http://www.phoneplusmag.com/articles/4c1partner01.html
December 2004
From Master Agent to Reseller
When & Why the Switch Makes Sense
By Kelly M. Teal
Ailing financial health among carriers. Customer service shortcomings.
Billing problems. Accounting scandals. Cutbacks in agent programs. These
trends have prompted a response among several master agents to redefine
themselves as resellers, take on more risk and responsibility, but also
gain more control over processes and payments.
“It’s like a different world,” says David Singer, CEO of ATI, a company
that has transitioned from master agent to reseller. ATI resells services
from Global Crossing Ltd., Qwest Communications International Inc., WilTel
Communications Group and Level (3) Communications Inc.
“Instead of being the person that’s selling stuff, you’re also the
provider, and there’s a whole new set of responsibilities and
accountabilities that comes along with that,” Singer says. “It’s a whole
new set of languages, and it’s a whole different set of water to swim in.”
Part of the attraction of becoming a reseller is being able to control
payments to carriers, instead of waiting for money from them. Companies,
such as Advanced Telemanagement Group Inc. (ATG), maintain the
relationships with the carriers so individual agents don’t have to.
“There’s a level of ... control over the flow of income ... because we pay
the carrier [and] collect from the customer,” says Brian Maguire, ATG’s CFO.
“We are our own self-supported ship,” adds Bob Maguire, president and CEO
of ATG, which he runs in conjunction with wife Tina Maguire and brother
Brian. “We have our own engineers, our own backoffice people. ... As a
master agent, you’re waiting for the carrier constantly, whereas as the
reseller, you’re dealing in a wholesale basis, so you are the carrier. It’s
a completely different relationship.”
The margins often are better as a reseller, too. Plus, Bob Maguire says, an
agent can be tempted to recommend a solution to an end user that will put
the most money in his/her pocket. Being a reseller means ATG often can
provide a “better solution at a better price,” creating a winwin situation,
he says.
ATG is rolling out VoIP under an agreement with Level (3) Communications
Inc. and will be reselling Covad Communications Group’s services as well.
“We want to put a few horses on the track and see who wins,” says Brian
Maguire.
The desire for control extends beyond wanting to oversee money flow; it
also is important to own the customer. ATI decided nearly three years ago
to shift into reseller mode. Executives already had strong industry
contacts, forged since the company opened in 1991. “Just about when the
dot-coms crashed, the level of service from every single provider that I
represented was just incredibly poor,” explains Singer. “I could no longer
go out ... in front of a customer and say, ‘Look, I signed you up with this
carrier [and] they’re going to treat you like a king.’ ... My whole
motivation of becoming a reseller was, I want to provide the best back
office in the industry. Our entire company is built on service.”
Delivering on that promise of service helps a reseller maintain ownership
of the customer, and companies such as OSS vendor VBOS help resellers and
master agents deliver back-office support. VBOS recently initiated its
Launch with VBOS! program for master agents distributing UNE-P, VoIP or
wireless solutions.
“Our end goal ... is to provide the real efficient and comprehensive back
office for folks that are just getting started,” says Jeffrey Fraser, vice
president of sales and marketing for VBOS. “You can’t just give them a
system. You’ve got to give it to them and help them find the other folks
that are going to make them successful.”
VBOS further connects new entrants with network, hardware, print and call
center vendors. “A lot of these guys are really good at selling and
distributing, but they don’t necessarily have all that expertise,” Fraser
explains. “Back-office companies reduce risk.”
So, while a reseller has more to lose, there also is more to gain, as ATI’s
Singer points out. “The company income used to be about $450,000 [in] our
last year of being an agent. Our first full year of being a reseller, our
income went from $450,000 to $7.2 million,” he says.
Craig Schlagbaum, vice president of channel development for Level (3)
Communications Inc., says he is seeing resellers make from 40 percent to
more than 60 percent gross margins. “With that amount of margin they can
even continue to run their own subagent programs, but then they act as a
reseller,” he says.
“[T]here’s enough margin to do the model they’ve been operating on, but
they own the end-user customer.”
Level (3), which traditionally has provided wholesale services to telecom
companies, is expanding to the enterprise strictly through its indirect
reseller channel. Glenn Russo, senior vice president of partner and channel
development, says resellers have the relationships with end users that his
company does not have, and those partners also offer complementary services
and hardware.
“We see a lot of telco services — what have traditionally been CPE-based
solutions like PBXs, for example — becoming services that will be purchased
on a network basis,” Russo says. “So combining the network with some CPE
for a total solution, our partners bring all of that to the table, which a
carrier really can’t do directly.”
VOIP EASES SWITCH
That seems to be a common theme. “In the agency model of old, one of the
premises has always been that the RBOCs and the IXCs were the primary
service providers,” says Steve Stewart, vice president of channel programs
for Level (3). “What voice over IP is really doing is enabling a whole new
community to go and compete for the telco business at the end user.”
