This time it’s different.
The idea of VARs selling carrier services or business connectivity services is nothing new, but it’s definitely gaining steam.
Today’s mobility craze, the widespread adoption of services-based
IT, and the desire to lock up recurring revenue streams have led
more VARs to adopt carrier services, with the goals of fattening their
margins and increasing their stickiness with customers.
And it’s a two-way street. Many carriers, from telecom service providers
to cable companies, are champing at the bit to partner with VARs, seeing
VARs’ close-knit relationships with regional customers as the key to
touching those customers themselves.
|Slideshow: 10 Carrier Services To Boost Your Bottom Line|
“We see it all the time,” said Dan Foster, president of business markets
at service provider heavyweight MegaPath, San Jose, Calif. “We see
integrators and VARs who almost come across as telecom agents from
a salesperson’s perspective. They might be a $450 million integrator all
the way down to a local computer consultant. This is a function of the
Vince Bradley, CEO of master agent World Telecom Group, Malibu,
Calif., said VARs are now the No. 1 profile of new agents. Like Foster, he
sees the truer convergence of hardware, software and telecom network
services as driving much of the shift.
It isn’t yet a widespread phenomenon, but both movements -- VAR to carrier, carrier to VAR -- are eliminating the traditional boundaries
between IT VAR, telecom agent and other solution provider labels
that were a lot more easily defined even a few years ago. The ITtelco
channel convergence is on.
Show Them The Money
One of the most prominent examples of what traditional VARs
and integrators can do with a thriving carrier services business is
Presidio Networked Solutions. Presidio’s telecom services business
is housed in its Presidio Managed Networks unit, which has
18 direct reps focused on telecom, with plans to add up to four
more every year. Presidio, Greenbelt, Md., has more than 35
telecom partners, and about 10 percent of telecom services sold
by Presidio have a professional services component.
Presidio Managed Networks as a whole is growing 40 percent
year over year, faster than all of its other businesses, according
to the company.
Kevin Mulloy, president of Presidio Managed Networks, said
Presidio began to focus on telecom services following its 2007
acquisition of Solarcom, which had a small, but profitable carrier
“It was a beautiful little business with very high growth,” Mulloy
said. “We thought if we could grow it to sufficient scale it’d be
really significant from a value creation side.”
Strategic Products and Services (SPS), a Parsippany, N.J.-based
solution provider, is another networking powerhouse with a thriving
carrier sales practice -- growing 20 percent year over year, with
MPLS and SIP sales at the top of the pile.
“It’s a component of the total solution,” said Jim Maynard, vice
president of sales. “We would really prefer to sell a total solution
so we can integrate the applications we’re selling. It’s good to have
relationships with the network providers.”
SPS began a formal focus on carrier sales about five years ago,
said John Franconere, director of sales operations. In many cases,
he said, the real motivation lies in customer stickiness, not in the
commissions SPS receives.
“We take a look at their current network environment and can
potentially optimize the network and manage carrier relationships
for that client,” he said. “Often, we’re able to forget the
commissions we receive. It’s significant compensation but not in
comparison to the rest of the deal.”
NEXT: Can The Carriers Commit?
Both Presidio and SPS highlighted carrier sales as a great way
to add recurring revenue and margins, while driving yet one more
selling point with customers. Representatives from both solution
providers admitted, however, that most carriers don’t have a good
track record when it comes to the IT channel.
“Carriers tend to reach out every three or so years and tend
to change their programs,” Mulloy said. “There’s always a confrontation
or competition on who’s going to drive the hardware
Partnering with Verizon and AT&T is often a “nonstarter,”
Mulloy said, because both are Cisco Gold partners that also sell
hardware to customers. That, according to VARs, leads to conflicts.
“Some of the larger LECs [local exchange carriers] just aren’t
channel-friendly,” Franconere said. “The way they manage certain
types of accounts sometimes makes it difficult to work together.”
If carriers are to be true partners with VARs, VARs need to
know those carriers aren’t going to compete with them, said
Nigel Williams, senior vice president, sales and strategic alliances,
at service provider Level 3 Communications, Broomfield, Colo.
Level 3 is unique among service providers of its size, Williams
said, because it doesn’t embrace those reseller deals itself, preferring
to let partners lead.
“We could do that -- we could become resellers, too -- but that
gives us a ‘me too’ value proposition,” Williams said. “And then,
I’m competing with Dimension Data, or BlueWater or Presidio. I
believe I get better value by partnering with them. Why it works
is I’m not competing with them.”
