Photo by Joshua Lawton
Curt Allen, President, X4 Communications LLC (1)
Allen is the new president of X4 Communications, a master agency that is the merger of three previous agencies. Prior to taking his post in fall 2007, he was senior vice president of sales for the company. X4 represents 32 suppliers and more than 300 agents.
Dan Bommer, President, PartnerTEL (9)
Jay Bradley, President of Telecom Services, Intelisys Communications Inc. (5)
Vince Bradley, president and CEO, World Telecom Group (2)
Adam Edwards, President, Telarus Inc. (8)
Gene Foster, President and CEO, CMS (7)
Susan Kinney-Mantione, General Manager, Global Systems Telecom Inc. (10)
Jack Knocke, COO, MicroCorp(3)
Brad Miehl, Founder and CEO, MicroCorp: (not pictured)
Denis Raue, President and CEO, Telegration (6)
Ted Schuman, CEO, PlanetOne Communications (11)
Geoff Shepstone, President, Telecom Brokerage Inc. (4)
Over the past 15-plus years, the master agent’s role as a telecom sales middle man has changed from merely aggregating subagent volume sales and carrier relationships to managing the complete opportunity-sale-provisioning-maintenance life cycle for communications users, their sales advisers and suppliers.
To find out more about this transition and the future of the two-tier distribution model, PHONE+ Editor in Chief Khali Henderson spoke with executives from 11 master agencies (see photo and sidebar to right) about their opportunities and challenges. The conversation took place in January and included polling to facilitate the discussion.
I asked you about your revenue and a majority of you were somewhere between $1 million and $20 million. A few of you had revenue in excess of that, but the point I wanted to get to was the percentage of channel revenue. A majority of you said 80 percent to 100 percent, although we had a couple companies who indicated a lower percentage. One of the companies was PartnerTEL. Dan, can you talk about where the rest of your revenue is coming from?
Dan Bommer, president, PartnerTEL: A lot of the revenue that we are bringing in comes from fees that we charge the end users for doing TEM-type work, mostly invoice management. We probably are paying 25,000 to 30,000 invoices a month for customers right now. Thats the bulk of what we are focusing in on.
Two other firms that indicated other sources were GST and Intelisys. Susan, do you want to talk about where GST’s additional revenue is coming from?
Susan Kinney-Mantione, general manager, Global Systems Telecom: Additional revenue is coming from direct sales that our internal employees are doing.
How about Intelisys, Jay?
Jay Bradley, president of telecom services, Intelisys: A majority of it is coming from our carrier solutions group, which is based out of Denver. Thats our telecom financial management that we provide to carriers. We also got two other pieces from mobility and from our channel-level telecom asset management tool we call Audex.
The carrier solutions group sounds like a major diversification. Can you explain what that does?
Jay Bradley: We are basically providing a reconciliation, a TEM-type product, but it runs on assets and other types of services as well. Its a software service that we provide at the carrier level to help carriers render an accurate invoice for their enterprise and global account groups and to our own enterprise customers.
Telegration claims more than 50 percent of revenue outside the channel. Denis where is that coming from?
Denis Raue, president and CEO, Telegration: Weve been diversified from depending on providers by reselling our long-distance service for half of our revenues since 1994. The majority if our long-distance revenue has been sold predominantly by our own direct salesforce but it has increased significantly through our agent channel over the last few years, and we expect it to continue growth in 2008 with the release of our latest Block of Time products. Its been a great competitive advantage to have a product that you can self-manage service, billing, pricing, margins and commission levels without worrying about providers changes for more than half our revenue.
For those of you that said a majority of your revenue was coming from the channel, are you expecting changes similar to what some of your colleagues have been doing?
Brad Miehl, founder and CEO, MicroCorp: I think that we are going to have additional revenue. We do have revenue coming in thats outside carrier services, but it is coming from our channel.
Is anyone expecting to diversify to reduce the percentage coming from the channel?
Adam Edwards, president, Telarus: We expect it to stay the same and come entirely through the channel. While we will diversify products and offerings, we still anticipate it coming from the channel.
Curt Allen, president, X4 Communications: I would echo that. We are virtually 100 percent through the channel and expect to stay that way in the future.
When I polled you about the number of agents you had, the answers ranged from 100 to 1,000 while a few said you had more than 1,000 agents. A majority of you said there would be slight growth in the number of agents. Only one of you thought you would have fewer agents. That was CMS. Gene, can you talk about why?
Gene Foster, president and CEO, CMS: I think all of us here on the call are kind of equivalent when it comes to subagents. We have about 560 contracted agents. Its the 80/20 rule. About 20 percent of them are producing. If we look back a couple years ago, what Intelisys has done at least from my understanding is focused on a select group of producing agents. In essence, thats what our agenda is in ’08. We want to focus on producing agents, give them the tools and resources to produce at higher levels and, for the most part, abandon some of the agents that are taking up time and resources and not producing.
Ted Schuman, CEO, PlanetOne Communications: I am in year 16 now and one of the numbers everybody used to advertise was how many agents they have. If I go into our commissioning module and look at agents who are producing, Gene says 80/20, I think over here it might be 90/10 or it might be even 95/5 in some months. The more accurate, realistic question that should be asked is how many agents sell for you in a given quarter or any given month? I must have done I dont know the number, its ridiculous it must be north of 2,000 agents under agreement, and, in reality, that 90/10 rule does apply. I would venture to guess that if you asked everyone on this panel, I think you would find their numbers not too terribly different.
