Hear That Static? What's Really Holding Up Telecom-IT Convergence

With cloud adoption putting pressure on IT solution providers to create services-driven, residual-based revenue streams, the move by solution providers toward finally adopting carrier services -- busting down traditional barriers between IT reseller and telecom agent -- is reaching critical mass.

But it isn't coming easy. The so-called convergence of IT and telecom is a transition to a tangled mess of lumpy partnerships, work-in-progress vendor programs, and much debate over which services and revenue models are the best fit for solution providers long used to hardware and software resale and integration and maintenance.

That convergence was a hot topic last week at World Telecom Group's Tee & Sea event, an annual gathering of vendor and agent partners near the master agency's headquarters in Malibu, Calif., where the only consensus on the topic seemed only to be that it is a major topic.

[Related: Ring Leaders: Why The Convergence of VARs, Carriers and the Telco Channel Is Here To Stay ]

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Solution providers remain the No. 1 profile of new agents joining WTG and soon will comprise about 40 percent of all of WTG's partners. The efficiency and cost savings promised by the cloud model are what have swayed a lot of customers -- and the solution providers that serve them -- to look at it closely, and that means wanting to buy networking, infrastructure and communications from one trusted adviser.

So why aren't more solution providers jumping in with both feet?

"I think a lot of VARs are still afraid," said Vince Bradley, WTG's president and CEO. "But the last decade, with the downturn in '08, folks in the midmarket and below that are just not seeing the same resources anymore. That's what's opened the door for a lot of this stuff."

WTG is looking for partners that understand that fundamental shift, and those include recent sign-ons such as Simple Cloud Technologies, an Orland Park, Ill.-based solution provider.

Simple Cloud focuses principally on hosted networking and monitoring services, said CEO Michael Brown, from videoconferencing and wireless, to mobility, VoIP, PBX, redundancy and energy. It was founded in late 2011 by members of two families with decades of telecom experience between them, from jobs in IT management at universities to down-and-dirty infrastructure installation.

"We're all cloud," Brown said. "We manage everything from wireless networks in multiple locations to hosted Exchange servers. Customers don't want to spend $70,000 a year or more for one guy to manage a server. They don't have to."

NEXT: Telecom Folks Understand The Cloud Innately

Telecom agents and those with deep backgrounds in telecom innately understand the cloud model better than most solution providers, Simple Cloud's Brown and his colleagues agreed, particularly the challenges with recurring revenue streams, commission- and residual-based payments and vendor programs to address each.

But conceptually, the cloud model isn't so dramatic an industry change.

"You're really talking about, 'Are you private cloud or are you public?'" said Victor Kress, Simple Cloud's CTO. "You could argue the cloud has been around since, oh, 1982. It was just called co-location."

"It's a marketing term," added Brown. "When you explain that to a customer, it's easier to explain migrating. But it makes it a challenge with the [vendors] because a lot of the direct reps don't know what their own products and services are. Everyone is throwing around the term 'cloud' so frequently and there's so much new stuff coming out that they're not up to speed."

Hosted solutions can be a pretty easy sell for customers with aging infrastructure. One recent customer, Brown said, was using an ancient Mitel system whose voice-mail function had been down since Thanksgiving. Because the equipment was so outdated, Brown said, it would have cost the customer close to $12,000 to restore six voice-mail boxes.

"We talk to some customers, look at their PBX systems, and they're 30 years old," said Donald Kress, vice president of sales. "That's a no-brainer. We go in and we say to them, 'We can migrate you off of this right now. ' "

WTG sees opportunity for solution providers such as Simple Cloud to drive a lot of the thought leadership around cloud adoption. Channel partners have an advantage because many are longtime business owners and they have seen customer buying habits change every half decade.

"The guys with the longer tenure understand the terminology better," said Mark Sondergaard, WTG's vice president of sales. "The direct sales force is more younger personnel and constantly turning over."

NEXT: How Do Telecom Suppliers Measure Up?

During WTG's Tee & Sea event, solution providers and agents heard presentations -- and a few promotions -- from WTG's premier sponsors, including MegaPath, XO, Comcast, TW Telecom, Time Warner Cable, Level 3, Integra Telecom, Sprint and Earthlink, all of which are targeting solution providers with varying levels of intensity.