A solution provider like Presidio, Williams said, can layer its
professional services on top of customer engagements as it brings
Level 3 services into the deal. With Level 3, VARs can earn 15 to
18 points of commission on the total contract value of the deal
for the life of the contract, which, as the deal sizes expand, can
mean some pretty healthy returns, Williams said.
He estimated that more than 80 percent of VARs are missing
out on significant revenue by ignoring carrier services such as
“This is additive, and a lot of them are
leaving money on the table by not bundling
telecom into that value proposition,”
Williams said. “At Level 3, I’m not a Microsoft,
or an Avaya or a Cisco reseller.
That’s the beauty of it.”
NEXT: Residual ReluctanceResidual Reluctance
Why have so few VARs embraced telecom
carrier sales in the past? Compensation
isn’t the only reason, but it’s certainly a big
one. With more VARs turning to services
models -- managed or otherwise -- recurring
revenue schemes are easier to swallow.
But the model that dominates the carrier
agent world -- a residual fee that’s paid out
months after the sale, with bounties, spifs
and other incentives as sweeteners -- is a
tough pill to swallow for VARs used to
making more of their money up front.
“VARs usually get it best when I compare
it to maintenance contracts,” said Ken
Mercer, senior vice president for master
agent Telecom Brokerage Inc., Chicago.
“It’s just gravy. It’s, ‘I can’t give you $500
today, but I will give you $50 for the next
three years, every month. If you sell another
order, it becomes $100 a month, and
then it becomes $150 a month.’ It adds up.”
Mercer says he’s heard every excuse in
the book for why more VARs don’t want
to sell carrier services: They don’t want to
be “phone companies,” perhaps, or they
don’t want to get their sales teams up to
speed on cumbersome carrier compensation
But with the changing nature of who
sells what in the channel—and the cloud
services model the dominant discussion
point—many of those VARs won’t have a
choice in the future, Mercer said.
“This is no longer a break-fix model.
That’s not relevant,” he said. “You want
to be the consultant, the champion, the
trusted adviser. You want to be a solutions-selling
person and build a long-term residual
stream, which gives you more control
over what’s presented to the customer.
That’s a long-term goal, instead of just
cramming one product down their throat.”
Some do get it. VAR powerhouse Carousel
Industries, Exeter, R.I., partners with
more than 30 carriers and has seen its
carrier services business double over the
past year. By offering everything from SIP,
session management and VoIP to routing,
switching, WAN optimization, data center
design, virtualization and other technologies,
Carousel owns that much more of
the sale, said Stephen Forest, director of
“Our biggest growth is going to come
from guiding our clients from traditional
TDM network architecture to a fully converged
SIP-enabled architecture. We are
uniquely positioned to deliver all of the
elements required to realize the TCO benefits
of the next generation of networking
technologies,” Forest said. “Our expertise
… brings a lot of valuable elements to our
clients that they would traditionally need
to source from many providers.”
Solution providers interviewed by CRN
agreed that the carrier community lacks
strong, VAR-centric channel programs but
said the best of them often have IT channel
veterans at the helm. Level 3’s Williams, a
former Linksys channel chief and Cisco
vice president, is one such executive.
Craig Schlagbaum, vice president of
indirect channel sales, Business Class Services,
at Philadelphia-based Comcast, is
another. It’s Schlagbaum who in recent
months has emerged as a champion for ITtelecom
channel convergence and what it
can do for channel business opportunities.
Comcast Business Services does about $1
billion in revenue and in March launched
an aggressive channel program aimed at
attracting VARs. According to Schlagbaum,
it’s a natural extension for VARs who have
built services business, understand annuity
revenue streams and want to fatten their
sales with residual compensation.
“The IT channel has always known the
LAN side, not the WAN side, and that’s
really where they thrive,” Schlagbaum said.
“The advent of cloud has meant that a convergence
of the two arenas is starting to be
more prolific. We see it as critical to bridge
the gap between the two. Customers are
moving to cloud-based services, the price
of bandwidth has gone down substantially
from what it was 10 years ago, and concerns
over security have also diminished.
“This all made sense 10 years ago,” he
added, “but the stars just didn’t align.”
VARs can partner with Comcast in three
ways. They can be a basic referral partner,
meaning they throw a lead over the fence
to Comcast’s direct-sales force and receive
a one-time payment, or referral fee. One
level up, they work with one of Comcast’s
master agents -- Intellisys Communications,
Telecom Brokerage Inc. or Telarus -- and
secure a recurring fee under terms they
negotiate with that master agent.
