Windstream to Cut Partners, Increase Commissions During Bankruptcy

Windstream, which filed for chapter 11 bankruptcy protection in February, plans to cut 15 percent of its partners while increasing commissions for the remaining partners for selling strategic products.

That’s according to Curt Allen, Windstream Enterprise’s president of strategic channels. Previously senior vice president of channel, his role has been expanded to include its reseller group, its inside sales teams that sell into the channel, and enterprise resale, which includes the remnants of Windstream’s acquisitions of Mass Communications (MassComm) and American Telephone Co. (ATC).

Windstream filed for bankruptcy protection after losing its court battle with Aurelius Capital Management, a Windstream bondholder, and last month its stock was delisted from Nasdaq. Its second bankruptcy court hearing is this Tuesday.

Sungard Availability Services (Sungard AS) also will file for chapter 11 next month, and Fusion Connect said chapter 11 could be in its future.

Windstream’s Cardi Prinzi (left) and Curt Allen at the 2019 Channel Partners Conference & Expo.

Windstream Enterprise also has hired Cardi Prinzi, previously Telstra’s senior vice president of the Americas, as executive vice president and chief marketing officer. He has been focused on making sure customers and agents, and others are “getting the right message from us about the status of the company and what we’re doing from a growth perspective on the product side and the network side to make sure everybody feels comfortable about the future.”

“That’s kind of a short-term thing that I got into sooner than I expected to,” Prinzi said. “But then I think the next focus is going to really be on how do we start getting the marketplace and especially the channel to really see the vision of what it is we’re doing and what we can bring.”

During a Q&A at last week’s Channel Partners Conference and Expo, Allen spoke for the first time about the bankruptcy filing and what partners can expect in the months ahead.

Channel Partners: What’s your job been like since the chapter 11 filing?

Curt Allen: The partners understand kind of how bankruptcy works, so that uncertainty is our enemy. They can sit there wondering within the bankruptcy — the accept and reject provisions, “is my contract going to be accepted,” “are we going to continue to pay commissions?” and continuity. I’ve said a lot of “trust mes,” and after the second-day hearing we’ll be able to say, “Trust me, and oh, by the way, here’s your post-petition agreement — you’re covered and secure,” and all that. So we’re going to remove a lot of that uncertainty. This thing all came at us as a surprise. We thought we were going to win that court case … so we had to scramble and we made some decisions going into bankruptcy that materially impacted our ability to take care of partners in a good way. So we filed on a Monday and we paid commissions to every partner that we have on Thursday night, and those are pre-petition dollars … that was a herculean task and we did it. And right away we were able to say to them …

… there’s one more month of pre-petition monies that we owe you and we’re going to pay that as scheduled — and we did on March 30.

The good news is (in conjunction with the second-day hearing) we will have amendments to the agreement for all of our partners so when they execute those, we can start accepting agreements after April 16, and once they execute those agreements, if their agreements are locked and valid with the support of the bankruptcy court and the company, that removes all that kind of uncertainty and doubt for those partners going forward.

CP: Is the bankruptcy going to impact partners’ commissions?

CA: All of their legacy business will pay at [prior existing] commission rates, and the good news for all those partners is we’re increasing commissions. As we’re moving and we’re kind of this next-generation provider, we’re still getting that message that it’s about the solutions. And the network is an awesome vehicle to get us there; it’s SD-WAN and UCaaS, [but] we had an agreement and program that still felt like a legacy telecom. So we’re able to, for instance, strategic products, all of the partners in the program will get a 5 percent residual increase in that strategic product. So UCaaS, SD-WAN, security — they’ll get 5 percent above their normal residual for that. We’re also extending that to if they have an existing customer with us and they migrate them to SD-WAN, UCaaS, [and/or] CCaaS, they’ll get a 5 percent bump in commissions even on that existing customer. So it allows us to reimagine the program as more like that solutions provider that we are.

Now, we’re in a bankruptcy, so we have a fiduciary responsibility to the business … we had an expense issue. With all those obligations, our expenses were out of balance with reasonable production of the channel, so they did ask us to reduce expenses, so … on the second petition we also will be reducing the program. So we’ll cut, very reasonably, about 15 percent of the program. These are partners that haven’t sold anything in years … so those folks unfortunately will get rejection notices [this] week and their commissions will stop, but the other 85 percent in the program going forward, we’re going to significantly enhance the program more in consolidated resources for those 400 or so partners that will be in the program moving forward. We’re investing heavily in them and we’re going to come out of this; we’re hoping to get through the bankruptcy and emerge later this year, and we’re hoping to get out in this calendar year. It will just free us up to be hypervigilant about the channel from an execution standpoint.

CP: How likely is the court to make the approvals necessary to move forward with this?

CA: Our first-day petition was accepted as is by the court. They basically said this is a financial restructuring; it’s not an organizational and operational restructuring. [Windstream is] in a dispute with a single bondholder, we all know the Aurelius case, so now we’re 45 days into it and this day-two hearing is when we basically reaffirm that, “Hey, this is our business plan, this is how we’re going forward, this is how we’re going to care for those pre-petition liabilities with our vendors, and here are all the agreements and types of agreements that we want to accept and reject.” Our lawyers are basically saying … this is a rubber stamp for them. So we fully expect them to affirm the business plan going forward, to accept the omnibus filing and all of that, and we will go forward and run our business as expected and finish out the bankruptcy. But from a partner perspective, once they have …

… that post-petition agreement, that’s now with the full support of the bankruptcy court and it’s actually more solid than anything they would have had pre-petition, I really feel like that’s the jumping-off point for the agent program because they now know [their] legacy business is cared for and anything [they] sell going forward is cared for, and even more lucrative. So we’re hoping that we’re going to see a real trampoline as we come into May and June, and the rest of the year.

