Windstream Cuts Off SMB Customers; Partners Picking Up The Pieces

Telecommunications provider Windstream is showing small business customers the door.

In two letters that went out in December, Windstream told channel partners and small to midsize (SMB) customers that sub-$1,500 accounts would be cut off by the first of the year. The customers falling below this threshold would be hit with sizably higher rates, or were given the option to find another carrier.

The news sent both Windstream partners and SMB customers scrambling, according to Andrew Gregoire, CEO of ACE Consulting Group, a Fairhaven, Mass.-based Windstream partner. "I was getting blasted with calls from [SMB customers] receiving the notification saying, 'My phone bill is going to double, what's going on?' " Gregoire told CRN. "We've been able to help these customers move to other providers."

[Related: Cloud Exodus: 5 Reasons Carriers Are Bailing Out Of Data Centers]

Little Rock, Ark.-based Windstream notified 171 SMB customers in December via email that their rates would "increase significantly" within the next billing cycle. These customers were also given the option to switch to another carrier without incurring termination fees.

Windstream's channel was notified a week later. The provider told partners that as of Jan. 1, 2016, "all sub-$1,500 revenue will officially cut off."

According to the letter, Windstream will not accept any orders for under $1,500 monthly submitted through channel partners, portals will restrict any revenue deals under $1,500 from populating quotes, and any existing funnels under $1,500 will no longer be active. Additionally, outstanding quotes and contracts would become null and void if not submitted by Dec. 31, 2015.

Windstream had this response to a CRN request for comment:

ACE Consulting Group, a provider of consulting services for cloud, voice and IT management services, felt the fallout from the announcement immediately: About 50 percent of ACE's Windstream customers were SMBs, Gregoire said.

ACE has a diverse portfolio of carriers spread throughout the country, so the provider immediately jumped on the phone with concerned customers and began migrating these clients to new carriers.

"Especially for reasons like this, we try to not lean predominantly towards any carrier, so that way if [the carrier] does get bought, sold or merged, our company won't take a huge hit," he said. "Windstream customers or even partners looking to move their SMB customers onto another carrier can contact us, and we can help."

Windstream's change opens the door for competing carriers with business units focused on the SMB market to come courting. A company like Comcast, for example, could be a good replacement option for ousted customers, Gregoire said.

Verizon Enterprise Solutions is also mounting a full court press to pick up the Windstream partners affected by the change to jump to Verizon.

"It's a huge opportunity for us," said Adam Famularo, vice president, global channels, Verizon Enterprise Solutions. "When I first came on board, another carrier was doing something similar and we garnered a bunch of their partners. We love this. Windstream partners can come over at whatever level they are at through our Verizon Partner Advantage Program. All they have to do is sign up."

Windstream might be shutting these SMB customers out and focusing on midmarket and enterprise customers to build up its revenue stream in an effort to attract potential buyers, ACE's Gregoire said.

"They're getting rid of their small business [segment], where there isn't a huge profit margin compared to the enterprise that has more of a profit margin," he said.

Windstream's decision to sell off its data centers in 2015, coupled with this latest change to its SMB strategy, has a fellow Windstream partner that requested anonymity in agreement.

"I would agree that Windstream is trying to clean up its balance sheet to make itself attractive for a potential acquisition. I would not be surprised if that's what the driver is," the partner said.

But Windstream isn't the first carrier to force SMB customers into new homes. Before being acquired by Windstream in 2011, service provider PAETEC Communications made the same decision to cut off SMB sales.

"They don't want the low-hanging fruit. They feel like you can spend just as much time working on a big account and make money than you can on a small account," Gregoire said.

The telecommunications industry as a whole is in flux, with nimble cloud and managed service providers changing the dynamic. Larger carriers like Windstream are in a difficult spot as they try to figure out where they fit within the market and what their long-term strategy is, the partner said.

"I have confidence [Windstream] is going to power through and find firm footing, whether it's under a different name, or as an acquired asset. We continue to have a lot of success with them."

In its letter to partners, Windstream said that either raising the rates or shifting SMB customers off its services was necessary. The provider said that letters went out to negative or low margin customers who are financially negative to the Windstream revenue stream.

Windstream told partners in the letter that this process "will continue on a monthly basis for all negative or low margin customers," but that partners will have a few weeks' notice before customers are notified in the future.