Ring Leaders: The Convergence Of VARs, Carriers And The Telco Channel


The Great Consolidation

One byproduct of the convergence is that the telecom service provider space is in the midst of a massive M&A wave, from blockbuster deals -- AT&T’s proposed ac-quisition of T-Mobile USA, CenturyLink’s Qwest buy, Verizon’s nabbing of Terremark, last year’s three-way combo of MegaPath, Covad and Speakeasy -- to smaller, but hardly insignificant acquisitions.

And it isn’t just service-provider-to-service provider deals: Various players up and down the telecom channel food chain, from master agents to regional service providers to VARs, are also acquiring each other with greater frequency.

Master agent Micro Corp.’s late June acquisition of New Smyrna Beach, Fla.-based Five Star Communications, a top Qwest VAR in the Southeast, is one example. Tokyobased Nippon Telegraph and Telephone Corp. (NTT) buying integrator giant Dimension Data last year for $3.2 billion is another.

Another active M&A participant is Fairport, N.Y.-based service provider Paetec, which has acquired several solution providers in the past decade and in the past year made two big investments that raised a few eyebrows among its channel partners: a June 2010 acquisition of Folsom, Calif.-based Quagga, which gave it a broader footprint on the West Coast, and this past February’s $61 million buy of Broken Arrow, Okla.-based Xeta Technologies, which upped its stake in the Midwest.

Both Quagga and Xeta were Avaya Platinum partners, and both had themselves been acquiring smaller VARs before becoming part of Paetec. Donna Wenk, senior vice president of sales operations at Paetec, said she does understand that Paetec owning those VARs means it also competes with its VAR partners, but said the rules of engagement for the Paetec channel are pretty clearly defined.

“We definitely get some complaints,” she said. “Little alarms ring out and they want noncompetes and there’s a lot of worry. The answer’s been simple: As long as you’re bringing us in for the network, we promise not to compete against you for the equipment. We bought VARs in 1999 and 2000, and I wrote the letters to the VARs then. Many of them are still with us.”

Even as it acquires, Paetec has also been growing its stable of data networking-centric VARs. Solution providers can be referral partners for Paetec or full-blown services resellers, the latter of which earn higher residuals, as high as 20 percent in some cases, she said.

“We need more data-savvy partners helping us push our products,” Wenk said. “It’s a tough knowledge set to find out on the street. We’re definitely recruiting.”

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