Lets do that then.
Allen: There are three ways to look at it. One is your contracts on the street. Another metric we use is how many checks that we cut. But that doesnt even get all the way to it. The third metric we look at is how many agents give us at least one deal a quarter. Whereas I can tell you we have 1,000 contracts out there, it gets down closer to 100 when you talk about consistent producers.
Bommer: It’s interesting because Telesis and PartnerTEL merged two years ago now. And we really took last year and cleaned up. We cut roughly about half the agents that were just toe dipping as Ill call it. We did either a buyout of their contracts or agreed to pay them for a number of months, etc. We cut our agents in roughly half. We have about 150 agents right now. We are big on the direct model as well. About 60 percent of our revenue comes from our direct sales efforts, not our agents. We are looking to grow that number, but we are not looking to grab an agent and sign them up. We are putting requirements on them to produce. If not, they can go somewhere else.
Would you follow the 80/20 rule?
Bommer: I think it was true a while ago. Anyone who didnt sell an order for 12 months, we have the ability to cancel them. Our intent is to motivate them to sell. Thats why we gave them options to buy out. Of the 150 on the books right now, I would say we look more like 50/50. Were we like an 80/20? Absolutely. We are going to address the ones that are still not producing. We will continue on that game plan. We took care of the easy ones right off the bat and we will start moving up the ladder from there.
Jay Bradley: As Gene said, we went through that change several years ago and really cleaned up the roster. We manage agents in the 300 range. Because we have commitments in our agreements and we enforce those agreements, we have a small group of people that are transitioning through at any one time somebody thats new, a partner thats building their base or their circumstances changed and they are on their way back out. I would say we are in the 70/30 or 65/35 range in terms of where a majority of the revenue is coming from. I would agree that the big measurement is not how many you have, but who is producing in a given time period a given month, quarter or year. We are probably even closer to a 50/50 if you measure who is producing in a given time frame.
Vince Bradley, president and CEO, World Telecom Group: I completely agree with the sentiments of everyone else. What we also look at is how many agents comprise the revenue. Its a conversation of revenue and also sales. Whereas the agent may sell every month, they may be selling smaller deals. Or we might have an agent who sells every quarter, but he brings a $40,000 account every quarter. Its kind of hard to gauge it, but I would agree with what is said. I think our shop is 70/30. We have a contracted base of 1,200 agents. Quarterly, we get deals from about 400 agents, and monthly, its more like 300.
Edwards: We do the same thing. We measure by month and also by year. We do about 70 active agents per month. During ’07 we had 140 agents that sell, so they are selling every other month or sporadically.
So what is your ratio of signed to producing agents?
Edwards: Its absurd. Its 99.9/0.1. We have literally 30,000 agents signed up because we have a lot of online affiliates. We are big into affiliate marketing. Some of these people are Web site owners that send us a lead or two. They are not true telecom agents. They funnel leads into our system and we refer it to another one of our agents to sell through. In terms of signed agents, the numbers are way out of whack.
Kinney-Mantione: We also purged all of our agents at the end of last year. We are getting ready to do it again. We also look at number of quotes to sales. We really manage people out of working with us if they are not producing and selling. We are not going to waste our time with people who arent productive based on services we are providing to them. We are pretty up front and clear with them on that. I still think its 80/20 of active agents. We look at the whole gamut of number of quotes, revenue of those quotes and the revenue and number of orders they got.
Raue: The 80/20 rule is generally a good number but the 20 changes every month. We do a lot of work for other master agents on the AT&T side of our business as well as work with partners that have subs underneath them as well as individuals, VARs and referral partners. Our revenue growth over the last few years has been primarily due to larger end data applications, such as MPLS and Internet products. So the 20 differs every month depending on which agents hit a homerun every month.
Jack Knocke, COO, MicroCorp: 80/20 is probably a good number. We take our agent base and try to categorize them regular producers, high performers and high potentials. Weve got a group of active agents. We have a group wed like to coach up to get into that area. We also have a few deadbeats that need purging as well. We are really trying to focus on coaching up to get agents into that top tier because that creates value for both of us.
Geoff Shepstone, president, Telecom Brokerage Inc.: We are probably the exception in that we dont cancel agents and we never have. Realistically, the cost to have an agent as a line item on your list of agents doesnt cost anything. They get an e-mail distribution; there is not really a cost to a non-producing agent. If they want to bring us a deal every other year, thats OK with us. If they put business on us, well pay them for as long as we get paid regardless of what they do in the future.
We do stratify agents as A, B, C. A agents get a channel manager assigned to them. B agents get a vendor specialist. C is just on the roster. We try to support them appropriate to their level of productivity. As far as the 80/20, I would tighten it up a little more consistent with what the other guys are saying.
When I asked about services that you are selling, here is what you said (see chart below). In the other category, people mentioned wireless routers and voice over messaging. What is voice over messaging?
Jay Bradley: We have a company that is in startup mode and they have an interesting product in voice over messaging. Its not a big part of what we do, but its interesting. Partners can use it as a way to sell their wares. It came out of the voice processing world. Basically, its a document that you put your voice over and send it as an e-mail. Its actually quite interesting.
What’s for Sale?
The next poll discussed services that you are adding. Some of the things that you are going to add are managed services. And, network security was another that was popular, as were mobile voice and data. Id like to talk about how the services will be changing in 2008. Where will you get a majority of your revenue and how will the new services fit into your revenue picture for you next year?