In discussions with CRN, however, some vendor representatives admitted they were having just as much difficulty recruiting knowledgeable solution providers as solution providers are finding vendors with supportive programs.

"[The convergence] is happening, but a lot more slowly than WTG or, to be fair, the other master agencies seem to think," said the channel chief of one of those sponsor attendees, who asked to remain anonymous. "I've taken a lot of meetings with VARs in the past year and almost all of them have gone one of two ways. Half of them think we're the devil and that our direct reps wouldn't help them anyway, and the other half are almost completely clueless about how to get themselves set up to make money and pay their people in a model that isn't the up-front reseller integration one."

Solution providers may be skeptical of carrier vendors, the executive said, but that regard goes both ways in the channel.

"I think you're going to find a lot of us on the [vendor] side asking, 'Why do we need these guys?' just as often as the VARs will say that about us," he said.

With cloud computing seized upon by legions of marketing professionals, customers are left confused, some solution providers argued.

"What's missing is really educated customers," said Andrew Saunders, CEO of 24 Hour Telecom, a Fairfield, Calif.-based solution provider. "You have a lot of unbelief from customers that you have a solution because, with cloud, no one knows how to really compare it with what came before it. It's not like the old days when you'd bring in a Nortel and a Mitel that essentially did the same things but just looked a little different."

It's not an oversimplification to say most customers don't quite know what they want, Saunders said.

"They used to be able to tell me, 'I have x number of agents and I need x number of phones. ' So we want to do multisite PBX, but they don't yet have MPLS, and I tell the IT guy, who doesn't understand MPLS, how to go about it," he said. "I'm the expert, but I'm not looked at as the expert. They need the overall voice that says, 'This is how you do it, ' and they don't have that right now. We're in transition."

NEXT: Solution Providers Should Consider Separate Telecom Teams

The hype around cloud computing -- coupled with economic belt-tightening -- has caused many customers to push off the traditional seven-to 10-year upgrade cycle of new networking equipment, Saunders said. He sells new NEC PBX-based systems but is making much more money, he said, selling refurbished NEC, Cisco and Mitel through his other companies, such as HotelMotelPhones, while building his telecom services practice.

"In 1992, I might have sold a voice-mail system for 60 to 70 employees for $17,000. It would take me a day and a half to install it and I'd walk away with $7,000 in profit," he said. "That same system is $800 today, and the same amount of work, and the profit margin has plummeted."

Saunders has another theory about why solution providers are slow to embrace the telecom convergence. The types of channel business owners that came up in in the '80s and '90s have by now seen a lifetime's worth of business paradigm shifts, he said, as well as trends and technology fads aplenty. Therefore, they're more skeptical about market transitions.

"A lot of us are older now," said Saunders. "You're just not willing to make the bets now you'd make when you were in your 20s."

Craig Schlagbaum, vice president of indirect channel sales for Comcast Business Class Services and a prominent advocate of IT VAR-telecom agent convergence, said solution providers should consider making telecom, carrier and cloud services a separate piece of their businesses, with dedicated salespeople, staff and billing.

He cited solution providers such as Irvine, Calif,-based Alvaka Networks and Greenbelt, Md.-based Presidio as partners with traditional reseller backgrounds that have done that successfully.

"To make it work, VARs have to have a sales organization motivated to sell these services for recurring commissions," Schlagbaum said. "They've got to transition off of their traditional top-line model and move toward getting some sort of residual compensation, and figuring out how to have that compensation structure in place to pay their people."

But it's also on the vendors themselves to provide programs solution providers find appealing, Schlagbaum said, and that's what prompted the various levels of engagement in Comcast Business Class' year-old channel program. Solution providers can engage with Comcast as minimally as receiving referral fees for leads, or as extensively as large, complex accounts for which they work directly with Comcast.

"As they expand, they see better commissions, but they also have to do more of the heavy lifting," Schlagbaum explained. "It's a DNA thing for these VARs. They have to understand how this model works and how to support their internal teams. We have to look at how customers wish to buy services and accommodate their desires. The carrier space has done that. The VARs will learn that over time."