May 8, 2008
Recently I traveled to San Francisco to PAETEC World, the largest of annual meetings that PAETEC has with its customers. During this cold San Francisco week, over 350 customers and well over 100 PAETEC employees spent a few days in a downtown San Francisco, CA hotel learning, exchanging ideas and networking at evening receptions.
To my knowledge I am the first analyst or reporter ever invited to this event and this fact coupled with my desire to learn more about the company made me jump on a plane to meet with the company's execs and customers.
In a keynote speech there were slides showing how much farther ahead the Company is than the competition in terms of service. At the same time, PAETEC was frank in recognizing they still have room for improvement, admitted their imperfections, and shared their plans for growth. They frankly want to change the dynamics of the industry.
Now let's sit back and think about that for a moment. When was the last time a competitive carrier said they would change the industry? Certainly during the telecom bubble there were hundreds of companies with such lofty dreams. But it is 2008; is such a desire even feasible? Does it even make sense for the company to look at me with a straight face and tell me this?
I sort of expected a punch line at first. But why should this be funny? They've grown every year for the past 10 years. They have already purchased McLeodUSA and USLEC, and they are profitable. I suppose what made it unusual to me is the fact that PAETEC has never had a press briefing with me or virtually anyone else on the TMC team over the years. I have met with some company executives in the past of course but not the traditional phone call and/or meetings about news.
But despite the company's shyness, the more I learned about PAETEC the more I began to understand why they have tremendous potential.
The first may be their vision, or maybe ambition says it better. They want to be a trusted advisor with unmatched service for business-class data and voice communications. And they want to be the premier alternative to the ILECs for businesses, nationally.
PAETEC's stated mission is to be the most customer- and employee-oriented communications provider. To that end, they have four corporate values they follow with near-religious zeal: 1.) Caring culture, 2.) Open communication, 3.) Unmatched service and 4.) Personalized solutions. If satisfied employees lead to satisfied customers, PAETEC's bigger ambitions might just be within their grasp.
Picture a high-energy, entrepreneurial organization with a leader who is proud but humble, sharp as a tack and not afraid to use humor in his management style. I am referring to Arunas Chesonis the Chairman and CEO of the company.
Broad Product Line
The company has a number of product categories which focus on data and voice services in addition to reselling PBXs and routers, data center solutions, fixed wireless, telecom expense management application suite, and Allworx, which makes award-winning IP-PBXs and peripheral products for small to mid-sized companies.
Rarely have I seen such a customer focus at a service provider. There is a relentless pursuit of quality at PAETEC. Customers tell me they are proactively notified if there is a problem and they are given refunds if PAETEC makes a mistake. This is in contrast to incumbents who can make you sign complex legal disclaimers even if the mistake is theirs.
As large as the company has become it is obvious the founders are tight -- as if they came back from a military battle where they had to watch each other's backs.
The formation of the Company taught PAETEC how to treat companies they acquire and moreover the company was smart enough to keep brands like Allworx separate to ensure they don't lose name recognition. I have often written about how many companies put ego first and change the names of companies they acquire and in the process lose millions of dollars worth of brand recognition. Nothing makes less sense to me than killing successful brands to satisfy a corporate ego.
Another division acquired eight years ago is PINNACLE, a company you may consider to be in the telecom expense management (TEM) space. But they really do much more as the company's software and services really manage the lifecycle of equipment and services companies utilize.
The latest version, V6 has a very slick user interface, a great search utility and a focus on making the design easy to use for people who more or less live in the program. It is also web-based and does not require any browser buttons to operate efficiently.
In my discussions with company execs it became apparent they believe the quick hit a company gets from discovering billing errors via TEM software is short-lived and by reducing the time it takes to find important data and streamlining communications between systems, companies can continue to reduce costs over time.
In other words, TEM is an important part of a holistic management solution.
PINNACLE does an amazing job of managing telecom and related equipment and services and I was surprised that I hadn't heard more from the company in the past.
And therein is the interesting part of my time with the various PAETEC divisions. The company has the infrastructure and cost management controls in place to become ever larger. They have savvy business leaders at the top if the organization and a relentless focus on quality and customer satisfaction.
What some may say they lack is awareness in the market. The company is an anomaly because generally companies with virtually no well-known brands don't do so well. In this case however I believe the relentless focus on customer satisfaction has led to very low churn levels and higher than average customer recommendation levels.
Couple this with the fact that many of the company's customers explain just how the telecom duopoly is getting worse as AT&T and Verizon are still trying to digest disparate provisioning and billing systems and this digestion is adding to their TCO levels. These customers really want more competition.
Many Fortune 500 IT and telecom managers in fact tell me the large carriers have people who want to provide excellent service but the internal controls and politics make this impossible. The systems actually keep customers from getting adequate service levels.
This is why I think PAETEC will be successful in its goal of taking a few more percentage points of market-share from the larger players in the market. While doing this, expect PAETEC to expand into other areas such as mobility management, business intelligence and more. They will be in other countries soon as well. They look for acquisitions that fit within their corporate strategy and make sure they buy companies where there is a very good chance they will get a solid ROI.
Given the state of the telecom market and the desire for customers to have multiple vendors, there is certainly room for a service provider who has an array of services that reach beyond the traditional telco demarcation line. This coupled with the unique customer focus really has me enthused about this company's future.
Will PAETEC change the dynamics of an entire industry and make others like Verizon take notice? Who knows? There are too many unknowns in this market to make such predictions. What I do know is that customers tell me they are sick and tired of the incumbent telcos and they want carriers who care about them. It is tough to imagine how a company with relentless attention to customer detail playing in such a market can do poorly.
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