Edwards: Some of the services that we are going to try to push are the ones you talked about managed services, software as a service (SaaS). We really see the change taking place of data pipes as conduits to applications voice being one of those applications. We saw software as a service in the late 90s just never worked because bandwidth was not plentiful nor was it cheap enough to execute. I think a lot of the applications werent mature enough. But we are seeing a lot of that take place now. We just switched our accounting to an online service. We see that as a big push internally.
One of the challenges that we are going to have speaking candidly is that we are 100 percent agent-driven and, as a result, its easier to have things pulled through a channel than to push them out and say, this is what you must go sell. Its easier when the agents come to us saying, I have customers asking for this. We will have a challenge there pushing these out. I would like to see some revenue growth there. I dont have any numbers about what we expect in ’08, but we will be adding those and pushing those internally.
Is anyone else looking at some of these diversification efforts? Is anyone staying away from them for any reason?
Schuman: I have mixed feelings about this. The gadget/techno side of me wants to embrace the new services and leading technologies because as a consumer on a personal level it appeals to me. To Adams point, I think one of the greatest challenges that we have had over the years, speaking for PlanetOne, is when you have the agent asking for technology and services because the consumer is asking for it on their end is a much easier bridge to cross than pushing these peripheral, new, leading-edge services down to the channel.
We have not seen the traction or success over the years, and we made some concerted efforts on various services like when fax broadcast was all the rage and everybody was going to jump on board with that, even today up to and including something as simple as conference calling. As much as need is there for it and its an obvious money maker for the channel, we cant get guys to embrace certain technologies. We just look at it and say, I dont get it. Why are they not doing it? Another example is wireless. There are tremendous opportunities in just regular cellular voice. For whatever reason, a lot of agents havent embraced the wireless play yet, and theres a lot of companies offering significant residuals.
When you are talking about pushing and leading the way and blazing a trail to get the channel to produce effectively month over month and to take your eye off the ball from the sweet spot the stuff thats making the people on this call a lot of money, theres a part of it that wants to embrace it and another part of me that looks at my financial statement and says, What are you out of your mind?
At least three of you are involved in the wireless space CMS, Intelisys and WTG. Can you speak to your progress or successes in getting agents to sell wireless?
Vince Bradley: As far as wireless is concerned, I have to agree with Ted that its almost like the agents are leading us to the services they want to sell. If you talk about voice over IP, we have sold a lot of it, but only in the last couple of years. Agents were extremely scared of voice over IP. They also are similarly scared of wireless. They still seem to think its an upfront, one-time commission and you have to stock phones in your back office. Thats not the reality today. There are a lot of automated drop-ship programs for wireless carriers now very turnkey programs. Certainly there needs to be a subject matter expert involved in this kind of division.
We have had great traction with wireless lately, but its been a lot of work. Weve been doing it over five years, probably actually six or seven years now. Its taken a long time to get them to come and drink the water. While we have had success, its been around solutions selling, trying to get them to look at everything, bringing in professional services like TEM and looking at the whole picture, instead of saying we are going to look at your wireless today. We have been successful with bundling wireless products and services.
I really think wireless is going to explode with WiMAX coming. But, ultimately its a very big challenge for agents that dont want to scale to learn new products and services. They are comfortable like we are comfortable with our core competency and the money makers. Its hard to expand if you dont see the ROI. Agents feel the same way. Agents dont want to sacrifice core businesses. If they dont have the knowledge of wireless, they are afraid the customer will ask them a question that they cant answer or if they have problems with the phone, they will call the agent. These are things that are not big issues today. They were five years ago certainly, but its changed significantly.
Jay Bradley: I would agree with Vince in many regards. It is a tough job to get folks to go into the wireless voice and/or data area. The toughest part about it is that you have to tell them where the applications are. You have to say, here are the customers that are buying that solution. Here is where they are located, go get them. You have to find someone who is interested in taking advantage of that opportunity and exploiting that marketplace. We have found some pretty good success on the mobility side, but its been in specific applications where we can tell someone how to solve someones problem or an industrys problem or a marketplaces problem. Once you tell them that, you get a lot more traction. If you just roll it out and say, “Hey, wireless and mobility and routers and WANs and backup and disaster recovery, its all coming and its going to be huge,” then, no, [there’s] not a lot of traction there.
Shepstone: In the past we were rolling out all our new products by doing Web conferences. Unless you hounded them and hounded them and called them and got individual commitments from people to show up and then 90 percent of them still dont show up. Its just so hard to drive the learning and getting them to embrace a new product.
What I have seen that is successful it comes down to the channel managers. The vendors that will engage a one on one meaning a channel manager who goes out and meets with one of the agents and says, You have the customer contact, bring me into your account and Ill go out and sell it. Ill do all the work. Once they see it, they get a comfort level. They typically have to see it a couple of times. Then they start getting money, and money drives everything in an agents behavior. I think it depends on having that great channel manager. There are not a lot of them out there that are willing to roll up their sleeves and get the work done.
Raue: We strategically are adding new providers products, such as wireless, e-fax hosted products and software-hosted products, in order to have a complete product line for our agents. However, the bottom line to our business and our agents is increasing revenues and profits. While the focus is to provide expertise and product for all potential customers, the focus has to be on being more productive and increasing sales on our core product lines. The bottom line is to be the best at what you do and we all have reputations as being the best master available to our agents for our chosen key providers. So we keep current with the latest portfolio but the latest portfolio wont impact revenue growth in 2008.
