Pack a Punch

With Pure-Play VoIP resellers struggling to hang on in a market dominated by cablecos, attention has turned lately to the business model surrounding these virtual VoIP providers and the big margin punch the back-office can pack. A new crop of back-office enablers has arrived to help.

Like their mobile cousins, VoIP virtual network operators (VVNOs) face a range of business model concerns from target market and product packaging to customer-acquisition and backoffice strategies.

You cannot be an also-ran in the MVNO market, and I think the same applies to pure VoIP resellers, says Don Culeton, president at OSS provider Info Directions, noting that they need to have a viable target market that they can serve better than anyone else.

VVNOs need a compelling service to a specific customer set, agrees David Jacobs, CTO and cofounder at OSS provider Jacobs rimmell Ltd. And, he adds, the cost of customer acquisition is often key, citing Sunrocket Inc.s apparent troubles as an example (see story). This is what seemed to have happened at Sunrocket. You need to have a model where money is being made within six months maximum, he says, I think Wall Streets reaction to some of the VoIP IPOs and the recent apparent demise of Sunrocket points to thin margins for this business model and the need to be extraordinarily careful with back-office operations, says Culeton. They cannot afford to have inefficiencies anywhere in their business if they are to achieve profitability.

GlobalTouch Telecom Inc. CEO Greg Welch agrees: It takes a lot more than sales and marketing to be a successful VoIP reseller. You also have to innovate and manage all the technology pieces, and thats a tall order. And you also have to have a good cost basis to provide the technology.

Despite the pure-play VoIP provider troubles of late, the trend toward virtual operators will continue, Welch says, thanks to more and more of such enablement services coming to market. We look at this as the next evolution of the telecom market, he notes. You can spend millions [of dollars] and 12 to 18 months to build a product, but you need to gather customers this year. We offer a 50 to 70 percent gross margin and it takes 60 days or less to roll out.

GlobalTouch provides an out-of-the-box back-office system to enable switchless resellers that buy its wholesale termination. And for an upfront fee of $19,500, GlobalTouch can provide soft phones, design GUIs, and offer CSrs a branded portal, as well as provide provisioning information, order tracking, welcome letters, customer sign-up, billing and fulfillment. Theres a monthly recurring charge, depending on the features chosen.

Similarly, Info Directions offers VoIP resellers the CostGuard.NET/ XG OSS/BSS portfolio on a hosted basis for a pay-as-you-go option.

Jacobs rimmell also offers VVNOs outsourced order management and product provisioning for residential and business service offerings, and a technical product catalog to make and manage composite products that can be provided by multiple infrastructure providers.

The reality is, VVNOs can run a viable business from around 5,000 customers by leveraging the outsourced enablement model, Jacobs says.

Ring-Side Seat

Keeping on top of whats happening in the outsourced or managed systems that a VoIP reseller uses is another concern. Because the VVNO owns little direct infrastructure, they need visibility into the services and applications they are providing over that infrastructure, based on SLAs, says John Burnham, vice president of marketing at Brix Networks. The company provides enablement for IP-based voice, video and data, along with professional services to assist in the design and deployment of the offering, from planning through post-deployment. This visibility is provided by monitoring and test solutions from standards-based vendors, like Brix Networks, Burnham adds.

Providing visibility is a guiding factor for VoIP Logic LLC as well, which just released the Cortex 2.0 System Management portal a customizable, Web-based management platform that enables service providers to provision and customize service offerings, as well as monitor performance, from a single interface.

We offer a VoIP infrastructure as an outsourced solution, says the companys CEO, Micah Singer. Providing a household brand is good, but management for best-of-breed systems has been missing. We tie various systems together and extend it to the Web for use by service providers. VoIP Logic also can provide users and CSrs with Web portals for ordering, management and billing, along with termination, DID, origination, dialing and routing plans, as well as branding, billing and bundling of other applications.

While the Cortex 2.0 solution is a managed one, Singer says an important aspect for VoIP specifically is allowing the service provider control over the various aspects of the back office. Were trying to get rid of this concept of the reseller someone who has no control, but a low entry cost, says Singer. With our approach, you can have control. For each customer we deploy a stand-alone piece of hardware, so they have the same level of control as though they sent out the P.O. for the platforms themselves.

