Windstream Bankruptcy: Partners React

Chapter 11 bankruptcy is a hot topic in the channel with Windstream already in the process, Sungard Availability Services (Sungard AS) heading there next month and Fusion Connect considering it.

At last week’s Channel Partners Conference and Expo, we walked the Expo Hall floor and asked attendees to share their thoughts on this unexpected wave of bankruptcy filings. Needless to say, it wasn’t tough to get partners to open up.

Some fear their commissions will be impacted, while others talked about what’s driving some companies to chapter 11, and why bankruptcy could be a growing trend for the channel in the months ahead.

Michelle Doerr, Common Sense Technologies’ director of operations, said her company is going to be impacted because it works with Windstream and Fusion.

“We have seen it happen in the past with a couple of other companies and we did see them actually reorganize, so we’re hopeful that they’re able to get it figured out and be able to move on, but obviously the thing that would most impact us the most is our commissions, and that definitely is worrisome,” she said. “[If there are more bankruptcies], I guess the future of our business is really on the line at that point, but it seems that a lot of times it kind of works itself out with M&A or buyouts, and hopefully they’ll be able to stay in business.”

John Ashton, Public Telephone Co.’s vice president, said his company has been able to avoid “some of the downfall” that some of the other carriers are experiencing.

Public Telephone Co.’s John Ashton

“We were a little bit more ahead of the curve because we had moved away from almost every carrier that’s having issues — luckily, before it seemed to happen,” he said. “I don’t know why, we’ve just been very lucky that way. But watching it on a daily basis – and I know our CEO has been watching it as close as can possibly be – it’s a concern because it’s going to change the whole complexity of the industry over the course of the short term and long term. In an industry with a small universe, anybody shaken shakes everybody.”

John Busse, AbriaCloud Technologies‘ president, said a lot of what’s prompting the bankruptcy filings stems back to M&A.

“In the case of Windstream, they acquired a number of different companies … and what they wound up doing is they just acquired companies, but didn’t integrate anything,” he said. “So eventually your debt winds up taking over your business, and that’s why Windstream got themselves in trouble. Same thing with Fusion. Fusion was Cbeyond; Cbeyond went from a zero company to a company that was worth $780 million when they sold it, and then a couple of years later after Birch purchased them, Birch sold them to the consortium Lingo, which became Fusion, but they took a $780 million company and sold it for $300 million-plus.”

AireSpring is an example of a company that’s going to be strong in that “they don’t carry the debt, so their revenues are forward leaning” and it’s expanding its networks “based on the revenue they have coming in, rather than trying to buy a marketplace,” Busse said.

“My worry is with …

… the companies that acquire more debt as opposed to revenue,” he said. “As a reseller, you know you’re going to get stiffed on your commissions, so you’ve done all the work to be able to put the sale out there, and you’re not necessarily getting the revenue in on it. And then just a bigger, overall concern is you want to be able to put the best solutions to your customers and you want to be able to make sure the products you’re recommending are going to be stable, good and reliable. And if they’re not, if you’ve got to be concerned about the financial future of a vendor that you’re providing to a customer, that’s when it gets concerning.”

Chris Raponi, Powernet‘s senior director for channel sales, said the bankruptcies are not a concern for his company because it’s a VAR and a carrier, and it has its own network built and established. There’s uncertainty for those who don’t, and are either “white-labeling it or trying to build it themselves or outsource it,” he said.

Powernet’s Chris Raponi

“The first thing that always gets hit when a company merges or gets acquired is the support,” he said. “We’ve seen that case with BroadSoft, Acme Packet-Oracle, Genband-Nextone. It’s history repeating itself. The most important thing today is for companies to have that SaaS type of service and to be able to support the heck out of it. If you can grow organically that way or use some of these customers, these kind of vendors in your network, just make sure you’ve got a very diverse network as backups because people are going to continue to merge and get acquired.”

Alex Fayn, S-Net Communications‘ CEO, said “gigantic” companies are going into bankruptcy so the smaller companies “like us can continue to provide phenomenal service because all they do is put pressure to the market to provide less expensive service, but the service itself suffers.”

“A smaller carrier like us provides better service and in the same market,” he said. “We would go in and take care of the customer, versus our competitors who think they can do it much cheaper, but really provide less service, and then the clients suffer. So it’s kind of good to see that some of them getting weeded out from the market and we can still do what we do best to service our clients.”

Bob Flinton, PCCW Global‘s director of North America channel marketing, said the bankruptcies do concern his company, but it’s not seeing or feeling the impact yet.

“The more you get diversified, mainly from a geographical perspective, and that’s why we’ve had the international growth, it helps insulate them from some of those areas that may be impacted,” he said. “From that perspective, the issues, the challenges aren’t impacting us the same way they would if it was strictly a regional play or a North American play only, or even a Western Hemisphere play. We’re looking at all the regions around the world. So if you diversify enough in those areas, you can insulate yourself from areas that get impacted.”