Where are you seeing the greatest revenue coming from?
Allen: Our core competency is our national and regional CLECs partners. A very high percentage of our business is local dial tone, integrated circuits, DIA, PRIs. I would echo what Ted and Geoff said. At the end, we lean on our carrier partners. We are a pure master agent; we dont sell direct. They are the market makers for us as far as emerging products. We support their efforts on what they want to sell. That demand gets driven down to the customer level and then the agents come looking for it. We have had a lot more success with that than trying to force hosted VoIP down their throats.
Raue: Id like to echo Curt in that our greatest revenue growth in 2008 is going to come from our core providers. AT&T is our primary partner and largest revenue source other than our own long-distance. AT&Ts global reach combined with 20 percent growth year over year for MPLS PNT, MIS and high projected 2008 sales expectations for their latest VoIP product, IP Flexible Reach, will increase our revenues significantly with AT&T in 2008. We also see increased revenue growth from AT&T by picking off AT&T Win-back sales from low-hanging fruit left behind from the demise of UNE-P.
Our national agreements with TNCI and XO will also increase our revenues in 2008 due to their more robust product lines and commissions in 2008. We also have some regional providers, such as US Signal on the data side, and various integrated regional providers that we work very well with and have great business relationships with our agents and us. The preferred provider relationships with your agents is crucial to growth and must be taken advantage of.
Foster: Going back to wireless, our focus is wireless going into ’08 and for the next three to five years. We have looked at partnering with the right companies. I agree that its really, really tough. It takes a lot of work to try to teach your subagent base to sell wireless. Were not focusing on our existing subagent base. We are recruiting new agents. When Sprint and Nextel came together, they took several hundred wireless agents and put them into the channel. We found that there are a lot of telemetry partners out there that have an incredible amount of knowledge in selling wireless and its now about selling cell phones to make voice calls. Thats going to happen. Our focus is selling solutions and managed care.
We are also a direct VAR with RIM and a direct VAR with Ingram Micro. That gives us a lot of CPE we can sell and a lot of third-party applications. If you look at digital advertising, its just one of many areas that someone can focus on in the wireless arena. We recently signed an exclusive agreement with Top Global USA as a North American distributor. We have some 3G/4G routers out there that you can put two data cards in one carrier or different. Using Sprint, you can bond two together and get twice the bandwidth. We are doing a test right now with select customers for VoIP applications. Thats where we see our revenue coming from.
Brad: The greatest percentage of our revenue is coming from the data side. We still sell a ton of MPLS. The success weve had with ancillary services like wireless has been with solution selling when we are going in and looking at all the products and services the customer is using and coming up with an alternative solution and packaging it together and encompassing our software around that to help them manage their assets on a go-forward basis. For us to be successful on the wireless side, we have focused on the business customers with more than 50 devices, and, also by looking at wireless data solutions. Thats a pretty hot product. Theres definitely momentum there. It really came in when we took on a solution selling approach than focusing on one product.
Bommer: Id like to comment on products and services agents want to sell and what we know they should be selling. We see that as well. The difference being on the direct sales side, I can tell you that we have about double the wallet of our customer spend in telecom versus our agent. The agents are capturing about 25-35 percent of the customer wallet in telecom spend whereas our direct guys are capturing 65-70 percent of the wallet spend. I am not happy with that. The biggest hunk of the gap that we are missing is wireless. What we are seeing is wireless is 10-35 percent of spend right now. We know thats our biggest hole and were addressing it at the moment.
But, we cant even get the agents to close the gap between the sales they do have and what we would say is the low-hanging fruit. We have data agents that sold the data and couldnt be bothered to talk about a PRI or POTS lines or UNE-P or whatever. Likewise, we have voice agents that dont know the data guy and dont want to talk to him. Theres the disconnect. The agents sell the comfort zone the voice or the data or both but on a certain customer size. Agents tend to bring in the same types of revenue. The guy that brings in integrated T1s is going to bring in integrated T1s. Dont wait for him to bring in an MPLS network. Its not going to happen, not unless he stumbles upon it.
Thats where I see our growth getting a bigger wallet share of our customers on the direct side. I have all but thrown in the towel on getting the agents to sell product and services the customers need and want, but we are not going to break the confidence with the agents and go directly, but you cant force the agents to sell something they are not comfortable selling.
Lets talk about agent portal tools. How important is automation for master agents in serving subagents and carriers?
Allen: Its incredibly important because especially with us being a pure master agent, our margins are so slim that just from an efficiency standpoint, its huge. I also think in an environment where subagents tend to get a little from here and a little from there, the more you can offer them from a continuity of experience standpoint, the more they are apt to do more business in that same environment. It also helps us add value to carriers. Those same efficiencies allow us to work better with our carriers.
Miehl: I would agree with that as well. In order to run a master agency, you have to run efficiently. The best way to do that is with various tools. Automation is key, especially if you are managing a lot of orders. SLAs, trouble ticketing, commissioning all of that needs to go through some type of tool.
Bradley: I think its the biggest lever in the bottom line. If you want to grow your business, you have to be out there dealing. If you want to be out there dealing, you have to have automation in the back office to make it possible.
Foster: I think we are all in agreement about automation. The interesting thing is that a lot of us have used the same platforms. A good example is RPM. Since most of us have agents that work for many of us and we get similar feedback on what an RPM looks like through CMS, versus through Intelisys or someone else. That can go either way. It has a lot to do with what you can make available to the subagent through that platform. The key is making sure the sub has the tolls and resources that you can possibly give them.
