It’s no longer just a PBX maintenance provider with 400 enterprise clients suing Avaya for alleged antitrust violations. Now Black Box Corp., the publicly traded company that declares itself to be “the world’s largest voice services provider” with 175,000 clients, has joined the fray.
In a 45-page complaint filed Dec. 31 in a New Jersey federal court, Black Box charges Avaya with deceiving enterprises into believing they could be served by a wide selection of independent maintenance companies before using such strong-arm tactics as withholding certain software codes to force them to buy maintenance from Avaya or a BusinessPartner.
Black Box itself reports that it had its permission to maintain Avaya systems revoked Sept. 8.
The complaint – which seeks an unspecified amount of damages and several injunctions that would force Avaya to allow uncertified maintenance providers access to its PBXs – is the first to document in a public fashion how the Basking Ridge, N.J.-based switch maker allegedly changed its attitude and approach toward maintenance over the past seven years.
But Black Box is not the first to charge Avaya with monopolistic practices in relation to its maintenance program. Continuant, a Fife, Wash.-based company made such charges against Avaya in a countersuit filed Aug. 21, 2006 [VR 10/16/06]. Avaya earlier had charged Continuant with violating its software copyright by providing maintenance on Avaya systems without being a certified business partner. The case is still in discovery, reports Bruce Shelby, Continuant’s national sales manager.
Also, United Asset Coverage, an independent maintenance provider based in Naperville, Ill., sued Avaya in July 2005 on charges of antitrust violations. The suit, which was filed in an Illinois federal court, was dismissed and UAC has since been acquired by Coppell, Texas-based Shared Technologies.
Black Box, which has employed the same attorneys as Continuant, is a much larger adversary for Avaya than either Continuant or UAC, however. The Lawrence, Pa.-based company generated $35.6 million in income on more than $1 billion in revenue for the fiscal year ended March 31, 2007 – voice services accounting for 60% of its revenues. Black Box reports to provide voice and data services to 175,000 clients in 141 countries, providing voice services to 70% of the Fortune 100.
Avaya has until Jan. 22 to answer Black Box’s complaint.
Platinum Partner Turns Persona Non Grata
Black Box wasn’t always at odds with Avaya. The company was a “platinum” Avaya BusinessPartner at least as late as January 2007 and aggressively sought to grow its Avaya business, reveals the complaint.
Between 2000 and 2005, according to its complaint, Black Box spent more than $50 million to merge with at least half a dozen service providers with Avaya service credentials. “…Maintaining the already-existing good relationships with Avaya was of key importance,” Black Box’s complaint says. “Avaya encouraged Black Box to make such acquisitions and provided consent to Black Box’s acquisitions so that Black Box could continue to expand its services as a growing provider of maintenance and repair services for users of AT&T, Lucent and Avaya products.”
But there were signs that Black Box’s relationship with Avaya was deteriorating long before Avaya revoked the service provider’s permission to work with its equipment by allowing its reseller contract to expire without renewal on Sept. 8.
In 2005, Black Box managed to hold off an effort by Avaya to revise its dealer contract to include a non-compete provision that prohibited BusinessPartners from offering competitive maintenance contracts to any enterprise buying maintenance directly from Avaya, the complaint says. Avaya ultimately forced Black Box to sign a subsequent 2006-2007 agreement that included such provisions.
Despite signing the agreement, however, Black Box learned from Avaya on June 25 that its BusinessPartner contract would not be renewed. The only explanation offered by Black Box for Avaya’s latest action is that Black Box declined to be one of Avaya’s “co-conspirators” in its alleged policy of denying unauthorized providers access to Avaya PBXs.
Passwords Held Hostage in War for Maintenance Market Share
It’s no wonder that Avaya has taken steps to impede competitors to its service business. Avaya Global Services, the division that provides maintenance, contributed 46% ($1.78 billion) of the $3.85 billion in revenue Avaya generated during the first nine months of its 2007 fiscal year, which ended June 30, according to its last quarterly SEC filing before going private. Even better, the maintenance division generated $172 million (71%) of Avaya’s overall $241 million in operating income.
But Avaya did not arrive at its current staunch position over just the past two years, according to Black Box’s complaint. In fact, the PBX manufacturer once encouraged outside companies to service its products.
Lucent, Avaya’s predecessor, downsized its service ranks and created the BusinessPartner program to certify third-party dealers in February 2000, just before spinning off its enterprise networking group as Avaya, the Black Box complaint recounts. More layoffs at Avaya in July 2001 reportedly led the manufacturer to rely more heavily on its dealers to provide maintenance. Avaya even offered to pay half of its laid-off employees’ first-year salaries if they were hired by a dealer. It told dealers it would “rely on them to provide more direct technical services to the 80% of its customer base representing smaller to mid-size companies,” Black Box says.
Black Box and other dealers began to compete with Avaya for larger contracts though, according to the complaint. Black Box says it began to receive calls from customers dissatisfied with the quality of maintenance they were getting from the manufacturer.
Avaya’s policy of relying on dealers to service its systems began to change sometime after the Lucent spin off when a new team took the helm of the services division, according to Black Box’s complaint. Among the first steps taken: Avaya allegedly revised its standard dealer contract to include strict non-compete provisions, which it forced Black Box and others to sign.
