When will carriers get hip to the fact that VARs are their ticket to ringing up sales in the SMB market?
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Many networking and VoIP solution providers have been paying close attention to the recent round of telecom mergers, hoping that consolidation would lead the major carriers to realize what to them is a clear, obvious fact: New programs specifically tailored for the channel could help these huge service providers more effectively tap the lucrative SMB market for telecom equipment and services in North America, which, according to Compass Intelligence, reached $89 billion last year.
But evidence that the carriers are prepared to reach out to solution providers remains scarce.
Last week, Verizon Business—the global communications giant created by the merger of Verizon and MCI, and the third leg of Verizon&'s Consumer and Wireless business units—announced its formation and made its priorities immediately clear. Executives said Basking Ridge, N.J.-based Verizon Business is mainly about direct sales and professional services to high-end global enterprises and government accounts.
Also last week, AT&T—itself a new company and now the largest U.S. carrier following its recently completed merger with SBC Communications—unveiled a partnership with Avaya to drive a comprehensive, single-source VoIP solution to enterprise customers. Will Harvey, director of AT&T Network Integration Services, San Antonio, said that selling hosted, turnkey IP-based voice and data solutions direct to enterprise customers is a major part of the new AT&T.
Next month, Atlanta-based BellSouth, now a target of merger speculation, plans to expand its voice footprint nationwide through a partnership with Sprint, and has plans for the second quarter to sell a fully managed VoIP solution through its direct sales force and agents, said Jeff Lewis, director of advanced voice service.
Carriers such as Verizon, AT&T, Sprint, Qwest Communications International, BellSouth and Pac West may be making all the right moves to push next-generation IP-based voice and data services, but their reseller partners say the agent models they use to give incentives for account referrals are outdated. They simply don&'t leverage, or adequately reward, the influence solution providers now have over customer decisions such as VoIP.
The newly merged Bells appear to have shunned the SMB market, instead setting their sights on direct sales efforts to woo global, enterprise accounts with tightly controlled, hosted and managed services. The months of transition as the consolidation of the Bells took place seem only to have thrown agent programs into disarray. And solution providers—barely part of the language of carrier programs—are still without the flexible financing programs that might allow them to commit more sales and engineering resources to jobs with significant telecom components.
Solution providers with strong ties to SMBs argue that telecoms sacrifice market share by failing to look past the traditional agent model to the VAR channel. If carriers want to play exclusively in the enterprise, fine. Just give VARs a program that lets them engage carriers early enough in a sales cycle to avoid Quality of Service problems without worrying that they&'ll have to wait on a carrier&'s incremental billing cycle to recoup expenses (see sidebar).
“I think carriers are missing the boat,” said Victor Kellan, president and CEO of LAN Solutions, McLean, Va. “I don&'t know why they don&'t see the value-add of [VARs].”
Kellan said VARs like himself could easily drive more revenue to carriers if the right programs were in place. It all comes back to finding a feasible financial model that works for the VAR, something Kellan is now hashing out with a nemesis of the telecoms—a local cable company. The plan calls for Kellan to deploy and manage the on-site components of business VoIP deployments, while the cable company hosts the solution and handles escalated service calls. When complete, the net result will be a shared profit from the individual markups, an arrangement Kellan doesn&'t think can be achieved with a larger carrier.
It&'s all take and no give with carriers, said Kellan. “Carriers are willing for you to come to them with customers who want bandwidth and services, and they&'ll compensate you for that, but they will not open up their customer base to you, or extend the relationship much further,” he said.
What Channel Plans?
The carriers are simply playing defense, some experts say. With traditional telecom services (i.e., the phone call) now commoditized, carriers have to take a major stake in next-generation voice/data services, which include storage, application hosting and other network-dependent technologies, said Paris Burstyn, director of telecommunication strategies at research firm Yankee Group. In an effort to survive, carriers prefer to keep these solutions close, hosting them themselves whenever possible, said Judy Reed Smith, CEO of Atlantic ACM, a telecommunication research and consulting firm. Putting their name brand on a VoIP solution without controlling the deployment is not something a Bell wants to do, and this fear, along with the need to have next-generation data services as a vital new revenue stream, could be slowing any plans the Bells have for VAR partner programs, she said.