Schuman: Just to be a lightening rod, I have to disagree a little bit. I never thought I would say this. I am probably the senior statesmen in terms of self-employed master agents on this call; perhaps not. There was a time when I thought that automation and Web site tools and resources was the crux and the future, and the only way to become efficient, high-producing master agents; I would still today. Moving the clock forward, I would agree that there are certain minimal tools and resources you have to have to have the efficiencies previously mentioned. I no longer subscribe to the premise that it is the cure all/end all and the differentiator for people on this call.
I think it comes down to the relationship with the selling subagents. There are many of us that share subs that price deals out between Jay and Brad you can go right through the list. They shop us for prices; they shop us for commissions. The differentiator is as time evolves as more and more of the carriers have proprietary platforms I would love to link them together. I think the Masterstream quoting tool is a fabulous first step, but I think its just a first step. Its a tremendous advancement from where we were years ago, but its still got a long way to go.
I did a survey to our own agents to find out what drives and motivates their behaviors and where they send business and how they make those decisions. Systems and resources ranked very low on how they decided where to send their business.
Raue: We continually improve and update our portal management, commission and automation for quotes and CRM, spending thousands of dollars per month over the last 10 years as it is crucial to our business. It is absolutely critical to succeed as a master agent to have it and make it work. However, you must manage it. We spend most of our time managing the processes to ensure our agents are served properly by our automation and use our systems to help our agents close the business. Our channel managers and sales engineers as well as our support teams from our providers need to be involved to close deals. What good is a quote to an agent if they do not have the proper paperwork or if they need help to close the business? Likewise, our success depends on helping close business and developing personal relationships with our agents as they try to sell in spite of automation. Training, support and good follow up are the expectations from pre- to post-sales to commissions for our agents. Not only is it crucial, it is a foundation for success to manage it in a productive manner.
Vince Bradley: I think its a mixture of what I have heard. We certainly appreciate the value of CRM and automation. We have our own systems internally and we have integrated with some ASP stuff. We dont want to be a software company as our core competency. We need to balance that. But I agree with what Ted said: Its about the relationship, too. Its a fine balance of the relationship with the agents, having a good portfolio, having good automation and being a solution for all the agents rather than just some of them.
Allen: The reason these things are not highly rated by subagents is there is an assumption that if you are dealing with a master agent of any scope and scale that there is going to be automation. I dont believe that you can go around and say my RPM is better than yours. My comment is that I dont think I can be profitable without automation.
Shepstone: You could probably write an article on RPM versus Salestream. I think Salestream is going to be the future. I think the way they are partnering with the vendors that they will be the dominant player soon.
How has your supplier base changed over the past five years with bankruptcies, consolidation and diversification? The trend is that you have many more non-carrier suppliers than previously. Why?
Bommer: I think there are two reasons why we are doing it. One is stickiness with the customer. We provide multiple touch points with the carriers. They come to us instead of having all their eggs in one basket. Thats a nice second effect. The main reason is that these specialty providers like conference calling offer a much more competitive commission versus a carrier that offers a blended commission rate. The second factor is equally important and a nice byproduct.
A few of you MicroCorp and Intelisys had more carrier suppliers. This surprised me. I would have expected it to go down.
Miehl: From our standpoint, we wanted to diversify and provide more solutions to our agents and consequently to our customers. We wanted more carriers, and by doing so, we have grown and diversified our revenue.
Jay Bradley: Its similar for Intelisys. You meet the market need. It goes back to the comment about the agents sell what they want to sell. When we have an opportunity to put carriers in front of a critical mass of partners that feel the buzz about the regional CLEC or whoever it is, we go through that process of bringing them on.
Raue: Weve been in business since 1990 and realized since the beginning that the industry changes due to regulation, technology and consolidation. And, strategies by providers in regards to their use of their agent channel in the marketplace change. We must change proactively with the right providers and diversify to have enough products for the end user and agents to take advantage of what is selling today and tomorrow. And to make sure it works. We dont talk enough on provider performance. When they perform, you must sell it. If they dont, you need a new provider.
Allen: We have increased our carriers not by taking on a bunch more carrier directs but by partnering with a lot of people on this call.
Are a lot of you guys partnering with each other?
Miehl: It makes sense. If there is one master agency that has a lot of revenue with a specific carrier and they have that relationship and continue to manage it on an ongoing basis, it only makes sense to partner with them or look at a reciprocal relationship.
Allen: You are working with like organizations. The efficiencies are there. They understand the pain you go through every day. It tends to be low-maintenance business, so you can afford aggressive pass-throughs. We can all support our prime contracts instead of chasing deals that shouldnt be prime contracts.
Schuman: I can only speak for the Agent Alliance members who are on the call. Thats been a big part of our business. I think we all recognized many years ago that you cant be all things to all carriers. You might have one provider that kills it with an under-the-table brother-in-law deal that is not going to be replicated. Why not take advantage of it and do some pass-throughs or whatever? You end up doing some horse trading back and forth. I can tell you between PartnerTEL, PlanetOne and CMS, the three of us have all exchanged contracts back and forth. Its all part of being part of the relationships that have blossomed from being part of the Agent Alliance. Hows that for a shameless plug?
Raue: Every day. We enjoy working with the other guys, too. Being part of the Agent Alliance and working with Curt, Susan and other masters not on this board for reciprocal business is a big part of our days. Helping our agents secure more revenue by sharing makes sense for all of us not to fail by attempting to be a master of all. We can use other masters strengths and provide the provider-based solution needed to help our agents make some money and win a deal that we could otherwise not help them with ourselves.