Partners that do a high volume of sales
with Comcast—Schlagbaum pegs the likely
solution providers as $400-million-plus
VARs—work with the cable company directly.
Currently the program is about 25
percent VARs and 75 percent more traditional
telephony agents, he said.
NEXT: Service Providers Seeking VARsTime Warner Cable, New York, is another
cable company that’s seen a dramatic uptick
in VARs looking to sell carrier services.
“There’s always been some interest, but
now we’re seeing much more interest,” said
Greg Iuzzolino, director of channel sales,
Time Warner Cable, Business Class, which
launched its channel program three years
ago and whose channel community is now
about 25 percent VARs.
“Traditionally, they would sell their
equipment and move on to the next customer.
But there’s a lot more excitement
and a better understanding of how they
can drive business to be much more sticky
with their customer.”
Another provider, Charter Business,
launched its program in 2010, and the motivation
was simple, said David Neely, director
of channel sales and national accounts.
There are some 5,000 telecom agents
available as potential channel partners for
Charter, but there are more than 150,000
potential VARs, he estimated. That doesn’t
mean Charter is looking to add thousands
of VARs, he said, but it does mean the potential
partner base for Charter is vast.
“The VARs have reached out to me and
exposed us to the opportunity because
they’re interested in broadening their product base,” Neely said. “That means
anything from managed services to cloud.
The data pipe is a key component there.”
Charter’s compensation is primarily residual-
based, though Charter does spif its VARs
and offer promotions to augment those residuals.
It handles VAR compensation the
same way it does agent compensation.
If Charter is an example of a cable company
newer to engagement with traditional
VARs and integrators, others, such as
Cablevision, are practiced hands. Cablevision,
Bethpage, N.Y., began formally embracing
channel partners with a referral
program in 2007 and launched an official
agent program later that year.
It compensates its VARs with an up-front
bounty plus a residual and, like many of its
peers, doesn’t delineate “agent” vs. “VAR,”
said Joseph Magliulo, director of strategic
sales and alternate sales channels for the
The pickup among VARs selling Cablevision
services has been significant in recent
years, he said, and it makes sense—the
VAR, more than the carrier agent, is often
the one closest to the business customer
Cablevision is trying to reach.
“I think that a VAR has such a tight relationship
with their customer and there’s so
much at stake they want to make sure they
can be the single source solution,” Magliulo
said. “And they want to make sure that it’s
a reputable company. [Cablevision] will be
here tomorrow vs. how many CLECs are
no longer here.”
Magliulo acknowledged that it takes
some VARs a while to get used to the compensation --
that is, getting a check several
months down the line. But Cablevision is
seeking those partners who want to strategically
ally with the cable company to
please customers -- not those just looking
for an extra buck, he said.
“The kind of guy I want is the one most
concerned about his customer,” he said. “He
wants to make sure the customer is in the
right hands. They don’t want to be the ones
who get the call, then have to call the carrier
agent, who then calls the carrier. In our
program, they are the customers’ advocate.”
NEXT: More Of The Sale
More Of The Sale
To MegaPath’s Foster, cloud computing is
the common thread driving a lot of the
convergence and a lot of what’s driving
VARs to seek out carrier services options.
The lines between partners that traditionally
would have done one type of implementation
vs. another are blurring as more
customers adopt as-a-service solutions.
“Let’s say you’re a Microsoft ISV,” Foster
said. “If you’re doing applications, there’s
absolutely a compelling [reason] to say,
‘As we’re putting this in the cloud, let’s
talk about VoIP.’ Five years ago that wasn’t
the case. A normal customer wasn’t saying
then, ‘I’ll just put everything in the cloud.’
The technology specialist in the form of a
VAR is ideally suited to support that customer,
as opposed to folks who might have
a single focus around a voice system.”
Foster advises first-time carrier services
VARs to partner with master agents, who
have the experience with carrier agreements,
payment structures and customer
relationships. It’s not a glove-fit model for
every VAR, he said, but the incremental
opportunities for solution providers who
do make the residual compensation model
work for them can see some big paydays.
“If you’re racking and stacking stuff in
a data center, this can be very compelling
from a financial perspective,” Foster said.
“You’re looking at midteens margins on a
recurring basis for the life of a contract.