Avaya also has prevented competition from outside providers by requiring a series of passwords and permissions be activated, Black Box alleges. First, the delivery of a license file is required to enable “maintenance service permissions,” which expands the scope of administrative functions that a user can perform. “DADMINs” are special logins Avaya created for BusinessPartners.
Beginning in July 2005, it became Avaya’s policy to deny maintenance access to enterprises that did not have a maintenance contract with Avaya or a BusinessPartner, the Black Box complaint says.
Avaya also will turn off maintenance service permissions on enterprises’ equipment if it finds out the equipment is being serviced by a maintenance provider that’s not a certified Avaya BusinessPartner. That’s what happened to Kennett Square, Pa.-based Genesis HealthCare when Avaya learned of the enterprise’s intention to ditch its Avaya maintenance contract on 12 Avaya Definity/Communication Managers in favor of a half-price contract with Continuant, Voice Report reported in October 2006.
Enterprises Locked Out of PBXs as Avaya Cracks Down
Progressive Insurance, a Mayfield Village, Ohio-based company that reports to be the third-largest provider of automobile insurance in the U.S., was on the verge of hiring Black Box to provide telecom-related maintenance. The three-year deal, which involved subcontracting with Hewlett-Packard, was worth $10.5 million to Black Box, according to the vendor’s complaint. The deal allegedly had Avaya’s blessing as long as Avaya was “involved” and set to earn a commission.
But after Progressive accepted the proposal, Avaya said Black Box’s involvement was a violation of its “three-tiering” policy, referring to its position against deals that involve a client, a business partner and Avaya, according to the complaint. Avaya threatened to deny access to its DADMINs and prohibit Progressive access to MSPs, which Progressive had been ready to purchase for as much as $750,000.
Forced to choose, Progressive decided to deal instead exclusively with Black Box, according to the complaint. But Avaya allegedly still threatened to deny DADMINs and MSPs, forcing Progressive to instead go with Avaya.
And Progressive isn’t the only enterprise identified as a victim in Black Box’s complaint. Without access to maintenance permissions and passwords, Black Box also was forced to transfer the voice services and support portion of its contract with Electronic Data Systems Corporation (EDS) to Exeter, R.I.-based Carousel Industries, a Platinum Avaya BusinessPartner, on Oct. 31, the complaint says.
But EDS was relatively lucky. Avaya accessed the systems of other Black Box customers – including Target Corporation, Macy’s, International Paper, HCA Hospitals, British Petroleum and others – and inserted a new access block that locks out the owners and any third-party service provider, Black Box’s complaint charges. In one of those enterprises, Avaya changed the maintenance parameters so Black Box wouldn’t be notified of any alarms if the PBX were to malfunction, the filing says.
Avaya also has asked former Avaya maintenance customers who switched to Black Box for access to their systems, only to shut off MSPs, the complaint alleges. One enterprise gave Avaya access for an “apparently legitimate purpose” but Avaya went so far as to shut off all passwords and permissions, including DADMINs, according to the complaint. An Avaya tech accessed another enterprise’s system to install a part at a remote location, but allegedly used his or her access to insert a new access block into the system.
Additionally, Black Box claims that Avaya contacted its customers and told the enterprises that the independent service provider does not have access to the passwords needed to maintain their systems and that unauthorized use of these passwords is in violation of federal and state laws, implying that Black Box’s operations are illegal.
Avaya is planning to visit all Black Box customers that can’t be remotely accessed in order to disable DADMINs, Black Box says it learned from an Avaya employee.
You probably didn’t hear about all of these software lock outs before purchasing an Avaya PBX, Black Box indicates. “Avaya and its predecessors did not reveal to users of its equipment that, without MSPs, third-party maintenance providers (such as Black Box and its predecessors) could not access all the commands required to perform maintenance,” the company says in its complaint.
As sensational as they seem, Black Box’s claims are consistent with the 18-page PowerPoint, “Judo Against TLI,” obtained and reported by Voice Report [VR 10/16/06]. In that document, Avaya describes three letters that are to be sent to enterprises: an “informational letter” for when the sales rep first becomes aware that a customer is considering an unauthorized provider; a “notifi-cation letter” for when a customer cancels an Avaya maintenance agreement in lieu of signing with an unauthorized provider; and a “cancellation letter” that informs the customer that their MSPs are being deactivated. TLI refers to an affiliate of Continuant.
Another similarly titled 27-page Avaya PowerPoint sends an even more powerful message. In “Judo Strategy Beat United Asset Coverage,” Avaya sales reps are instructed to “create fear/uncertainty/doubt regarding UAC promises.” The document is included as evidence in the UAC lawsuit.
Apple Didn’t Fall Far from Tree, Complaint Alleges
So what are your alternative options if you want to buy maintenance on your Avaya equipment? Avaya declined to respond to Voice Report’s requests for comment in relation to the Black Box lawsuit and was not able to answer questions related to maintenance service options prior to our publication’s deadline. But Black Box’s attorneys, who did not return our calls for comment, indicate in their complaint that Avaya customers have few options when it comes to buying maintenance.
Avaya has “monopoly power” by virtue of its market share; its control over its passwords, permissions and parts; its ability to exclude third-party providers from competing; and its ability to impose “unreasonable and unnecessary costs and surcharges on ‘locked in’ owners to gain access to the necessary passwords, permissions or parts,” the filing reads.
Black Box’s complaint compares Avaya’s policies to those of the former telecom monopoly that gave it birth in a section titled “AT&T: Avaya’s Monopolistic Roots.” (