We are going to move on and talk about your challenges with you network suppliers. Overwhelmingly, the main problem you are having is to do with provisioning. Why is that?
Vince Bradley: An example of that would be Level 3. These guys have bought almost 10 companies in the past year and a half, and its become problematic for them to provision. Its a great network and a lot of us want to do a lot of business with them, and we are frankly, but its a very big challenge. Thats one example. There are a lot of others. I think the biggest pain that we have is getting APIs with all of our carriers. Some of them just wont do it. They are too big of a company and they have too many security issues. Its impossible for us to integrate with them and give our agents provisioning status reports so that they can proactively manage accounts. What ends up happening is we find out after the fact that something went wrong.
Allen: I think that would be the answer to the question last year, next year and the year after. To a large extent, its the reason why the channel exists. If the carriers were perfect at provisioning and billing, they wouldnt need sales agents to represent the end users. And if they could handle subagents, they wouldnt need master agents. Thank God they stink to some extent. But I think thats always going to be the struggle in shortening those time frames and turnaround.
Raue: Its job security. We are order-provisioning and commission-paying houses. Order fulfillment has been and most likely always will be priority No. 1. Mastering the fulfillment process is a full-time job that like other jobs is no longer 9 to 5. Every year, there are going to be providers that simply do not perform. Its our job to make it happen for our agents. Its the value proposition that we provide to our agents and partners. If we are efficient despite provider provisioning challenges, our agents will make more money because they can spend their valuable time selling, not implementing or dealing with providers provisioning issues.
Shepstone: Level 3 has definitely turned the corner. It was classic problem solving. I think they are very much on the up-tick. They are too big to go away or not fix their problems. I think they are well on the road to being back and better than ever.
Provisioning has always been a problem. We can do it more efficiently than the carriers can. Does that mean we pay the people less than the carriers? That may be part of it. Does it mean we operate more efficiently in other ways? Its a combination of things. Its a good reason we are in business. I like to say that you dont buy your car from GM, you buy it from a dealer. Telecom is not unique enough to avoid those traditional distribution centers and thats what we are.
Knocke: I dont think I would single out Level 3 necessarily. It seems to be an issue not with one carrier or with resellers, not just with LECs. It applies across the board. To a large degree, our expertise as master agents is the challenge to make a smooth process out of it. Thats where we bring value to the table.
Schuman: I think a good portion of our days is spent trying to do damage control and trying to manage around disasters because these carriers are spread so thin. I have not yet received a call since we have begun doing our own provisioning, our own pricing, issuing our own trouble tickets, resolving and figuring out our own credits and billing disputes, saying we really appreciate all the heavy lifting you do and how your role has changed and how instrumental you are to our business and in essence we are going to offer you a higher residual than we did the previous year, so please sign this new addendum.
Miehl: I think Ted nailed it. They really do not recognize all that we do now. Before, it was selling and bringing in new orders. Its not that at all. There is so much more involved. You are trying to evaluate the role of the master agent. Its definitely sales, but quite frankly its definitely managing carriers and managing the process. Thats part of the role of the master agency. Increasingly, its more complex to do that. We actually deliver reports back to the carriers and show them these are the areas where you have had problems. They can log in and see all the SLAs that have failed. They recognize there is some value there because its feedback they can use.
Are they responsive to the things you are pointing out or are they dismissive?
Shepstone: It depends on the size of the vendor. AT&T and Verizon are the most resistant. If you look at XO and Jim Delis (he would be a good person for the Channel Executive of the Year Award), they listened and they executed. They sat down with Intelisys and TBI and others. We all gave them the same list of things to do. Sometimes in the carrier meeting you will tell them what they need to do and they all shake your hand and leave and do nothing. That was a differentiator for XO, and it shows.
Allen: I would agree with the comment about Jim Delis. We saw a huge turnaround. Requests and issues are taking different ways by carriers. For the ones that shake your hand and do nothing, I think they dont know what to do or they are not in an organization that encourages change or optimization. The other way they can do it is to deal with it and look for a solution. Thats what XO did two years ago when Jim Delis came in. They continue to take feedback and they actually follow up on it. In 05, our revenue completely dropped off with XO. XO was a dirty word among our agents and it turned around. Revenue follows when you are responsive to requests and systems are tuned up. Agents are not stupid, a point of commission is a point of commission, but to have half of your sales fall out, thats half of your commission that goes away. The carriers that are easy to do business with attract the revenue.
Schuman: In our opinion, the 80/20 rule applies at PlanetOne with our vendors. About one in five do an above average job of working directly with us and are fully engaged and show some compassion and genuine concern for our businesses, and really try to do the right thing for the customer and for the agent relationship.
The others, frankly, all they really care about is getting the revenue from us. We occasionally hear from them; they are not engaged; they dont understand why we are not giving them the numbers. They think they are going to get a contract with a name-brand agency and expect the revenue gates will open up and magically tap into a revenue stream overnight. It doesnt work that way as we all know. It takes many months and, in some cases, a year or two before you start gaining traction. For whatever reason, these carriers think they can throw some holy water on an agent agreement and then call a month later to find out why we are not producing. How about putting some skin in the game? Throw us some resources and invest in the relationship.
