get what you get when they give it to you,” says one master agent.

Joe McCourt, president of the eastern division of Littleton, Colo.-based Time Warner Telecom Inc. (, knows first-hand the perks CLECs offer business customers. The former telecommunications director at Brooks Brothers in the early 1990s, McCourt recalls signing an agreement with a CLEC to receive local fiber in Manhattan, replacing NYNEX Corp’s copper. McCourt says he was able to provision services faster and at a more affordable cost (his current employer has up to 50 channel partners, but none are traditional sales representatives).

Refocused Strategies

Analysts at ATLANTIC-ACM ( predict that the strongest CLECs will include WorldCom Inc. (, AT&T Corp. (, Sprint Corp. (, Intermedia Communications Inc. (, McLeodUSA Inc. (, Level 3 Communications Inc. (, Time Warner Telecom and XO Communications.

In the face of market pressures, some of those companies have refocused. For example, XO announced in April plans to save $2 billion during the next five years, although the Reston, Va.-based company remains committed to the U.S. market. XO has nixed plans to expand in Europe and delayed lighting inter-city fibers in lieu of an agreement to purchase wavelength services from Level 3 (in June, Level 3 announced a revised business plan to save $2.3 billion).

Pending legislation threatens to wrench further business from the CLECs, according to opponents of House Resolution 1542, a bill Energy and Commerce Committee Chairman Rep. Billy Tauzin (R-La.) and Rep. John Dingell (D-Mich.) introduced. The bill would allow the Bells to offer data services outside of their LATA without meeting the Section 271 checklist required by the Telecom Act.

CLECs have mobilized on Capitol Hill to oppose the bill. In testimony on April 25, McLeodUSA CEO Clark McLeod said the Bells still are prohibiting access to local networks and have attempted to impose special fees on competitors.

“Meaningful competition absolutely depends on quality access to all intracity [local] networks that are controlled

exclusively by the mega-Bells,” McLeod said. “The biggest impediment to accelerating competition in the local markets and bringing the broadband benefits of competition to consumers is the lack of nondiscriminatory and quality access to the local intracity network.”

At press time, the prospects for the bill dimmed as the House Judiciary Committee refused to back it, and Senate leaders made it clear that they had no intention of entertaining a Senate version. But, with RBOCs’ continuing their full-court press for legislative relief, the Tauzin-Dingell setback probably is not the end of the story.

Shaking Out a New Landscape

Industry sources predict that when the great shakeout subsides, only a handful of strong CLECs will emerge. Analysts say it is difficult to gauge how many competitive providers have filed for bankruptcy or shut their doors.

But the top CLECs are an accurate bellwether of impacts on other sectors in the industry, such as the agent community, they say. Analysts believe CLECs must narrow their focus to be successful.

“The ones who focus on a specific niche–who keep their CAPEX (capital expenditures) down–they are going to survive,” says Nick Maynard, an analyst at the Yankee Group (

The Strategic Group’s Jarich makes a similar observation: “The idea is [that] you pick one model and do it well, as opposed to going after everything at once.”

Meanwhile, agents say companies with financial stability, sound customer service and reliable provisioning will prove strong allies. But analysts and agents predict such allies will continue to shrink.

“It is going to come down to a handful of providers who handle everything,” Schwartz says. “I think that is a ways away, but that is eventually where it is going to lead.”

Still, ATLANTIC-ACM predicts that the CLEC market will grow at a 27 percent compound annual gross rate until 2006, reaching $61 billion. The analysts also say CLECs will continue to offer agents viable partnerships.

“This is the shakeout we have all been waiting [for],” says World Telecom Group’s Bradley. “I think when this is done, there will be a few key players standing and this will be a good thing. I think be the end of this year agents will have a lot more confidence.”

Read more about:

Free Newsletters for the Channel
Register for Your Free Newsletter Now

You May Also Like