CP: In addition to reassuring partners, there’s also the end customers. How do you and the partners deal with that?

CA: I’ve been on over 100 customer calls to basically reassure them. And what I find, especially when we proactively go out to them, they start to understand. Everyone’s frame of reference on a bankruptcy tends to be always thinking of some large retail chain, thinking of Sears or something like that, and so their minds go to liquidation. And when you go to them and say, first of all, this is a financial restructuring, it was a product of this court case, and we had $155 million in free cash flow last year where we released earnings in the fourth quarter, margins are up and churn’s down, all these really good fundamentals of the business, and that it’s really limited to dealing with that bond situation, they start to understand that. And then you can go into, we’re an ILEC, we couldn’t liquidate if we wanted to, this business isn’t going anywhere, we’re going to be here for a long time and the court is going to continue to implore us to invest in the network.

But we’re going to have to obviously continue to talk to customers and explain, and we’ve been incredibly transparent and will continue to. I’m willing to talk to everybody, even the partners that unfortunately are going be left behind. I’ll take every one of those phone calls and explain exactly our rationale of what we need to do for the business.

CP: Have you lost any partners or customers?

CA: In the channel we’ve had very minimal churn. I think I have two people in six weeks and one of them was moving on to another role anyway … she’s hugging me and saying I’m still her favorite boss ever. And even on the direct side, the churn has been about consistent with what we have over there. This was certainly a kick in the gut to everybody, but we all believe in the plan and we’re all so emotionally attached to that plan of what this thing could be on the other side because the marketplace; we’re a large network services provider who is now driving hard to UCaaS/CCaaS and SD-WAN, outperforming all of our peers in the SD-WAN market. And what better place could there be to be driving new business in this environment. That’s what their customers are screaming for. Everybody’s incredibly positive and upbeat. They really want us to succeed, they know their business is better if there’s a healthy, viable partner program here at Windstream, which is the reason I came back to do this.

CP: Can you comment on Windstream’s lawsuit alleging Charter Communications engaged in a “scare-tactic” campaign to deceive Windstream customers into believing it would no longer provide services and was going to liquidate?

CA: I can’t get into the specifics, but in essence that’s tied back to … real specific, structural things inside of bankruptcy on how your vendors and your creditors …

… have to behave within that, and so the impression is that this was a case where that partner didn’t hold up to that standard, so the lawyers are going to deal with that. And I’m sure we’ll go on and have a strong partnership with them going forward, but we have to protect our customers in situations like that. That’s was interesting.

CP: You’ve been in the channel and a channel chief for a long time. Had you ever been through a chapter 11?

CA: No, this is the MBA I never wanted. I’ve been through them as a partner with carriers that had obviously gone through them, but this is my first experience on the inside. It’s very interesting and as an organization we’re all going through this. We have a very sophisticated legal team and financial organization, but all the rules are different. And we’ve hired the consultants who are working with us, and they’ve been great. The additional legal support and even the representation from the trustees, those guys have been down this road a little more. We learn stuff every day and we stubbed our toe early like anyone would going through it, but we’ve been able to kind of clean up, even with our creditors. The rules dictate how you handle monies that are owed to people and sometimes we can have a small vendor who does installs for us where not paying them those three months of pre-petition monies we owe them could put them out of business. We have vehicles internally where we can classify them in a fashion that can get them paid, so we’ve tried to be as agile as you can within the construct of the statutory limitations. I’ve learned way more than I ever wanted to. Let’s put it this way: This will not be my specialty going forward; I’m not going to be the restructuring guy.

CP: What’s the vision for Windstream once the chapter 11 process is over?

CA: It’s really an extension of what the vision was, this continued migration away from being primarily a legacy telco and more of a solutions provider with a dynamite network underneath it. In some ways we could argue that this accelerates us there. Certainly we’ll have a different debt profile on the other side of this and you could argue it would be a lot more favorable than the one we had, so in ways that will free us up to more aggressively invest in the battles that we want to fight and win. So other than the headwind this year of running into that breeze of bankruptcy, as you get into 2020 and 2021 and beyond, this probably accelerates us to that next-generation provider that we’ve been pushing to be.

We weren’t anywhere near going bankrupt until Aurelius won that court case with us. So we’re able to address that inside of a financial restructuring, and that’s why we think it may be only …

… nine or 10 months. It’s the same plan going forward. It’s a financial restructuring versus an organizational restructuring — two completely different things. So our thought is this is a bump in the road as we keep running to the same plan. We are not changing the plan; we’re just accelerating some things a bit.

CP: Any thoughts on Sungard AS’ plan to file for chapter 11 next month and Fusion Connect considering it?

CA: Fusion in particular, we’ve got a lot of really good friends over there who we’ve worked with, so we root for them. And they’re a company that materially operates in a similar space as us and it’s healthy to have competitors operating in a similar space as us. And it’s healthy for us to have them be wildly successful as well because it’s a massive marketplace out there. So we root for our peers. I think the noise around balance sheets and financial statements, and bankruptcies, that causes everybody to slow down. We’re hoping that our peers will come out of theirs as clean as possible and as few partners are harmed as possible, and as few customers are harmed as possible. Our partners are rooting like heck for us.