At this point, the reason that we have so much caring and sharing in the Agent Alliance is the amount of resources and energy it takes and I am not talking about sweat equity, I am talking about capital. We took a straw poll recently just on the IT side on how much we had spent over the last year. It was north of $2 million. Granted, we are large agencies, but in most cases our neighbors dont know who we are in the office complexes we reside in. Most of us are relatively small businesses.
Its just amazing to me; its not that difficult. Pay some attention to us. Give us the resources we need. Get some skin in the game. Show up in our offices more than once a quarter. Then, and only then, can you expect to tap into a successful revenue stream with these partners.
Vince Bradley: On this point, Level 3 has done a phenomenal job rolling out this channel and so I am confident they will get past the provisioning problems. To Teds point, its so true. These carriers dont show up. They just look for the revenue. Come out more than once a quarter. Show us the love. Give us access to information. Ultimately, the bigger carriers are not giving us access to their systems. I think its interesting how it all comes full circle back to Teds point about the relationship. You have to rely on the relationship because the big carriers wont let you automate.
Foster: For several years we had Sprint employees housed in our offices. They were dedicated exclusively to us. There was a point in time where we did a study for three months where we provisioned 160 orders bypassing the regular systems and using the Sprint employees. Out of those 160 orders, we had 100 percent accuracy. The next three months we did equivalent orders through the normal process. We had a 60 percent failure rate. What we have here is the Tier 1 providers dont give us access to their internal systems, which if we had we would have more success provisioning our own orders. We have found a majority of the resellers do a better job than the Tier 1 providers.
Raue: Im fortunate enough to sit on the AT&T National Advisory Board that meets twice a year and has two conference calls a year to give feedback and address issues. And, like some others, I meet twice a year with XO to give feedback and discuss business operations and strategy. Communications with partners is key to a providers success, and the good providers get it. So, I believe they do listen. And I see positive channel changes that come out of these meetings. Sometimes it just doesnt happen as fast as wed all like. Overall, I believe most providers do care and do listen. Some just implement change better than others.
Speaking of challenges, the next slide shows the degree of channel conflict. Most said 25 percent. Is that acceptable? Has it changed over time?
Bommer: I think this is both carrier and size specific. The carriers have done a better job. There are some where we see no channel conflict whatsoever. There are others where we see a lot of channel conflict and we choose not to do business with them. So that resolves itself. The carriers are doing a better job advertising in advance where they tend to play. I see them going more upstream, getting rid of the direct reps on smaller projects. Verizon is capping it at $40,000 from $25,000 in the last six months. I see that being the trend. The agent side of the house, its a smaller deal and we are not seeing the conflict.
Kinney-Matione: Ours has gone down quite a bit, especially since we had a lot of problems in the local markets with Verizon and MCI. What we see is now is the large account conflict. We cant sell into those accounts because they are protected. We use alternative resellers who can sell directly to an account and there is no conflict at all. Thats how we have gotten around that issue and its been very successful. Our agents have taken to it quite a bit.
We didnt have any conflict with BellSouth. Now that they are AT&T, we are seeing it more. We are going around it with a wholesale provider. That is working.
Raue: I believe it is less than it used to be because the providers are seeing agents having more options than ever before and if they protect what they cant do themselves with a competent sales team, then the customer is going to go with another provider.
Schuman: I wonder if the direct agents get a list of agent accounts that they cant sell into because they are protected.
Earlier, Brad was talking about the role of the master agent and how it evolved. How has this changed over time?
Edwards: I am a new entrant into the market. Ive only been in telecom for six years. What I noticed since from that time is the change that has taken place. Even though all of those elements are important, I see less importance on aggregation and protection of subagents. We heard right here, a master agent is just as likely to cut you off. Its not so much for protection and aggregation as it is for services. I think the ease of use and support for an agent are becoming more critical. As Curt mentioned, its an expectation now. The expectation continues on where the master agent provides value, not just aggregation. I think there will be more emphasis placed on that whether its automation or one-on-one that compels them to do business with you as a master rather than going out on their own or doing business elsewhere.
It seems you have two constituencies agents and carriers. That seems to be a place where there is change.
Allen: Some carriers have embraced the master agent model and have seen the value of aggregating low-producing agents under master agents. XO has cut upwards of 70 percent of its direct agents in the last three years looking to aggregate them under masters. Its a value to them because we deal more efficiently with them.
Raue: Every carriers demands and requirements on an agent differ. Commissions and contracts are tied to performance and relationships. Time is limited and for carriers to invest in new agents when they can help their existing agents hit their sales goals with master agencies that are meeting expectations. If the carrier can hit their assigned sales targets without new agents, they will focus their day-to-day efforts on those folks.
Knocke: Going back to the supplier concerns, the one we didnt touch on was contracts. Verizon is coming out with some new contracts this year, which raises the specter. A contract can be a critical milestone in whether you can make a successful master agent value proposition going forward. They have an opportunity to make it a good value proposition or a challenging one.
Are you referring to commission levels?
Allen: Commissioning levels, but also to protections. I do think terms and conditions are important to our subagents. Anyone who has been in the business has been stung.
Bommer: Its not only commission, but evergreen clauses, quotas, demands they make and the support you get. Its a myriad of factors. Its causing a number of masters to work together. You are getting better support, so I will work through your support system if thats the way the carriers want to be.
Schuman: I dont know what kind of parallels or examples you want to give, but I am looking at the logos on my Web site and ranking them one to 10 based on the homerun agreement I have with them. The four that I rate the highest are the four that get the most revenue from me.
Allen: Yeah. Shocker.
