Telecom Turmoil: Solution Providers Place Their Bets As Carrier Churn Rocks The Industry

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J.R. Vernick co-founded RDS Solutions 11 years ago to help customers navigate what was even then a "challenging and frustrating" telecom market. So is he surprised at how turbulent it is today, with some carriers eyeing the sale of their once-prized data center assets? Not one bit.

"If you were only working with carriers, you weren't doing a good job," said Vernick. "They aren't the right play for every client."

Even though large carriers account for about one-half of RDS Solutions' sales, the Clifton, N.J.-based company is finding increasing success with tier-two cloud providers.

[Related: 10 Signs Of Telecom Turmoil]

"The small providers can be more nimble," said Vernick.

These fast-moving cloud service providers are winning over solution providers by offering access to top cloud services technical talent and sales support along with robust recurring revenue commissions. That's in sharp contrast to the single-digit margins provided by carriers attempting to compete in the cloud services market with the likes of Amazon Web Services and Microsoft.

Amid the carrier churn, Vernick recognizes the potential threat of lower cloud commissions if a carrier's data center assets are sold to a company that is not channel-friendly.

The Channel Company
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"If one provider is selling off a base of business that the partner is being compensated on, that's always a potential concern," he said. "That's why you have to hope that whoever is buying [those assets] is channel-friendly."

Also amid the chaos is the emergence of a new breed of solution provider: strategic service providers, which are building their business by driving a higher percentage of sales from recurring revenue cloud services.

Many of these strategic service providers also are taking a pass on building their own data centers and are instead establishing relationships with regional service providers or global service providers.

A survey by The Channel Company, the parent of CRN, shows that 42 percent of strategic service providers have a relationship with a local or regional service provider, while 53 percent have a relationship with a global or national provider (see chart above).

"We will never have our own data centers," said one solution provider executive who participated in the survey. "We don't want to compete with Microsoft and Amazon. Having your own data center was a great model about 10 years ago."

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