Channel Partners

SEP-OCT 2013

For 25 years, Channel Partners has been a resource for indirect sales channels, such as agents, VARs and dealers, that provide network-based communications and computing services, associated CPE and applications, and managed and professional services

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FEATURE June 2013 Birch announces Ernest Communications purchase of New Paradigm Resources Group. the problem applies to both non-facilities- and facilities-based resellers, sources said; facilities-based resellers still rely to some extent on the larger operators. to combat those challenges, some resellers tried deploying softswitches to create their own networks, or adding wireless services and platforms, such as telecom expense management to their portfolios. this has worked for some but not all. tNCi, for example, shifted to VoiP although it still needed access to Bell networks. Lightyear also turned facilities-based after its 2002 bankruptcy and branched out into wireless and some hosted services. Ernest tried the value-added tEM approach along with SiP trunking and other initiatives. mAy 2013 Birch agrees to buy Lightyear Network Solutions mArch 2013 Birch closes Covista Communications assets purchase ocTober 2012 Birch closes DayStar Communications assets purchase mAy 2013 Birch closes dpiTeleconnect assets purchase April 2012 Birch closes acquisition of AstroTel operating assets April 2011 Birch closes Accutel of Texas asset purchase december 2010 Birch closes purchase of American Fiber Network assets december 2010 Birch closes purchase of CloseCall America assets ocTober 2010 Birch closes Freedom Communications USA assets purchase AuguST 2009 Birch closes acquisition of Cleartel assets July 2009 Birch closes second tranche of Navigator customer acquisitions november 2008 Birch closes acquisition of select Navigator customers februAry 2008 Access Integrated Networks completes the Birch Telecom acquisition (the combined company later was rebranded as Birch Communications) April 2007 Access Integrated Networks agrees to buy local, long-distance residential and SMB customers in Florida and Georgia from IDT Telecom Inc. november 2006 Access Integrated Networks closes the acquisition of Trinsic Communications'(the former Z-Tel) technologies and assets, as well as the assumption of Sprint Local assets november 2005 Access Integrated Networks closes the acquisition of Cinergy Communications customers 34 ChaNNel paRTNeRs SEPt/OCt 2013 birCh CommuniCationS ConSoliDation: NovEmBEr 2005-JuNE 2013 ocTober 2011 Birch closes Cordia Communications Corp. assets purchase A reSeller rollup STrATegy The purchase of Ernest Communications Inc. marked Birch Communications Inc.'s 19th acquisition since 2005 as the 17-year-old company has moved to transform from a competitive provider of legacy services into an IP and managed services provider for SMBs. With Ernest and fellow reseller Lightyear Network Solutions, which it also acquired this year, Birch will own network in 10 states and 290 central offices; all told, it serves 46 states and Washington, D.C. "You can't just be a reseller anymore," said Brad Smith, Birch's senior director of channel sales. "It's imperative that you have your own network going forward." Over the past eight years, Birch has carried out that directive through M&A and, this year, attracted eight more support from banks (for a total of more than $100 million) for that inorganic growth. Along the way, Birch appears to have paid reasonable prices and, if it can streamline its products and departments to keep overhead costs down, the strategy "will ultimately prove profitable," said industry analyst Craig Clausen, executive vice president of New Paradigm Resources Group. Attorney Ben Bronston agreed, calling Birch's M&A game plan "very clever" because the company appears to have a knack for keeping the economics in its favor. Even if there's significant customer attrition, "each acquisition probably pays for itself in relatively short order," Bronston said. One way Birch seems able to make that happen is by not assuming agent agreements, sources said. Indeed, the company confirmed that it negotiates with acquired companies' partners on a case-by-base basis. Lawyers and analysts calculated that this plan adds 15-20 percent back into Birch's bottom line, contributing to the positive economics of its consolidation efforts. Meanwhile agents expressed confusion over Birch's treatment of Lightyear and Ernest agents' contracts. Some agents said terms are not being honored while others said they had not yet heard how Birch planned to handle their agreements. Birch's Smith told Channel Partners that the company buys assets — contracts are considered liabilities. "So even though we're not technically acquiring the contracts, they're all being worked out," he said. Smith added that he cannot give specifics, but "for [partners] to sign up with us the terms have to be as good or better or they wouldn't do it." Interestingly, several of the master agents Channel Partners interviewed said they won't sign new contracts with Birch; but more than half remain undecided.

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