Telecom Arena In Call-Waiting Mode

First, following MCI's emergence from bankruptcy, the firm announced that it might be acquired by Leucadia National. AT&T followed suit just weeks later, saying it would stop offering residential long-distance service, and admitting that it was also the target of a possible acquisition by a a group of private equity investors.

Now, while poor performance and rumors continue to dog traditional interexchange carrier (IXC) stalwarts, newcomers such as Sprint are enjoying record growth and expanding channel programs (see chart). And as most service providers and agents predict that industry consolidation is imminent, many have expressed concern at how these changes might impact channel involvement, available services and, ultimately, bottom lines.

"Your inclination is to say that consolidation would be good for us because it would minimize competition," said Joan Green, president of Telecom Plus, a service provider in Las Vegas. "But there are other factors that make the issue far more complicated than just a numbers game."

Green said she anticipates that whoever ultimately acquires AT&T or MCI will most likely honor existing channel contracts and pump new products and services through the same channels.

However, Chris Parsons, a principal at LinkSource, a service provider in San Ramon, Calif., isn't as confident. Parsons said that for him, the biggest question about telecom consolidation is whether the resulting carriers will opt to maintain indirect sales at all.

"If there is consolidation, the [resulting] carriers could just turn off agency programs and say they're not interested in independent channels anymore," said Parsons, whose company resells services from MCI, AT&T, Qwest Communications International and Sprint, to name a few. "Where we, as resellers, fit into the mix is just up in the air."

Emmet Tydings, president of AB&T Telecom, a master agent in Gaithersburg, Md., added that the telecom industry has never made a successful acquisition transition in the channel. Tydings cited messy channel transitions following the 2002 Primus Telecommunications acquisition of Cable and Wireless. While the move enabled Primus to stave off bankruptcy, it resulted in sagging channel participation that hasn't really recovered.

"Replacing channel heads with lesser-known or lesser-capable leaders in an acquisition could be hazardous to sales," Tydings warned.

For Tim Larkin, president of Telecom Alliance, a Minneapolis-based integrator that sells solutions from AT&T and Sprint, the price point for IXC services "continues to erode," making the financial model "unworkable" for acquiring companies.

"It's imperative that survivors implement a variable cost model for bringing their services to the marketplace," Larkin said, predicting that Local Exchange Carriers [LECs] will survive. "This [model] bodes well for the VAR and agent world."

Executives at MCI and AT&T have said they would be open to exploring new price models, but both companies failed to respond to inquiries for comment. However, Pat Lewis, senior vice president of indirect channels at Qwest, Broomfield, Colo., was more than willing to talk.

Lewis, who implemented variable pricing for channel partners last year, agreed that pricing will be a key for channel success as the telecom industry consolidates and added that having fewer carriers would force those remaining to improve their reseller contracts and technologies.

"In eliminating some of this overcrowding, consolidation could ultimately allow [solution providers] to find good deals on good technologies and have increased customer relationships on a wide geographic basis," Lewis said. "At the end of the day, this situation could end up looking pretty good for the [resellers]."