To that end as well, service provider Broadvox LLC has readjusted its
“bring your own broadband” retail VoIP business model (ŕ la Vonage) to a
wholesale model targeting switchless resellers, such UNE-P providers and
master agents that want to become resellers. The company already wholesales
200 million VoIP minutes monthly, says President and CEO Andre Temnorod,
noting that a half dozen master agents already had expressed interest in
reselling (rather than representing) Broadvox’s hosted IP telephony product.
He says master agents, who shied away from the regulatory obligations of
local service resellers, are now interested in branding their own
VoIP-based local offer, which is not subject to regulation.
Similarly, IPtimize is marketing its flagship VoIP product, Voice Pilot,
which is built on Broadsoft Inc.’s platform, provisioned through New Global
Telecom and incorporated with IPtimize’s own sessionborder controllers.
Resellers and agents can rebrand Voice Pilot, but at an extra cost.
Either way. “We’ll help you market that product and we’ll bring you all
these managed services to wrap around it so you don’t have to go build
those as well,” says COO of IP Services Jeff Veres. IPtimize also plans to
introduce private-label billing early next year and offer that as another
managed service available for resale.
Billing and back-office systems are indeed the major obstacle in
transitioning from master agent to reseller. To ease this migration,
Broadvox is working to integrate its provisioning systems with Profitec
Inc.’s billing and OSS service bureau.
Using Profitec’s OmniAgent, Broadvox resellers can send their orders in and
activate them on the Broadvox network. Randy Minervino, vice president of
sales for Profitec, says OmniAgent required minor modifications, such as
line qualification, to support Broadvox’s VoIP services. “It needs to
determine, for instance, whether an ANI that’s being ported over is a
residential or a business line, because that could invoke some different
rating practices,” says Minervino.
As a result of the tight integration, Profitec also will be the recommended
retail biller for Broadvox resellers. Minervino says Profitec’s services
are priced as a percentage (typically 1.5 percent) of billed revenue plus
bill presentment (postage and printing or electronic delivery). “We can do
all the printing in-house, but the client can also take the data stream and
get it printed wherever they like,” he says, adding that e-billing also is
an option with the OmniView electronic billing and customer self-care
platform for pennies per end user.
Additional reporting by Khali Henderson
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Case Study: Capitalizing on Competition
By Kelly M. Teal
The dichotomy between master agency and CLEC presents unique
considerations. The former frees salespeople to focus on the business of
making money, while the latter allows the company to maintain higher levels
of control over customer service, billing, payments and more. It also
entails more responsibility. Business Communications Management (BCM) and
McGraw Communications embody the successful melding of both cultures, while
remaining focused on the agency versus reseller model respective of each
company’s aims.
“In the small-to-medium-size space, it’s easier to sell as an agent because
you can go in there and objectively be able to lay out a variety of
different carriers for customers, and make sure that you put the round peg
in the round hole,” explains John Cunningham, who serves as CEO of master
agency BCM and as president of McGraw Communications, a CLEC formed in
1996. BCM opened for business in 1992. “On the carrier side, it’s actually
easier to deal with agents because people are looking for the back-office
support and continuity of commissions and those types of issues. So they
both have their advantages.”
If a master agent seeks control of billing, customer service issues and
carrier payments, a good option can be to transition to the reseller model.
Part of the growing pains associated with being a master agent hit BCM when
the troubled Cable & Wireless decided to exit the U.S. market and sold its
operations to Gores Technology Group LLC. “We had to spend a lot of our
resources in migrating ... customers and we lost a lot of customers in the
process, which obviously affected our revenue,” Cunningham says. That
revenue plummeted from $2.1 million to $500,000 annually.
“Plus,” Cunningham continues, “we lost a year of our lives.We could have
been using our resources to grow our business, but instead, we were
swapping out circuits and dealing with customer service issues, and billing
issues, and account code issues.”
Being on the McGraw side of things means the company mitigates similar
problems for agents, allowing them to focus on selling. For now, BCM is
McGraw’s master agent, and McGraw then distributes through BCM’s subagent
pool, which numbers approximately 110 people. In turn, BCM uses McGraw’s
project management and engineering support capabilities.
“The biggest challenge for master agents that want to become resellers is,
historically, master agents are very good at distribution and they have a
very good portal to manage orders,” Cunningham says. “The biggest challenge
for them is going to be the back-end stuff.They have to provide ...
customer support.”
There also are regulatory issues to consider, he adds, suggesting a hybrid
solution for master agents who don’t want to take on all the
infrastructure. “We’ll co-brand bills with them and do revenue-shares on
profits and other programs ... to accomplish what they’re looking to
accomplish without them having to take a full dive into becoming an actual
phone company,” he says.
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