PARTNER CHANNEL: Down,But Definitely Not Out

Posted: 08/2002

Down,But Definitely Not Out
Price Drop Boosts Private Line Value Proposition

By Josh Long

THE PRICE OF A PRIVATE LINE CIRCUIT from New York to Los Angeles has plummeted during the past two years, but that doesn't exclude independent sales representatives from earning a respectable commission off a dedicated connection.

Some agents say businesses now have more of an economic incentive to buy a point-to-point circuit to share their proprietary information and applications than they had a few years ago when frame relay proved a much less expensive way to transfer data.

Kim Chapman, president of Raleigh, N.C.-based agency Network Services Inc., says she has been receiving requests for private lines as prices have dropped, particularly circuits with large amounts of bandwidth. "I am seeing more of it in the last couple of years than I did in the previous five to eight years before that."

Frame relay dominated much of the '90s, and newer data alternatives such as virtual private networks that allow a worker to access company applications through an Internet connection increasingly are becoming popular with businesses.

Still, agents say private lines remain a viable alternative to other data technologies such as frame relay and VPNs particularly if a business desires the bandwidth on an entire circuit all the time rather than a committed information rate characteristic of frame relay.

From Massachusetts to Florida, the opportunities to sell private line circuits obviously are more numerous because of population density. However sales representatives out West can earn more money off one private line circuit since U.S. cities typically are spread out hundreds of miles apart.

An agent who sells a T1 private line from New York to Los Angeles can earn $250 a month during the life of the contract with Hilton Head, S.C.-based wholesale data provider American Telesis, representing an average of 3¹/2 years, says Steve Hesling, company president.

Hesling says an agent who sells a private line circuit on a T1 from New York to Washington D.C. could make around $120 a month, and probably quadruple the commission if he sold a DS-3: the equivalent of 28 T1s. American Telesis also pays a $500 bonus on T1s and above.

Airespring, a wholesale provider and agency based in Encino, Calif., pays its agents between a 7 percent and 25 percent margin on private line sales, says Daniel Lonstein, vice president of marketing. The margins greatly depend on which network the agent provisions the circuit, he says, adding that a $50 a month difference to a customer on a T1 port can result in a five percent difference in margin for the agent.

Stephanie Pollert, a carrier sales manager at agency Metro Telecom Inc. says a frame relay network connecting multiple offices generally costs less than dedicated circuits.

Still, she and other sales people say some companies such as media conglomerates and financial institutions simply need a private line circuit. Those companies require all the bandwidth on a circuit. They do not want to risk losing a full connection on a frame relay network, even if they are allowed to "burst" their bandwidth -- provided the carrier's network is not too busy.

Dave Ingler, an agent who represents Lightyear Communications Inc., says he has such a client, a major U.S. bank. Ingler says the financial institution had "no comfort zone doing Internet VPN" due to "security issues." Inggler adds the bank wants private lines rather than a frame relay connection to ensure the company would lose no data while running "mission-critical" applications. The drop in the price of local loops also makes it more affordable to provision a private line circuit, he says.

Jamey Charapp, the owner of Germantown, Md.-based Alternative Communications Consultants says his clients typically don't use private lines, unless they are a large enterprise. Most of his clients are small to midsized businesses with less than 100 employees. Still, he says an agency could make a lot of money on a private line that extends over a great distance. He recently quoted a government agency on a DS3 circuit from Florida to Panama. The commission would have been $12,000 a month, but the contract was awarded to someone else.

Employees at American Telesis occasionally joke about the lifestyle of one Florida-based agent, a sales representative who sold three private lines to a major U.S. bank and remained involved with the sale of several additional dedicated circuits. The bank has ordered about 130 circuits, and the agent receives a bonus and commission on each private line even though he is not involved in those deals, says Hesling.

"All we wanted him to do was get us in the door," Hesling says. "He leads a pretty decent life now. We don't pay him six figures but we pay him a lot of money."

Another agent representing American Telesis reaps similar benefits after booking private line business with CBS. "Well shoot, we have gotten a lot of circuits over the years," says Hesling, who notes the agent receives bonuses and commissions worth tens of thousands of dollars each year.

Agents who sell private line circuits say the ability to quote their business customers a good deal largely depends on whether the carrier has to leave its network in order to provision the entire circuit from one city to another.

Although the price of private line circuits has come down considerably during the last few years, some agents say it should not be compared to selling long-distance service, which is viewed by many industry observers as a commodity.

"I would say private lines are much more challenging than long-distance and local calling," Hesling says. Provisioning a dedicated circuit from Washington D.C. to San Diego could require the cooperation of several carriers, he explains. "We could have six companies [and] we need to get all of them to line up their facilities."

Private Line Market Forecast
Source: Insight Research Corporation