PAETEC: Success Under the Radar

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.
Corporate Values

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.

Corporate Culture

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.

Customer Focus

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.

  • Peter Radizeski
    May 8, 2008 at 10:20 pm

    I hear Chesonis talk about his employees. I don’t see the big difference. His sales people bounce from company to company like everyone else. And my personal experience with Paetec as an agent has been less awful.But let’s talk about Paetec changing the industry. How? They sell the same stuff everyone else does. In fact, they missed the boat on both Ethernet over Copper and SIP Trunking.The thinking that getting to a Billion dollars in revenue is the answer to surviving is crazy. Intermedia hit $1B in sales, but crashed under integration issues and $3B in short term debt. (And if you carefully read the latest 10-k, Paetec points that out).There are at least 5 ways to stand out and be remarkable in telecom, but everyone would rather mimic the Bells. Oh, well.

  • Noel Huelsenbeck
    May 11, 2008 at 2:50 am

    As a TEM and carrier consulting company we work with Paetec quite a bit, and while they’re probably the best CLEC, keep in mind there are a few challenges when selecting them.
    For instance their switches serve large geographic areas. We had several clients in Florida lose service when all the LEC customers still had service because the Paetec switch, which was a hundred plus miles away, got hit by the hurricane. Another example is the San Diego area which is served by a switch either in Orange County or LA. If those areas have an earthquake San Diego Paetec customers could be out of service. So while you may benefit from lower costs and better customer service you may be sacrificing some reliability. Our advice is check to see where the switch is located prior to getting service so you can gauge the risk.
    The other challenge is their billing, which is above average for simplicity, but below average for long distance and toll free usage. Their calls are billed in 30 second minimums and two decimals. Savvy telecom analysts know that by switching to 6 second or at least 18 second minimums and four decimal billing can provide 3-12% of savings. Our advice would be to evaluate your usage to see if it makes a big difference. If you spend a few hundred dollars it’s not a big deal, but some of our clients were spending thousands or tens of thousands with 30 second minimums and two decimal billing. When we moved them to four decimal billing they lowered costs by 10%.
    Also I agree with you, TEM is an important part of a holistic management solution, we use that approach, and Paetec is smart for having purchased Pinnancle. I’m surprised more carriers haven’t followed that model and purchased a TEM provider. Several I know of have tried, by creating their own or partnering, but to my knowledge Paetec is the only carrier that has a stand alone TEM company. And it seems to be a great relationship. As long as they stay impartial and don’t give you a hard sell to move to Paetec it would seem to be a good idea.

  • Kathleen
    October 23, 2008 at 11:01 am

    PAETEC SIP Trunking Named “Most Innovative Product” by Telephony
    Company uses IP Technology to Meet Business-Critical Requirements
    FAIRPORT, N.Y. – (Oct. 2, 2008) — PAETEC Holding Corp. (NASDAQ GS:
    PAET), which provides data, voice and Internet solutions to business-class customers nationwide, today said it has received the “Most Innovative Product”
    award from Telephony magazine for the company’s application of Session Initiation Protocol (SIP) Trunking service.
    PAETEC offers SIP Trunking nationwide, which means multi-site customers no longer must develop patchwork solutions that involve multiple carriers for enterprise networking. The company also creates personalized SIP solutions tailored to specific customer needs, with multiple options for certified interoperable IP/PBX equipment from numerous world-class vendors. In
    addition, PAETEC can deliver the features of SIP trunking across both modern Internet Protocol (IP) platforms and traditional Time Division Multiplexing (TDM)network technology.
    “The judges were impressed not just by this service but also by what PAETEC delivers to its customers in support of SIP trunking,” said Carol Wilson,Telephony editor-in-chief. “In this instance, they are innovating in the way they deploy SIP Trunking.”
    The Telephony Innovation Awards were presented at “Telephony Live: The Telecom Summit” this week in Chicago. The awards recognize creative service development and deployment by telecommunications service providers, including telecom and cable companies, wireless service providers, managed and hosted
    service providers, ISPs and applications service providers. The judges included Telephony’s editorial staff and guest judges such as Daniel Briere, CEO of the
    consultancy TeleChoice; Vince Vittore, program manager with the Yankee Group; and Cindy Whelan, analyst with Current Analysis. Whelan noted PAETEC’s exceptional level of customer support. “PAETEC offers
    a hosted VoIP service with features that are comparable to competing offers from the RBOCs and other providers,” Whelan said. “Where PAETEC shines against these competitors is in its focus on customer service.”
    TeleChoice’s Briere said PAETEC’s SIP Trunking offer is appealing because it reduces the customers’ need to invest in CPE. “PAETEC applies IP communications technology to address real customer needs,” said Sanjay Hiranandani, PAETEC’s Senior Vice President-Engineering.
    “With our SIP Trunking, customers can choose the bandwidth that truly meets their requirements, ranging from a T-1 to Gigabit Ethernet. Plus, numerous
    features are available to address security,connectivity, business continuity and other critical business issues.”
    PAETEC’s SIP Trunking offer is ubiquitous in terms of features and functionality, allowing customers to transition at their own pace from TDM to IP networking.
    Customers have the flexibility to deploy either an IP/PBX with a native IP connection, or an Integrated Access Device with legacy TDM PBXs or key
    Other benefits of PAETEC’s SIP Trunking include:
    • Compression techniques that can significantly increase the number of highquality voice circuits within a single T-1 compared with traditional Primary
    Rate Interfaces (PRIs).
    • Quality of Service (QoS) capabilities that instantly prioritize voice signals over data. When no voice signals are present, all available bandwidth can be used
    for data.
    • VoIP-to-TDM voice conversion provided within PAETEC’s network.
    • Unlimited and expanded free local calling areas.
    • Site-to-site voice and data sharing that is isolated from the public Internet.
    • Certified interoperability with customer premises equipment (CPE) from leading telecommunications equipment manufacturers.
    About PAETEC
    PAETEC (NASDAQ GS: PAET) is personalizing communications solutions for business
    customers across the United States. We offer a comprehensive suite of data, voice, and IP
    services, as well as enterprise communications management software, network security
    solutions, CPE, and managed services. For more information, visit

  • ADTRAN Ethernet Over Copper
    August 24, 2010 at 6:00 pm

    I’m interested to see how this plays out in the next few years.

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