In at least one case, a merger derailed a carrier&'s channel plans. In February 2005, less than a week before Verizon said its approximate $7 billion deal to acquire MCI was all but closed, MCI unveiled plans for a new channel program designed to triple indirect sales volume, according to then-MCI senior vice president of solution providers Todd Gerdes. What happened just after that was channel mayhem for Verizon and MCI, according to several agents for both companies. Channel conflict issues arose, commissions were delayed, and for MCI, control of its master agent program changed hands four times. Verizon has yet to activate some accounts that were supposed to go live last year, a Verizon agent said.
Now, instead of tripling indirect sales volume, Verizon Business plans to work with “fewer than 100” select, enterprise partners that will assist the company in serving its enterprise and government customer rolls, said Bruce Walt, the newly appointed director of channel support. Verizon Business will push further into directly sold managed IP-based services ranging from security to network management and will triple its VoIP capacity this year as it moves to combine its billing operations by 2007, according to executives. A separate sales organization to sell VoIP direct to enterprise customers will also emerge, creating less opportunity for both agents and VARs, said a master agent and reseller who requested anonymity.
No new midmarket program for either agents or VARs is in the works, said Walt. The existing referral agent program left over from “core Verizon” will stay on autopilot, he said, adding, “The traditional agent model will continue.”
Before SBC merged with AT&T, a series of midmarket partnering efforts from SBC called “Signature” programs were in place. These programs were far from perfect, an SBC agent said, but at least they were an effort to engage solution providers. During the merger process, AT&T was able to reorganize the Signature operation, and a fractured SBC agent program, by placing it all into AT&T&'s structure. This meant AT&T agents would suddenly have more bandwidth, products and services to sell without having to change the way they did business, sources said. During this process, the SMB efforts vanished. “SBC was definitely on to something” with its Signature programs, said Kneko Burney, president and chief strategist at Compass Intelligence. “However, I wonder if the small-business market will seem much less sexy than the ultralarge customer that legacy AT&T will bring to [the new AT&T].”
To its credit, Qwest, Denver, sees the value of the VAR channel. But it recognizes the significant challenges it faces reaching outside the traditional agent model. Complicating matters is word that Qwest has fallen into a crisis mode to capture enterprise accounts. Desperate measures such as redirecting a year&'s worth of advertising budget to a lucrative compensation model for a select few agents that can hit top performer sales goals are in the works, according to sources familiar with the company&'s plans. Later this year, Qwest will launch a refreshed Qwest Business Partner Program that will promote its hosted VoIP services by identifying VARs that have had past success selling Qwest IP services, said Eric Bozich, vice president of Qwest National Services. But the program will still be based on Qwest&'s existing agent compensation model, the only twist being the addition of a playbook for agents on how to spot VARs with potential Qwest customers. Qwest admits it is not trying to cast a wide net with the VAR effort. “[The program] is not for every VAR. It&'s going to be a fairly elite subset,” said Bozich.
Like BellSouth, Sprint&'s partner program doesn&'t offer agents incentives to partner with solution providers on VoIP deals. Even when Sprint wholesales bandwidth out to resellers such as Inter-tel, which in turn sell that IP network access as voice/data services to customers who become de facto Sprint customers, Sprint does not offer specific incentives, even when a hardware component is part of the deal, said Chris Mullen, group manager of wholesale marketing at Sprint, Overland Park, Kan.
Pac West, Stockton, Calif., also lets customers such as Covad and Vonage decide whether or not to engage with a solution provider, said Reid Cox, vice president of business development. Same goes for wholesale bandwidth providers like Level 3, which leaves much of the partner equation up to resellers such as Packet 8 and Bandwidth.com.
A Sense Of Apathy
Lately, even carrier master agents, many feeling abandoned by a lack of new ideas from the telecoms, have caught the direct sell bug. More and more master agents are opting to approach new customers directly, instead of dispatching subagents to new customers and taking only a percentage of any new deal, sources say.
