WorldCom Aftershocks: Partners To Carriers: Stop The Dumping

Solution providers say they hope WorldCom's troubles put an end once and for all to the carrier's dumping of Cisco Systems products below cost.

"I am hopeful that Cisco, because of this, will take another look at their channel program and, in doing so, will put together a plan that recognizes VARs for their investment [in] and commitment to Cisco," said Dana Zhaka, president of Select, Westwood, Mass.

Many Cisco partners say they have faced "predatory competition" from WorldCom and at least one other major carrier, which have been selling Cisco networking gear below cost for about the past 18 months. The carriers' deep discounts have driven margins down for all Cisco partners, solution providers say.

The dumping has been so severe that Cisco CEO John Chambers promised solution provider partners at the Cisco Partner Summit two months ago that he would fix the problem.

"At the summit, we all heard that the [carrier] situation was at the top of everybody's list and that it was affecting and ruining the channel, and we have yet to see any decisive action from Cisco," Zhaka said.

A Cisco spokesman last week said solving the carrier pricing issue remains a top priority for the vendor.

While shocked by WorldCom's disclosure that it had misrepresented expenses to the tune of $3.8 billion, some solution providers looked for a silver lining.

John Freres, president of Schaumburg, Ill.-based Meridian IT Solutions, said WorldCom's troubles could help the Cisco channel. "I'm sorry for the people who are going to lose their jobs, but I'm glad this is happening to the unscrupulous management at WorldCom," he said. "They have been an unhealthy competitor, driving margins down for all Cisco partners. Now we can see that those margins obviously aren't sustainable."

Michael Fong, CEO of Calence, a Cisco Gold partner in Tempe, Ariz., said the deep discounts of Cisco equipment offered by WorldCom and other carriers is a "symptom of the much deeper business problems they had, and they tried to mask those symptoms by driving top-line revenue growth with Cisco product sales. My belief is they weren't as concerned about the margins."

Still, Fong said he doubted that the situation would result in a complete discontinuation of dumping.

"There are other telco companies in tough times that are probably going to be similarly aggressive in pricing. They don't live and die by Cisco product margin, so they can afford to do that," he said.

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