Telecom's indirect channel has weathered one constant over the past three decades — change. Since the U.S. telecommunications markets opened to competition in 1984, partners have witnessed the booms and busts and the inevitable expansions and consolidations of their supplier pools. Today, the channel may be headed for yet another inflection point. Three longtime switchless resellers — TransNational Communications Inc. (TNCI), Lightyear Network Solutions and Ernest Communications Inc. — left the playing field in 2013.
TNCI found itself millions of dollars in debt to operators including Verizon, Sprint, CenturyLink and AT&T. It declared bankruptcy in October 2011 and was purchased out of Chapter 11 by Blue Casa Telephone in May. Earlier this year, Lightyear confessed that there was no end in sight to losses, and that only liquidation or a sale would save the brand. Then Birch Communications Inc. announced it was buying Lightyear for $22 million. Shortly thereafter Birch also said it would purchase Ernest for an undisclosed amount, marking its 19th acquisition (see A Reseller Rollup Strategy following this article). What happened with privately held Ernest remains unclear, but it does not seem a stretch to say that Ernest could not withstand the headwinds that also felled its peers. While these are not the first resellers to go, they are three of the oldest, raising the question: What is the future of the switchless telecom reseller?
Opinions run the gamut among industry lawyers, analysts and master agents, and the resellers themselves. If there is any consensus, it is that the resellers that do more than rebill, that provide solutions to channel partners and their customers, stand a greater chance of outwitting the problem of declining margins even as the channel focuses on cloud, BYOD, apps, security, M2M and other next-generation solutions. After all, end users still require connectivity, and sometimes even the straight-up POTS products in which some resellers continue to specialize. But, sources say, the resellers that don't grow beyond legacy approaches or secure their financial footing look likely to follow in the footsteps of TNCI, Lightyear and Ernest. And that has many partners re-evaluating their long-standing allegiances to these channel-friendly providers.
A Series of Fortunate and Unfortunate Events
Perhaps a history lesson is in order. When the U.S. government in 1984 opened the telecom market to competition, up sprang the non-facilities-based reseller model. Also called switchless resellers, these companies provide service by reselling facilities of the major long distance companies — first AT&T and later MCI, Sprint and others. In 1996, deregulation of local markets opened up a similar opportunity in local telephone services. These enterprising companies also began aggregating broadband services not only from geographically diverse telcos, but also cablecos. Accordingly, resellers thrived by offering:
- an alternative to the incumbent
- discounts off incumbent service rates
- consolidated billing and customer support