Creeping in now is a sense of apathy among many solution providers toward carrier choices. Paul Giobbi, president of Zumasys, a Lake Forest, Calif., solution provider with extensive telco experience, said he often recommends that his customers simply buy the cheapest bandwidth available. “What I tell customers is you want to use the fastest, cheapest bandwidth available and then prioritize the traffic with the right switches to make sure the packets get reassembled on the other side,” said Giobbi. “That&'s where the real value of the reseller takes place.”
This goes on against a backdrop of warnings that critical differences exist among carriers. For example, not all North American carriers offer standard support for Ethernet access, nor do some offer remote access, said Forrester&'s Pierce. Or, only a Cisco-powered network is going to support the more efficient Enhanced Interior Gateway Routing Protocol, so a VAR may want to enlist two service providers if a customer is running both Cisco and Juniper routers, she said. And VoIP can&'t do everything a traditional voice system can, such as very sophisticated SS7-based call routing, which doesn&'t exist in the IP world today, she said. It is the VAR that has to understand these differences, or at least what to ask the carrier, if it is to effectively take care of the customer, said Pierce. “VARs have to understand what telecoms offer,” she said. “Different carriers have different architectures around their IT services. And while most of them are forthcoming, you have to know what to ask for.”
Pat Scheckel, Cisco practice director at Madison, Wis.-based Berbee Information Networks, a $250 million solution provider with expertise in VoIP, said the quality of design varies drastically from carrier to carrier. “If you don&'t ask the right questions to the carrier and implement anyway, there is a good chance you&'ll experience spotty adherence to the [service-level agreement], have call quality issues, and a lot less bandwidth than you bargained for.”
Little wonder some customers find solace in going with a major carrier. After all, big carriers are well-established and have the resources to almost always overcome complex issues, even if it means a more expensive price tag, said Tim Hebert, CIO of Atrion Networking, a Verizon Business partner in Warwick, R.I. “Verizon is the permanent carrier in this neck of the woods and they have staying power. With them, I don&'t have to worry about moving a client from carrier to carrier,” he said.
Sure, Verizon is a little more expensive, said Hebert, but only about 15 percent of his clients flinch at the additional cost. Besides, Atrion works to find ways to deploy voice and data services that make the additional cost negligible. Such a value-add is more evidence that even at the enterprise customer level, carriers need VARs. “The big carriers may be adding more services,” he said, “but they definitely need someone like a VAR to price it out correctly and implement a solution.”
>> VERIZON: Focused on enterprise/government accounts using mostly direct sales and about 100 select integrators. Prefers the direct approach with own managed voice/data services, on-site fulfillment, and coveted enterprise customer relationships won in MCI merger. Pays agents to refer new customers. Leftover SMB plans from MCI like Linksys One lack detail.
>> SPRINT: High marks from agents. Boasts about 500 partners with a mix of agents and some solution providers. Wholesales voice/data bandwidth to partner such as Inter-tel but has no formal incentive program to encourage engaging solution providers.
>> QWEST: Ramping up new Qwest Business Partner program to drive voice/data deals through partners. Efforts to reach beyond agents and to VARs showing signs of success. Majority of VoIP business referred via third-party agents/VARs. Agents say expect desperate measures in 2006.
>> BELLSOUTH: Cutting workforce and popular candidate for merger. Expanding voice/data service coverage via partnership with Sprint. No formal program for agents to engage VARs in sales. Another to watch for changes in 2006.
>> PAC WEST: Becoming primarily a bandwidth wholesaler. Leaves VAR partnering to VoIP hardware/bandwidth resellers such as Covad, Vonage, et al.
>> LEVEL 3: Leaves VAR partnering to VoIP hardware/bandwidth resellers such as 8x8, Bandwidth.com, et al.
>> CLECs: This vast group has loyalties split between Bells and cable companies adding voice/data services. Their lower overhead means lower cost service to VARs, but VARs should be prepared to accept sacrifices as to the range of services they can offer customers.