The Cbeyond Story

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

The Cbeyond Story

Cbeyond started strong in Atlanta. At one point, they had a chunk of the small business T1 market in Atlanta. Being VC funded, growth was required. New cities would have to be added. That was okay because their sales model needed that too.

The sales model to take in a couple of hundred college kids for a couple of days of training and put them on street teams. This is a high churn, high burn model. The survivors would be promoted to team leads or trainers or to the next city so that the bottleneck didn't result in earners leaving.

After you hit all of the NFL cities, your exit plan should have kicked in. However, the two parties that you were dating - Paetec and Windstream - decided to get hitched together. The air went out of the sails.

The T1 TDM model was unraveling a little too. The cost to deliver goods was increasing and slicing into profit. Cable was attacking at your heels to make the T1 irrelevant. Your target market was even more competitive than it was before because of cable.

The purchase of Aretta and MaximumASP in 2010 was the first step in the shift to Cbeyond 2.0 - a reboot of the business model from telco to MSP.

Aretta was an Asterisk shop that handled small business hosted PBX by giving each business its own instance of Asterisk. Clunky and doesn't scale really, which is why Cbeyond turned back to Broadsoft to deliver HPBX.

Interesting that Cbeyond's CTO Chris Gatch is a thought leader in SIP Connect and SIP trunking but that Cbeyond itself didn't become a dominate SIP trunking player like Intelepeer, AireSpring or Broadvox.

MaximumASP was the element that started Cbeyond on its Cloud journey, one that has yet to be realized. The TDM ARPU is about $625; the Cbeyond 2.0 revenue is about $220. It takes 3 deals for every TDM deal - or 3 deals to replace any churning customers. That's just not possible. And dipping revenue for a public company is a disaster (although many other carriers are facing similar prospects on revenue growth).

Cloud sales is much different than TDM replacement sales, so its indirect channel and direct sales teams had to be re-booted as well. That takes time. And I think that after the PAETEC-WIND merger, Gieger could see the end of the runway.

I had thought MegaPath would have bought them. Some thought that EarthLink should have - but ELNK is in a similar position as Cbeyond, so that would not have been a smart merger. The SEC filing says that Cbeyond looked at buying a company or two. I don't know where that would have got them. I can only guess at the 8 possible target purchasers including ELNK, MegaPath

Now for Birch, this is their first acquisition that isn't just an asset purchase. It reminds me of Fairpoint-VZ. The integration should be interesting if not back breaking for Birch.

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