Agent Channel

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Posted: 12/1997

Agent Channel

A No-Brainer

By Gary Kim

Want to bet on a sure thing? Bet that the agent channel will continue to grow in importance as the entire telecommunications business gets more competitive. Keep the emphasis on channel. Just as supermarkets are a channel for a wide variety of products sold to customers who generally live within three miles of the store, so agents represent shelf space for a wide variety of products to be sold by a bewildering cast of suppliers. As competition really heats up, and new technology arrives at a blistering pace, customers are going to be confused. They're going to want safety, especially in the small- and medium-sized business market space. So people with relationships--who are trusted--will have a higher profile role. At the same time agents will be handed a much broader range of products to sell.

"Resellers don't have the faintest
idea how to
get the business. The agent
channel
controls the
distribution."

--Bill Stevens, Mayfair Group, Chicago

Other safe bets are: The line between agents and resellers will continue to blur, and the range of agent products will balloon. The reasons aren't hard to fathom.

Up to this point, the sole product available to most agents was long distance. But local, wireless, Internet, electrical utility and other services will begin to be available over the next several years. There simply will be more products to sell, in turn creating more lucrative opportunities for agents.

At the same time, new carriers are springing up, including Internet service providers (ISPs), competitive local exchange carriers (CLECs), personal communications service (PCS) providers, satellite broadcast, terrestrial microwave and These firms need sales channels fast, and more. most are focusing on mass and smaller business markets--the customer segments most appropriate for agent sales.

The other coming change: a wider variety of agents. To sell more complex data networking products, many carriers may sign up interconnect or value-added reseller companies. In other cases, incumbent local exchange carriers (ILECs) or regional Bell operating companies (RBOCs) may function as agent channels, at least until the mainstream local carriers are able to get their own internal sales operations up to speed. "I think you'll see mom-and-pop local exchange carriers (LECs) and RBOCs becoming agents at least until they become a single source," San Antonio-based U.S. Long Distance (USLD) Vice President John Welsh says.

The corollary: New types of agents, capable of selling frame relay, asynchronous transfer mode or other data networking products, may arise alongside agents who continue to specialize in voice products. At the very least, new agents whose focus is local services will enter the business, especially to serve the needs of business customers.

Cost Is Key

For many firms and market segments, the agent channel simply is the best way to reach the target audience. "It's the least expensive channel out there," says Sean Trepeta, sales/marketing vice president for US Buying Group, Alsip, Ill. Carriers can afford to build their own global account organizations when selling complex services to transnational corporations that need robust data and voice infrastructure on a global basis. But that truly global audience numbers only hundreds of firms worldwide.

Likewise, national account organizations are justified for the 500 to 1,000 largest U.S. corporations and government agencies. But the picture begins to muddy when carriers look at the medium business segment, and it becomes nearly opaque when the focus drops to the small business segment. About 90 percent of all U.S. firms have 20 or fewer employees, while 0.02 percent of the largest firms have 11.6 percent of the locations. To put it another way, in 1993 less than 750,000 U.S. locations were operated by those firms with 500 or more employees. More than 4.7 million locations were businesses with 20 or fewer employees.

Why the Agent Channel Thrives

  • Shrinking reseller margins mean in-house channels are prohibitive
  • Cuts reseller overhead
  • Affinity groups emerge as a key residential channel
  • Agents have the customer relationships
  • Multilevel marketing a growing trend
  • Deregulation creates hundreds of new firms, all need sales channels

The residential market, most observers agree, is where the agent channel or mass media advertising is the only viable channel, primarily because the cost of sales is so high for any single account, each of which tends to be small. "The incredible success of Excel has upped the ante to an affinity-based sale, at least for the residential market," says ATLANTIC*ACM CEO Judy Reed Smith.

Bill Stevens, CEO of the Mayfair Group, Chicago, couldn't agree more. "The agent channel becomes more important as reseller margins shrink," he says. "Residential affinity has to be sold, or the agents and resellers die." Mayfair, for example, relies exclusively on the agent channel as does WorldxChange.

Cable & Wireless, Vienna, Va., for example, initially emphasized value-added resellers and interconnect firms to market its business long distance product. But the firm has moved away from that model, to emphasize "people with relationships," says Michael Ferzacca, Cable & Wireless vice president and general manager, alternate channels. "You can always bring technical expertise to bear when you need to," Ferzacca says. Five years ago, about 5 percent of the monthly revenue came from agents, whereas today agent revenues make up 25 percent to 30 percent, he adds. "Agents really contribute. They aren't a necessary evil."

"This is a business for resellers and agents," says Martin McDermott, senior vice president of American Communication Services Inc. (ACSI). Annapolis Junction, Md.-based ACSI is a CLEC targeting business customers in the Southern Tier.

Minimal overhead is a big attraction. "Your rates and commissions have to come down when you take on the overhead of a direct sales organization," says Rick Eberhardt, WorldxChange's vice president of sales, whose firm uses the agent channel exclusively. "The agent channel absolutely will get more robust in the future," Eberhardt predicts.

Still, many carriers say they will continue to balance the agent (indirect) sales channel with the use of direct sales. USLD, for example, uses both agent and direct channels, and agents represent a key channel. USLD runs direct sales from 23 offices, says USLD Senior Vice President Stan Masters. But about 10 percent of total payphone business comes through the agent channel, while 75 percent to 80 percent of the hospitality industry business is generated by the agent channel.

Pros and Cons

From a carrier's perspective, agents can be a blessing or a curse. When the channel is supported, carriers get the advantage of people whose real advantage is relationship management. "We're finding some of the best relationship-builders are agents," USLD's Welsh says. The downside, of course, is the relationships belong to the agent, even if the account legally belongs to the carrier. That means an agent always can take a good chunk of business along whenever he or she decides to work for a different carrier. "It's their customer," Trepeta says.

But that's simply a risk a carrier has to run if it wants to sell competitively, says Stevens. "Resellers don't have the faintest idea how to get the business," he says. "The agent channel controls the distribution."

Still, many firms prefer not to rely solely on one channel, no matter how important that channel may be. "A smart company works with a direct sales force and agents," says John Loughlin, director of agency sales for Network Plus, Quincy, Mass. In part, that's because the channel is full of people who "move quickly, get disenchanted with the business and leave it," he says. "They're fickle."

Some firms haven't yet decided whether long distance agents provide the right channel for more complex products, though agents are definitely part of the mix. If ACSI's McDermott has any reservations, it is that agents used to selling voice may not be able to sell data. "Our agent program applies only to voice products, because we don't yet know how to train people to sell frame relay."

In any case, carriers will continue to look "for people and companies who have relationships," says Gerry Cull, Midcom's manager of carrier sales. That includes individuals as well as interconnect companies, ISPs and other channels. Carriers also will look for agents with a clear idea of who it is they want to sell products to. "We ask for a marketing plan," says Scott Reagan, business development manager for Matrixx Telecom. "If you can't produce that you probably won't be successful."

Relationships are key both for residential multilevel marketing as well as for smaller business accounts, Smith says. But enhanced industry and technology knowledge may become more important as well, especially if data products and local services are added to the mix. "Carriers may need to be fussier" about who they have selling data and local products, Smith suggests.

Still, the agent channel is bound to prosper, because tomorrow's highly competitive business will be founded on account control, and agents can supply that. At the same time, carriers will have to learn to do more with less. All of which is highly conducive to agent channels.

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