I mean, look at it: You put in a WAN op
solution up front, you get a nice kicker
up front. But if you’re able to put that
box in a data center and wrap an MPLS
network around it, you’re ‘a,’ minimizing
the customer’s need to shop for that; ‘b,’ a
trusted adviser; and ‘c,’ going to see years
of residual compensation for the life of
Clear About Compensation
Other longtime carrier channel observers
are more pragmatic.
“I think there’s a lot of talk about it, but I
don’t know too many VARs who have built
a program and made it successful and sustained
it over a period of time,” said Shane
McNamara, vice president of indirect sales
at XO Communications, Herndon, Va.
McNamara, who recently joined XO
after several years as general manager
of carrier services for CDW, said more
VARs will take up the mantle of carrier
services now that they understand why recurring
revenue streams are so important.
The changing op-ex/cap-ex conversation
around cloud computing is also forcing
them to re-evaluate their businesses.
That said, it will be a slow take-up for
many VARs because the residual compensation
model just isn’t part of their DNA.
“It’s still a little bit foreign to them -- the
carrier commissions are aggressive, but it
takes a long time to build up that annuity
even for a $100 million VAR,” he said.
“To get the mind share, it has to be from
top down in the organization, and it may
take a few years to see the benefits. But
the long-term benefits -- the way it supplements
the core business -- eventually come
in the bottom line of the P&L.”
The race among service providers may
be to see who can hook VARs best with
programs that appeal to the compensation
they’re most used to. Cloud networking
specialist 8x8, for example, earlier this
year went live with a new channel program
designed specifically to shepherd VARs
uncomfortable with residual compensation.
VARs that sell 8x8’s suite of cloud networking
services can make money with
8x8 in three ways: a one-time bounty paid
as a fixed dollar amount per service sold,
a residual revenue stream of 12 percent of
total master resale rights (MRR) for 8x8
services sold under term contracts, and
a commission of 5 percent on equipment
sold at or above 8x8’s stated floor price for
gear. Taken together, those three methods
can bring a VAR’s margin up to 29 percent
in the first year on a high-end deal, with
18 percent maintained in the third year
based on ongoing residuals.
Offering an “up-front” return -- i.e., the
bounty -- as well as residuals and commissions
helps VARs get used to the more
carrier agent-centric residual model while
making some of their money in the format
they’re used to, according to 8x8, Sunnyvale,
“The whole mentality of a VAR is getting
something at the time of sale,” said Don
Trimble, 8x8’s vice president of channel
sales. “I wanted to make sure we baked
that in because I think that’s how we’re
going to hook them and get them to understand
how to shift to a residual-based
model going forward.”
NEXT: Distributors Make The Call
Distributors Make The Call
Familiarity can be a key selling point for
VARs, channel observers agree, especially
when the brokering of telecom services
comes from a source VARs know. Distributor
Ingram Micro, for example, has an
established carrier services business, and
Tech Data this past spring went live with a
program called ActivateIT, a joint venture
with Brightstar through which Tech Data
essentially serves as a go-between -- filling
the master agent role -- for VARs wanting
to sell mobile devices and the telecom
services to activate them.
Greg Parsonson, Tech Data vice president,
corporate development, said ActivateIT
leverages OTBT, a wireless solution provider
acquired by Brightstar in 2010. What
ActivateIT offers is access to TDMobility, a
Platform-as-a-Service offering that enables
VARs to buy carrier services as if they were
buying a SKUed mobile device or other
piece of hardware from the distributor -- letting
them sell the “last mile” of connectivity
from carriers like AT&T and Sprint from a
distributor they already know.
The program has seen a phased rollout,
Parsonson said, with about 20 solution providers
so far -- varying in size from small VAR
to direct market reseller, all U.S.-based --and
Clearwater, Fla.-based Tech Data will be
onboarding many more over the next few
months. Recruiting carriers hasn’t been an
issue, he said.
“They realize that this isn’t their traditional
stomping grounds in accessing
SMBs, so they are very anxious [to work]
in conjunction with us,” he said.
It isn’t hard to explain the benefits to
solution providers, he added, when it’s
made clear how much they could fatten
their sales and also leave the headaches of
dealing with carrier compensation plans to
“It’s part of the holy grail for resellers,”
Parsonson said. “It’s all margin to them, and
it’s a complete incremental profit pool that
a lot of them haven’t been participating in.”
What’s important to note, VARs said, is
that carrier services can be a key piece of a
sale even if they aren’t big money-makers.
Dale Whitney, owner of NetImage, a
Shelton, Conn.-based solution provider
focused on SMB customers, said carrier
services are often a logical add-on, even
if the residual benefits to NetImage aren’t
so lucrative with customers of that size.
