ISP consolidation: Customer buying tips from the experts, Part 3

Warning signs that an ISP acquisition deal may turn sour

By Carolyn Duffy Marsan, Network World
February 23, 2005 12:31 PM ET

For buyers of IP services, it seems the world has changed in a blink of an eye, to paraphrase the rock band Jesus Jones.

We're experiencing massive changes in the ISP industry. SBC is buying AT&T. BT is buying Infonet. France Telecom is taking control of Equant. Sprint is merging with Nextel. And Verizon (or Qwest) is to buy MCI. These recent deals mean that all of the top-tier ISPs are in flux. What's a corporate network manager to do right here, right now?

In recent issues of the ISP News Report, we've been offering advice to network managers about what to expect in these uncertain times and how to get the best deal when renegotiating contracts.

Here are a few warning signs that a deal may turning out badly for your ISP:

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1. Massive layoffs. Be wary of layoffs of experienced corporate account managers. Analysts say the SBC folks who deal with business accounts are most vulnerable to layoffs. On the AT&T side, the folks who are not customer facing are most vulnerable. Layoffs could lead to turnover in your account team and loss of morale by the customer service staff.

2. Plummeting stock prices. If the valuation of the ISP being acquired starts to fall, the deal may not happen. That's because most deals of this size have a clause that allows the buyer to back out if the stock of the company it is acquiring falls below a certain point.

3. Internal fighting over accounts. Worldcom acquired many service providers in the late 1990s including MCI. Frequently, Worldcom's sales team would compete against the sales team from the ISP it acquired for customers. If your ISP can't decide whose account you are, you are in trouble, analysts say.

4. Your ISP files for bankruptcy protection. When Level 3 bought Genuity in 2002, it required Genuity to file for bankruptcy. The bankruptcy filing allowed Level 3 to force some of Genuity's customers to renegotiate their contracts. Beware if your ISP ends up filing for bankruptcy as part of an acquisition. "Historically, the biggest problems have happened in ISP mergers when one of the properties ends up in Chapter 11," says David Rohde, senior analyst at Tech Caliber.

5. Lack of continuity. Whenever a merger occurs, there are concerns about which products and services the new company will retain. "It's a good idea to figure out how a merger is going to affect your account team, the products and services you buy, and the field service and technicians you use," says Melanie Posey, research director of the telecommunications market at IDC.

6. Your ISP changes strategies, and the services you buy are no longer part of its plan. Companies often shed less-profitable operations or products in the course of mergers or acquisitions. If your business falls into one of those categories, be prepared to switch carriers. "You need to know the ISP's commitment to your business," says Brian Van Dussen, director of telecommunications strategies at Yankee Group. "You need to know if you're still going to be serviced as you're accustomed."

For more tips on how to handle instability in the ISP industry, check out the previous articles to this series here: http://www.nwfusion.com/newsletters/isp/index.html .

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