Posted: 08/2001
Sunshine Amid the Clouds
Agents Flourish
in Economic Downturn
By Tara Seals
If you're an agent, times are good. Ironically, the state of the economy means a fresh reliance on the agent channel, increased demand for traditional services, new services, snazzy collaboration programs and a greater appreciation from suppliers and customers.
The idea may boggle the mind as the list of dead, dying or merely chronically ill companies continues to grow. Customers of every stripe are tightening their purchasing belts. Issues in the CLEC space dog the field (see related story, here) and agents must do their due diligence on any company for which they sell. But, with the caveat that vendor fluctuation remains a risk of the business, it's a pretty rosy picture for the savvy agent who knows how to take advantage of opportunities.
Customers may not have the budgets they once did for telecommunications, thanks to the nationwide economic slowdown, but businesses always will need phone lines. That makes for a solid foundation on which agents can operate as they wait for customer demand for other types of services to heat up again.
Agent-based reseller Connect America Inc. (CA) is primarily voice-focused. According to CA president Brian Sledz, plenty of companies have had their data and Internet needs fulfilled, but they still need voice.
"We are closing an account that bills in the 20K range and one that's in the 100K range," he says. "We never really did a whole lot of data because a lot of our agents weren't qualified to do it, and to get decent rates you need a level. So we've taken it slow, and my opinion is that the market is trending towards larger customers, $20K a month or more in voice."
Two years ago, Sledz predicted voice would not die. So far, he's been correct.
"The data boom was built on air, and voice is not going to zero, at least not right now," he says. "And as we see a lot of these high-tech companies go out of business, we're also seeing some upticks in rates from carriers."
Sledz is not alone. While no one discounts the importance of the data sector, many players are recognize that voice may remain more lucrative than anticipated if, as it now appears, the rate plunge has stopped.
"We're seeing a flattening out of rates, which is a good thing, only because people realize that they now have to make money," says Brad Miehl, president and CEO of master agency TheAgentsNetwork Inc. (www.agentsnetwork.com). "We've proven that free doesn't work, and neither does low balling."
Bill Power, founder of the Association Resource Group, says a shift has occurred in vendor rhetoric.
"A year ago, the major providers were out there saying 'We don't even want voice,'" Power says. "Whereas now, even the big guys that lead the charge on that mantra are paying bonuses on voice service--so data may be king, but voice is the bread and butter."
Local Services
Local services also are alive and well, despite the CLEC shakeout. Options exist to avoid getting caught in the market firestorm.
Rather than backing away from selling local or fleeing back to the RBOC, agents are focusing on the funded companies, says Vince Bradley, president and CEO of master agency World Telecom Group (www.commerceconsultingcorp.com).
"The XOs, Time Warners, McLeods, ACCs of the world will get a lot of business right now," he says. "If the customer is concerned about what's going on in the industry, you can find financials they can't argue with."
The unbundled network element platform (UNE-P) in particular, in which companies lease facilities from the ILECs to deliver their own services, is becoming more popular in an era of bankrupt local service startups. Working with an incumbent network adds a layer of security.
"For customers that are now being disconnected, it's a major deal to go find local service and dedicated Internet," says Miehl, who sells UNE-P in the BellSouth Corp. (www.bellsouth.com) region.
"To get all that up and going at the same time and coordinated is a nightmare, and I think that customers are very apprehensive to deal with companies they've never heard of," he says. "With UNE-P that network is not going down, so if the vendor goes out of business, those people would just flip right back over to BellSouth."
AT&T Corp. (www.att.com) recently released its UNE-P product, and reseller Access One Inc. (www.accessoneinc.com) will roll out UNE-P eventually, according to industry sources.
Z-Tel Technologies Inc. (www.z-tel.com), a UNE-P CLEC in 21 states that targets the residential market, has a substantial technology piece that allows services such as prioritized call forwarding and web-based voicemail management for its "Z-Line" customers. The company, with 300,000 subscribers, 18,000 agents and a quarterly churn rate of only 4 percent, has been growing steadily since its launch in September 2000. It projects that it will be cash-flow-positive by the end of the year.
"I think our main goal is going away from the land grab philosophy, and instead of trying to get as many customers as fast as we can, which can be quite capital intensive, we're more about going out and finding a good customer who is going to stay with us for some time, who's going to utilize all our services and enjoy the discounts," says Z-Tel's director of special operations Jamie Gerdsen.
Z-Tel's director of investor relations Sarah Bialk, says that roughly 15 percent of sales are made via independent sales contractors.
"Relationship sales brings value," she says. "We want to make sure that people that sign up understand the service and know all the features and benefits. It also helps with the grass roots marketing campaign. We haven't spent a lot of capital on advertising, so an agent channel is the way we tried to go."
Local also presents benefits for the agents in terms of customer retention and high commission opportunities.
Bradley explains that integrated access, in which dial tone, long distance and data run on the same pipe, is more prevalent.
"A year, year and a half ago only one company could do integrated access on a PRI circuit; now everyone's doing it," Bradley says. "Agents want retention. The confidence of the agent in the market now is not real strong, and so once they have customers they want to lock them in."