Schuman: Go figure. We dont own assets. We do but not in the traditional sense. I mentioned this at the last Channel Partners show: We own cash flow and relationships. We are only as good to our subs as the cash is green and timely. Its pretty simple. If we dont have a good agreement that protects that asset, you are wasting your time selling for that carrier.
Jay Bradley: Its a good point. We go through a ranking process every six months. The ones that come up on the top are the ones that provide a high level of support. They do show up more than quarterly. They do throw resources at us. There is a good news side to that story as well those are the ones that get all the revenue.
Kinney-Mantione: When we get agents, the top-producing ones, its because they have been stung by not having the kind of agreements that we have in place. Its a great story that we can tell them as we are bringing on new agents or when someone is coming on saying, I am scared because all the sudden my commissions just stopped and I worked so hard to sell. They didnt know how to protect themselves in the contract.
Miehl: I think over time the value prop for the master agent is to enable subagents to secure more business. The contract I think is a very critical piece of that. I agree that the carriers that have the greatest ease of doing business and are more channel-friendly get most of the business. The other side of that is what value are we providing back to the channel in terms of enabling the agent to get more business? From our stand pint we are bundling inventory management. I think things like that will help add value back to the channel.
Bommer: As far as trying to educate the carriers, I am like Ted, and getting old and tired of beating my head against the wall. You can talk til you are blue in the face. We are bloody from trying. They will take it and smile and nod up and down and not change their ways. Or there are the people that get it and you dont even have to try; they are already doing it. Why spend the energy trying to teach a duck how to fly like an eagle.
Lets discuss your priorities for 2008. They seem to be making agents more successful, optimizing renewals and customer acquisition. There are no surprises here. What are your opportunities for 2008?
Edwards: I have heard this comment several times stating that some agents just arent going to get it done and also that pushing products to the agents doesnt work, its got to come from the agents. I am convinced that with the new opportunities will come new agents. There are people out there who havent considered becoming a telecom agent before but its going to be a part of their business people who are selling software as a service are effectively going to be VARs. Hosted software requires a data connection. I think there is going to be more and more of that. While we will focus on expanding the sales of our existing agents, we are looking for new agents as well.
Miehl: I would agree. I think you have got to go outside of the channel as we know it to increase your distribution. Thats going outside of the independent agent. If you are attracting more VARs and giving them the tools they need to be successful selling carrier services, they can have it as an ancillary product. We still need to support them and thats part of the value proposition a master agent can bring to that particular segment.
Jay Bradley: I think also I see the trend for a lot of folks on the direct side coming over to the indirect side. We definitely want to take advantage of that. Thats one way to facilitate bringing more spend from direct to indirect. We see a lot of people that are very interested in making that shift, so we are going to focus on those folks and helping them become successful.
Raue: We all need to keep growing our agent channels. Adding new subagents and making current relationships more productive keeps us working day and night to make the value proposition to our agents get better every day. If we take care to our daily business and continue to work our individual business plans without taking shortcuts, we will continue to grow and succeed. The channel has come along way over the past 10 years. The light at the end of the tunnel is good and not an oncoming train.
Schuman: I agree with Brad. I was the one who put on the [priority list] staying focused on what we do well. We have double-digit growth for many years in a row. I am not going to deviate from the core that pays the bills, but I also think you need to a certain amount of that revenue and investment and put it into new markets for distribution channels.
The other side of the coin is the challenges for 2008. Interestingly enough, Teds answer was the same for both. Why?
Schuman: New technologies and distribution channels are intriguing. There is a part of me that wants to jump out and blaze a new trail. Our challenge is staying focused on what we do well and not deviate too far from the core services that pay the bills and continue to drive our business and our growth. The challenge is to not be seduced by blazing trails.
Kinney-Mantione: As an example, last year we were focused on VoIP and driving VoIP services. When I look at our numbers in relation to the time that we spent, they were very low. You can push out but agents have to pull in too. So, we are being more careful with how we spend our time and our marketing efforts to be able to make sure we are focusing on the type of business we are selling quite a bit of MPLS and large call centers. We will not stop trying to push new product out, but watch it very carefully so we dont waste our internal time. Thats one of our biggest challenges.
Shepstone: We are switching from RPM to Salestream. Thats one of our challenges. Like any small business, just finding the right people not only internally, but to represent us from particular vendors. If you get a bad channel manager, you have to muscle them out. That representation makes all the difference.
Agent X: Verizon is a concern. They are the biggest vendor out there and they are not channel-friendly as a whole. Thats kind of a big challenge, I think. It will be interesting to see how that progresses.
Foster: My comment [about challenges] was in respect to subagents pitting us against other masters on commission. It was a challenge over the last few years. Our plans as I alluded to is to migrate to wireless not to say wireline will go away. CMS has a different model than the traditional agent model. We started our 17th year in October. We have always offered the back office and the value-added. Thats how we put it together 17 years ago and how its run today. I think every master agent is now offering that back-office support and service to their subs like we have always done. I dont see any major challenges based on the path we have mapped out for CMS. But the challenge that we did have was competing on commissions. To find out that a carrier is giving our subs a comparable commission or one or two points less – as master agents with the investments we have in our back offices we cant afford to support agents that are pitting us against each other for a point or two.
Vince Bradley: Really we have the challenge of convergence and being able to put it in the channel successfully. That involves a new agent VARs, etc. Moving up market is a challenge agents have had in the past. Retention is a big one. Automaton overlay is important both internally and externally.