Partners Braced For Fallout From SBC-AT&T Deal

On Monday, SBC, the San Antonio, Texas-based incumbent local exchange carrier operating in 13 states, agreed to buy AT&T for $16 billion, a deal that will create one of the nation's largest telecommunications companies.

It also means the end of the road for Bedminster, N.J.-based AT&T, once known as Ma Bell and the company from which SBC and other Baby Bells spun off in 1984.

Quy "Q" Nguyen, CEO of Allyance Communications, an AT&T partner in Irvine, Calif., said he anticipates the deal, ironed out in late-night meetings between SBC and AT&T, will take at least a year before it reaches regulatory approval.

In the meantime, AT&T could make major cutbacks in its number of channel partners to make the long distance carrier a more attractive purchase, he said.

"They're not going to want to sell the business with the high overhead of paying so many partners," Nguyen said. "There could be some purging [of the channel]. That's our biggest concern."

Solution providers said AT&T's move last fall to change its agent compensation plans was a sign the carrier was readying itself for an acquisition. AT&T put a clause in its 2005 agent contracts that allowed the vendor to cancel agent contracts with 30 days' notice at any time. At the same time, the carrier cancelled contracts of more than half of its 800 agents nationwide.

One of those agents who said his company was "unceremoniously let go" by AT&T in that agent purge said the SBC purchase could be good news for his company and others like it.

Rick Dellar, co-founder of Petaluma, Calif.-based master agency Intelisys, said while his experience with AT&T was "challenging and difficult," SBC, with whom Intelisys has partnered for 10 years, has been quite channel-friendly.

"One thing that's been great at SBC—unlike almost every other agent program—is their management stays the same, which has been really good for us," Dellar said. "I may not agree with everything SBC does in their program, but they have been consistent."

Another solution provider, who asked not to be named, has not had such a favorable experience with SBC.

Calling SBC a 600-pound gorilla, the VAR said the company has historically been an inflexible and difficult partner. "In the past, the mentality was, 'We're SBC, [and] if you want to do business with us, you do it on our terms,' " he said.

This source admitted that SBC recently recognized the growth the channel has contributed to its business, and is slowly putting more resources into supporting its resellers and agents. But he still fears that many AT&T partners will find themselves without a contract once the SBC-AT&T deal goes through.

"There are a lot of solution providers that have a big base with AT&T but haven't sold anything [new] for awhile," he said. "They're going to lose that nice recurring revenue. [SBC] is only going to keep partners that are winning new customers."

John Freres, president of systems integrator Meridian IT Solutions, Chicago, said the impact of an already-huge company like SBC expanding even further is an opportunity for his company to steal some of both carriers' customers. Meridian competes with the professional services side of carriers such as SBC that provide networking services to customers.

"It's going to take a lot of time to consolidate the organizations, and in that time frame, there will be opportunities for us to service the accounts they may be neglecting," Freres said.

The deal makes sense for both carriers from a business standpoint, solution providers said. AT&T has been on the market for some time, having seen its core long-distance business bottom out over the past several years. For its part, SBC has been trying to move into markets beyond the 13-state region it currently plays in, with little success, partners said.

In a memo to AT&T employees viewed by CRN, Dave Dorman, AT&T chairman and CEO, said the timing was right for the deal because both SBC and AT&T are at a point where "we're fundamentally redefining ourselves."

"In AT&T's case, [that means] moving our focus away from traditional consumer services and toward the enterprise market and new VoIP and wireless offerings," Dorman wrote. SBC, in contrast, is trying to expand away from the enterprise and into the consumer and small-business market, he said. The combination of the two companies and their objectives will provide AT&T with the financial stability it needs to continue to serve its customers, while allowing SBC to spread its footprint beyond its current geographical area, Dorman wrote.