Customers also recognize value in reliable, redundant architecture, meaning they no longer look for the cheapest way of doing something because the savings down the line outweigh the up-front cost cutting. Even with an integrated access circuit, most companies need back-up, since data and e-mail are becoming mission-critical services.
"For an office with 10 or 20 people I'm starting to recommend two T1s and a DSL back-up, or at least dial-up back up, with a set-up where if your data circuit goes down, you still have your local, and vice versa," says Bradley.
Another benefit in selling local circuits is that small, switched long-distance agents can up-sell into their bases, getting a technology crash course at the same time.
"So they remain competitive, it helps retention, they learn how to sell dedicated services without even trying," says Bradley. "When you sell CLEC you have to deal with local number portability, cross-connects, the cut-over and equipment. This will teach you how to sell long-distance and data T1s. It has helped agents to mature in this business."
New Services
The economic realities rearing their company-crushing heads in the business world also are spawning cottage industries--new services and applications that streamline business expenses in a time of cost-cutting, or outsourced solutions that allow customers to focus on their core competencies.
"ASP service is evolving; there's definitely a lot of education that's required for the customer to embrace it," says Miehl. "But there is a lot of value in the ASP model if it is the right application, and I think that's a great opportunity for agents to bring in revenue and retain customers.
"As soon as customers learn an application it's hard to see them leaving just to save a couple of dollars," he adds. "The more applications that you can bundle together, the more loyal your customer will be. Microsoft Office is a prime example of that."
Greg Praske, CEO at ARG, says conference calling is becoming bigger.
"With the economy slowing down, we're finding more and more customers are very interested. We make a third of our revenue off conferencing," Praske says. "The big change is the web conferencing. It's another way around a costly face-to-face meeting."
ARG also sells a bandwidth-monitoring product from Packeteer Inc. (www.packeteer.com), which can save companies money.
"We see people adding and adding bandwidth, and it never seems to cure their problems," says Praske. "So we'll do a bandwidth audit that helps them understand what they're using and what applications are driving their usage, and then showing them ways of controlling the bandwidth on a per application or IP address basis."
Jay Lewis, vice president of master agency VisionCom Inc. (www.callvci.com), sells almost exclusively data products and services, such as Internet, private line, frame relay, virtual private networks, hardware and routers.
"We're going towards being more consultants rather than agents, with a total communications solution," Lewis says. "More skilled agents are going in that direction because the margins and the commissions are there."
In the data sector, customers now are willing to sign four- or five-year contracts, whereas that was not the case a year ago, he explains.
"If I'm going to get a data network, I may as well go longer and get better discounts," Lewis explains. "The customer doesn't want to go through this all again next year, the way things are."
Another change is that the cost of building and maintaining websites has become something companies are more than willing to outsource.
"It becomes more and more of a challenge for companies to manage, and so we believe that's going to be one of the emerging markets for the alternate channel," says Praske. "We can help them migrate to a high-end hosting firm."
The Agent's Changing Role
Independent agents are gaining new appreciation as they bring value to their customer bases by helping to sort through the confusion and turbulent changes in the communications sector. They have become like a calm voice in the storm of change.
"This is one of the best times to be an independent agent or consultant, because customers are confused and frightened and can't keep up with what's going on," says Praske. "Right now with all the chaos in the telecom world, customers need us and need our objectivity and consultative view on business more than ever."
Agents also help customers in a tight economy by finding options for trimming expenses and doing more with less.
"You get decision-makers asking for help, but they don't know what they're doing," says Lewis. "They know they need to have a web presence; they know they need to have access; but they have no idea how much bandwidth they need or what exactly they're doing."
Having options is good news for an industry littered with the carcasses of such names as NorthPoint, PSINet, Startec, Teligent, Viatel/ Econophone/Destia, Winstar and WorldxChange/ WorldAccess.
"It's a wide-open world," says Power. "The customers and prospects we talk with, more and more of them are [taking] the service of some of these companies on shaky financial ground and are concerned. So it's very rewarding to be able to go in and provide the customer with some capabilities and to move them to long-term players."
Lewis adds that winning a service contract in the current climate no longer boils down to beating someone else's price. Customers are willing to spend more knowing they're buying from a stable company.
"Now, if you're an agency that strictly sells CLECs and Internet companies and DSL providers, you're in trouble because your commissions are gone, and you can get creamed in this business by having too much business with any one company," Lewis says. "But a lot of people in that boat have lost credibility. An agency has to be very careful who you're representing, which products, because once your reputation is damaged with the customer, it's hard to get it back."
Vendors also increasingly seem aware of the value agents bring to the table and are embracing the alternate channel to gain market presence without incurring the acquisition costs and personnel responsibilities of an extensive direct sales force. No longer the redheaded stepchild of the industry, as ARG's Power characterized it, the channel is taking on new significance as carriers, resellers and service providers beef up programs and services for agents.
"From an operational standpoint, we still have to baby-sit the order and the provisioning and be an advocate to the customer in getting issues resolved quickly," says Power. "But now there are up-front commissions for bringing business."