“We’re not interested in going out and
doing just carrier services, but it helps as an
additional line item,” he said. “The residuals
are a great-add on -- maybe that adds a couple of points to the overall sale -- but for
most SMB deals, it would be a stretch to
add one full point. We leverage it to close
deals: It’s a value-add to the client, and if
we can demystify the lines they have and
educate them on what they should have,
NetImage has had a carrier services
business for 10 years, Whitney said. Its
vendor partners include Paetec, Optimum
and Comcast, and the business covers
everything from traditional voice services
and analog lines to data T1 connections
and broadband connectivity.
Whitney said telecom resellers with
which NetImage competes often bundle
carrier services with what they’re pitching,
but traditional data networking VARs that
do it are rare.
“They haven’t established those relationships,”
Whitney pointed out.
NEXT: The Great Consolidation
The Great Consolidation
One byproduct of the convergence is that
the telecom service provider space is in
the midst of a massive M&A wave, from
blockbuster deals -- AT&T’s proposed ac-quisition of T-Mobile USA, CenturyLink’s
Qwest buy, Verizon’s nabbing of Terremark,
last year’s three-way combo of MegaPath,
Covad and Speakeasy -- to smaller, but
hardly insignificant acquisitions.
And it isn’t just service-provider-to-service
provider deals: Various players up and
down the telecom channel food chain, from
master agents to regional service providers
to VARs, are also acquiring each other with
Master agent Micro Corp.’s late June acquisition
of New Smyrna Beach, Fla.-based
Five Star Communications, a top Qwest VAR
in the Southeast, is one example. Tokyobased
Nippon Telegraph and Telephone
Corp. (NTT) buying integrator giant Dimension
Data last year for $3.2 billion is another.
Another active M&A participant is
Fairport, N.Y.-based service provider
Paetec, which has acquired several solution
providers in the past decade and in
the past year made two big investments
that raised a few eyebrows among its channel
partners: a June 2010 acquisition of
Folsom, Calif.-based Quagga, which gave
it a broader footprint on the West Coast,
and this past February’s $61 million buy
of Broken Arrow, Okla.-based Xeta Technologies,
which upped its stake in the
Both Quagga and Xeta were Avaya Platinum
partners, and both had themselves
been acquiring smaller VARs before becoming
part of Paetec. Donna Wenk, senior
vice president of sales operations at Paetec,
said she does understand that Paetec owning
those VARs means it also competes
with its VAR partners, but said the rules
of engagement for the Paetec channel are
pretty clearly defined.
“We definitely get some complaints,”
she said. “Little alarms ring out and they
want noncompetes and there’s a lot of
worry. The answer’s been simple: As long
as you’re bringing us in for the network,
we promise not to compete against you for
the equipment. We bought VARs in 1999
and 2000, and I wrote the letters to the
VARs then. Many of them are still with us.”
Even as it acquires, Paetec has also been
growing its stable of data networking-centric
VARs. Solution providers can be
referral partners for Paetec or full-blown
services resellers, the latter of which earn
higher residuals, as high as 20 percent in
some cases, she said.
“We need more data-savvy partners
helping us push our products,” Wenk said.
“It’s a tough knowledge set to find out on
the street. We’re definitely recruiting.”
Committing To The Cloud
At the end of the day, channel observers
agree, the driver for carrier services among
VARs is about being able to say, “Yes, we
can do that,” and offering what the VAR
down the street can’t. According to channel
observers, that means having a clearly
defined services strategy that addresses the
cloud. Telecom agents, too, are going to need
to adapt their businesses to better compete
against VARs taking more of their business.
“I do think they need to have a broader
book of business. Longer term, they will
need to bridge out,” MegaPath’s Foster said
of carrier agents. “I think near term, what
they do is continue to enable those integrators
and VARs. If you’re a large master agent
and the VARs you’re attracting do $300
million and $1 billion, you’re talking about
the future of the distribution channel.”
The great VAR migration into carrier sales
is still very much in its infancy, however.
“Everyone, especially in the agent
world, looks at the VAR [channel] as the
next best thing and in most cases it is,”
said XO’s McNamara. “But VARs are used
to the P.O. being written, the customer
signing it, the product being shipped out,
and moving on to the next sale. They’re
not used to a T1 order than can take six
months to install and another two months
to receive commissions.
“If you grow up on the hardware side, it’s
harder to understand telecom,” McNamara
added. “If you don’t commit to it, you’re
not going to be successful. You can’t be