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June 2008 | Volume 11/ Number 6
Publisher's Outlook

PAETEC: Success Under the Radar

To my knowledge I am the first analyst or reporter ever invited to PAETEC (News - Alert) World, the largest of the annual meetings that PAETEC has with its customers. This fact coupled with my desire to learn more about this intriguing company spurred me to jump on a plane to San Francisco to meet with the company’s execs, 100 employees and over 350 customers, who gathered in a hotel to learn, exchange ideas and network at evening receptions.

PAETEC wants nothing less than to change the dynamics of the industry. Certainly during the telecom bubble there were hundreds of companies with such lofty dreams. Moreover, PAETEC has never had a press briefing with me or virtually anyone else on the TMC (News - Alert) 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 combination of shyness and ambition, the more I learned about PAETEC the more I began to understand why they have tremendous potential. They’ve grown every year for the past 10 years. They have already purchased McLeodUSA and USLEC, and they’re profitable. They seek acquisitions that fit within their corporate strategy and they only buy companies where there is a likely, solid ROI.

PAETEC wants 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. Their 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.

Now, 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. He’s a fascinating guy.

PAETEC’s products focus on data and voice services in addition to reselling PBXs and routers, data center solutions, fixed wireless, a telecom expense management application suite, and Allworx (News - Alert), which makes award-winning IP-PBXs and peripheral products for small to mid-sized companies.

An Amazing 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 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.

PAETEC is rather adept at handling companies they acquire. They wisely kept brands like Allworx and PINNACLE separate so as not to lose name recognition. Nobody at PAETEC is going to kill a successful brand to satisfy a corporate ego. PINNACLE, by the way, was acquired eight years ago and they make the PINNACLE Communication Management Suite, originally known as a telecom expense management (TEM) platform but in fact does much more – it extends into the world of Enterprise Resource Planning (ERP), managing 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. PINNACLE does an superb 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 was the interesting part of my time with the various PAETEC divisions. The company has the infrastructure and cost management controls in place to expand considerably. They’ve proven that a below-the-radar company with virtually no well-known brands can succeed thanks to a relentless focus on customer satisfaction that has led to very low churn levels and higher than average customer recommendation levels.

PAETEC’s customers say big telcos 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. Indeed, many Fortune 500 IT and telecom managers tell me the large carriers have people who want to provide excellent service but internal controls and politics make this impossible. This is why I think PAETEC will succeed in its goal of taking a few more percentage points of market-share from the larger players. Also, expect PAETEC to explore mobility management, business intelligence and more as they expand to other countries.

Will PAETEC actually change the dynamics of an entire industry and make others like Verizon (News - Alert) take notice? I wouldn’t be surprised. IT

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