RSL COM U.S.A. Inc. (www.rsl-usa.net) is one company that has returned from life support. It filed for Chapter 11 on March 16 and was able to separate itself from its parent company, which subsequently went under. But RSL COM U.S.A is rising from the ashes without having to disconnect service to any customers or agents.
"Separating from our parent was critical and, ultimately, we're gaining strength, beginning to roll out new products and looking at the channels," says Jim Ducay, RSL COM U.S.A. executive vice president and COO. "We view agents as a key component of our success. Working with agents and those channels that can get to the customers is key, and if things are going to change, it's [through]working closer with agents and supporting the end-user customer. And the partners add their own set of value-adds to it--that's a big piece of where we want to go."
The company expects to strengthen its data offerings, and it will provide voice, IP VPNs, frame relay, remote access, application hosting, supporting servers, data storage and Oracle database capabilities.
Another trend is that the agent channel has been embraced by the top telecom players, say agents.
"They thought they could do better with their direct channel, and they really beefed up their direct channel, but then did not realize the returns they expected," says Praske. "Now that cash is king, the alternate channel, since we're paid on a residual basis on what we produce three months after they bill the customer, is a real advantageous cash flow model for the carriers. In today's market, there just couldn't be a better model out there."
Earlier this year, telecom's grand dame, AT&T, shut the doors on its voice agent program, only to have it reappear under the rubric of the Alliance Channel program, a division previously reserved for data and Internet channel partners.
The Alliance Channel encompasses all alternate channel initiatives, and partners range from those that simply sell services to large system integrators that bring their own products to the sale. Services include voice, data, Internet and hosting.
Partners are expected to support direct sales representatives, deliver professional services or bring new opportunities to the company, and they are profiled up front. They are given a compensation level in line with what they bring to the table.
"We want to ensure that a channel partner is successful with our services," says the AT&T program's director, Ernie Sampera. "We pay them based on role and responsibility level--the more they do, the more we pay. And we want them to keep selling services and up-selling and selling incremental products. We do not disintermediate the partner."
The Alliance channel drives programs for marketing awareness and programs partners can use for their own salespeople that discuss the symptoms, value proposition and technical information of a product. AT&T also offers extensive training.
The multifaceted business communications solutions provider Avaya Inc. (www.avaya.com), formerly part of AT&T and then Lucent Technologies Inc. (www.lucent.com), derives about 40 percent of its revenues in the United States through indirect channels. That was 10 percent a year ago.
"It's a big market and if you think about how much it costs to have a direct infrastructure to cover the entire market, in all the different technology segments, it would be impossible," says Edison Perez, vice president of Avaya's business partner channel. "Also if you think about the different applications the value propositions that are offered by different business partners, it enhances the value for the end user. So therefore, we're stronger in partnerships."
Vendors are not entirely democratic, however.
"I think we're seeing providers having a certain compensation mind-set and attitude toward experienced, producing agencies, and yet a different mind-set for the inexperienced strata," says Praske.
He says that's a big change during the past year.
"A lot of people out there claim to have hundreds of agents, but if you look up financial documents, it's pretty clear that only a few agents account for the vast majority of sales," he says. "And so the good companies are focusing the energy there. That pays off on the agent side because if we're in essence competing with other agents, then it works for those of us that bring in the business."
Convergence and Partnership
Master agent Miehl says he sees a change in the role of the producing, experienced agent.
"The master agent is evolving to become something more than the aggregation of contracts to meet a commitment; it's all about providing value now," Miehl explains. "Part of what we provide is deeper, becoming a managed channel. You're going to see a lot more master agents working with VARs, web developers and so on as sales people that are bringing a full solution to the business marketplace."
Avaya's Perez says industry convergence means traditional channels are beginning to blur. "Customers are finding some of the more traditional players don't have the product line that's leading the market, and that's these new converged products--unified communications and other apps, and also integrated voice and data networks," he says.
"Companies like ours are bringing in and facilitating the use of those two technologies together," he adds. "Our competitors, which used to be traditional voice competitors, are changing, and now it's people like Cisco [Systems Inc. (www.cisco.com) and 3Com [Corp., www.3com.com]."
Another shift driven by convergence is that companies such as ASP ZLand Inc. (www.zland.com), Cable & Wireless USA, (www.cw-usa.net), Qwest Communications International Inc. (www.qwest.com) and Cisco are implementing collaborative, innovative tools for channel partners that allow agents, interconnects, VARs and other independent representatives to bring their myriad areas of expertise to the table.
Avaya makes its network available via the web for dealers to find each other for multistate contracts.
It also offers "let's talk" programs with third parties that bring in the proprietors of different business partners to share their experiences.
"More and more of these channel partners are expecting a partner program, not a vendor program, with incremental value so they can get better ROIs," says AT&T's Sampera. "The percentage of the pie is getting bigger and bigger, and more and more of these channel partners are rolling out professional services because they have to. The customers are demanding more value-add, and configuring technology is one element, but delivering an end-to-end solution seems to be the route people are going."
