PARTNER CHANNEL: Agents: Carriers Exiting Bankruptcy Want You!

Posted: 12/2002

Agents: Carriers Exiting
Bankruptcy Want You!

By Josh Long

ICG
COMMUNICATIONS INC. had a difficult decision to make a few years ago.

In its quest to eliminate
unprofitable product lines during its Chapter 11 bankruptcy, the company parted
ways with many independent sales representatives.

ICG, a national competitive local
exchange carrier that filed for bankruptcy court protection in November 2000,
ceased its relationship with partners that sold "a majority of unprofitable
business" and cut residual payments, but that was necessary to emerge from
bankruptcy, says Mark Sharp, ICG’s director of business partner sales.

ICG did retain 50 of its largest
partners, though the indirect sales channel was quiet for a year. In January,
ICG started recruiting more partners across the country — eight months before
the company left the bankruptcy court with $94 million in cash and $205 million
in short- and long-term debt.

"I would say we are still fully
engaged in our recruiting efforts," Sharp says. "We are looking for a
good mix of partners," including master agents, smaller sales
representatives, systems integrators and value added resellers.

ICG was not alone this fall. A large
number of notable telecom providers, including large CLECs and long-haul
carriers, emerged from bankruptcy court protection or announced plans to regain
their independence by early next year. With most — if not all — bankrupt
operators reducing their headcounts, including their direct sales team, the
independent sales channel targeting small and medium-sized businesses has become
increasingly important over the last few years.

Sharp describes a philosophical
change in how ICG perceives and treats its partners. "We really look at our
partner as our customer, and the end user as their customer," he says.

In short, Sharp promises that ICG
will support partners more than it has in the past by offering support in areas
that agents request and balancing the interests of its direct and indirect sales
teams.

Xspedius Management Company LLC,
which acquired e.Spire Communications, maintained a good relationship with its
agents during the bankruptcy process and is in the process of hiring agent
managers, says Randall P. Muench, Xspedius executive vice president of sales and
marketing.

e.Spire filed for bankruptcy
protection in March 2001, listing $940 million in debt. But unlike many of its
competitors that listed independent sales partners as creditors, e.Spire treated
its agents as employees.

"Our position was that it was
very shortsighted to cut your agent program or to not pay your agents who had
delivered you business and our chairman (and CEO, George Schmitt) supported
us," Muench says. The decision resulted in consistent sales through the
independent channel, he said.

In June Xspedius received bankruptcy
court approval to acquire all of e.Spire’s assets for $18 million in cash, a $50
million note and an equity stake, snatching local switching and fiber assets in
36 markets spanning 19 states, as well as the fiber and conduit assets of
e.Spire construction company subsidiary ASCI Network Technologies.

Xspedius generates roughly 15
percent to 20 percent of its revenue through its independent sales partners,
Muench said. "That is the number it was when we were entering [bankruptcy],
and because of the decisions we made we continued to receive new business and
support from the majority of our agents all through the chapter period," he
says.

Following the e.Spire acquisition,
sales orders ramped up, requiring more agent support, Muench said. Consequently,
Xspedius in the process of doubling its staff dedicated to agents. The company
has seven agent managers and plans to add eight more in the fourth quarter, he
says.

XO Communications Inc., which filed
for bankruptcy court protection in June, announced this fall it would pursue a
standalone reorganization plan after reaching an agreement to axe an $800
million investment deal with Forstmann Little and Telefonos de Mexico S.A. de
C.V.

Since XO’s parent company filed for
bankruptcy court protection, only a few national agents that signed agreements
at the company’s headquarters in Reston, Va. experienced an interruption in
their commission payments, says Susie Aubuchon, XO’s senior manager of marketing
programs for the indirect channel.

Aubuchon says the company has not
scaled back its products or sales partners during the bankruptcy process.

"Our authorized agents of
record with XO are basically invited to sell our entire suite of products, so
there would be no reason for us to scale back," she says. "They have
continued business as usual."

XO hopes to emerge from bankruptcy
early next year following court confirmation of its reorganization plan and
regulatory approvals. Under a standalone reorganization plan, XO would convert
$1 billion in loans into common equity and $500 million of junior secured debt.
The company expects its independent sales partners to play a greater role in
2003. The independent sales channel represents 20 percent of revenue within the
market sales organization, the unit selling to small- and medium-sized
businesses.

"Our goals are to grow that
percentage especially in 2003," Aubuchon says, adding the company would
like the revenue independent sales partners generate to represent closer to 30
percent of total revenue within the market sales organization.

Aubuchon declined to comment on
possible new incentives for its sales partners as the company emerges, noting,
"Obviously we have some plans post-restructuring but nothing I can really
share right now."

Bob Bidese, president of
Chicago-based sales agency Enterprise Telecom Solutions Inc., says his XO agent
manager called him to garner his feedback on a possible new commission structure
that would compensate partners more upfront and less over the long-term.

"They are very good about
talking to the agents about it," he says.

Bidese, who was referred to PHONE+
by XO, say he is convinced XO will grow the channel and provide greater
"incentives" and "latitude" for its independent sales
partners.

Meantime, Bidese says his agency
continues to book accounts on behalf of XO.

However there is at least one
caveat. Ameritech Corp. is known for taking 30 to 45 days or longer to activate
a voice network, Bidese says, Chicago-area business customers are reticent to
use XO as its telephone provider on the concerns of a possible network shutdown.
Business customers are more willing to use XO for data; data circuits can be
replaced faster than voice, he says.