Jacobs Rimmells David Jacobs

Welch says that this idea is important because, like their MVNO counterparts, VVNOs attack niches to be successful. Some are resicentric and resell DSL while adding VoIP, he says. Others, like Zhone and Easton, go after the business market and sell a T1 of data with VoIP. Most are very specialized and so [they] need a low-cost structure to do business, but need to be able to grow and adapt as they go forward and change the processes quickly to support that.

By all accounts, that evolution most certainly will include adding other services onto VoIP in the future. GlobalTouch, for instance, also wholesales IP video services. You can market to your niche, and theres a lot of room with IP to promote new products and services, Welch says.

NACT Telecommunications Inc., for one, hopes to develop a new segment of VVNO. It will be developing a channel model over the course of the next 12 to 18 months specifically targeting VArs and hardware dealers that want to get into the service provider game. One of the applications weve developed is a prepaid billing platform, says Mark Massey, vice president of sales and marketing at NACT. By giving it to VArs as a Web-based, hosted billing platform, we can create service revenue not historically available to these partners. Historically, they perhaps resold Cisco equipment into a property. Now, they can license the VoIP themselves, provide it as a managed service and get a recurring revenue stream. So, you can turn all of that into a profit center. You start with VoIP, and tie in data and video down the line.

NACT will tackle the MTU market, initially, where a VAr would work with a commercial property management company to deploy a hosted VoIP service to a facility, and in effect become the service provider for that building. We can completely private label it for them, says Massey. Theres also a workflow module.

NACT also plans to offer a training program. This is going to be a completely different model for them, Massey says. They may have no idea how to deploy and create this model.

Such new models show there are plenty of business plans to be had for VoIP resellers. We are seeing the early days of this market and there will be some expected churn, says Brixs Burnham. But with broadband becoming globally deployed and the nextgeneration handsets (Wi-Fi, iPhone, etc.) coming out, this will be a vibrant marketplace for the foreseeable future. When the customer acquisition cost is reduced, new and cool services added and quality is assured, VoIP resellers will grow.

Who Is In Your Corner?

VoIP resellers should look out for three aspects when choosing an enablement partner: cost, automation and scalability.

The irony with the reseller business model [is that] resellers need to keep their infrastructure costs to a minimum, but they need enough infrastructure in place to make operations streamlined and efficient, says Don Culeton, president at Info Directions. The business needs to stay lean and the majority of its resources need to focus on critical activities. The back office needs to play a supporting role important, but not the focus of day-to-day activities. Again, its all about the margins. There is little forgiveness in a VVNO or MVNO model.

Info Directions Don Culeton

To that end, Culeton offers the following tips for sourcing a back-office partner: Cost: First and foremost, the back office needs to focus on delivering value. Look for an ASP offering with a pricing model that is based on a pay-as-you-grow type of arrangement. What that buys a reseller is automatic billing expertise without hiring additional staff and a fixed cost deal that serves as the basis for understanding bottom-line pricing.

Automation: Keeping things streamlined is critical. Any backoffice solution that is going to require significant manual operations may not be a good option for a reseller. But on the flip side, a separate OSS is probably overkill. What resellers need to do is find a system that helps define and enforce their processes for maximum efficiency and provides some basic workflow options to eliminate manual operations. If a reseller needs to add back-office staff every time they cross a growth threshold, they need to look at the efficiency of the back-office solution.

Scalability: One of the significant challenges with finding a back-office system is planning for growth. Even the best projections are just that projections. But I would caution resellers from going into a new business thinking they can buy the least expensive backoffice system out there and just cut over to something else when they outgrow it. The time and opportunity cost to replace an inadequate back-office solution may derail the business just as it reaches a critical point. So it is always a balance between, What do we need to duplicate this business model if we grow tenfold? and Can we still afford this solution if we dont manage to grow ten-fold?

Only Online
Outsourcing Solves the VoIP Puzzle

There are many potential holes in any VoIP service delivery strategy. Among these gaps are skills, speed to market and scale. Outsourcing can help CLECs, ISPs, cablecos and even VARs to fill one or all of these holes on a stopgap or more permanent basis. Find out more about options for outsourcing your new or expanding VoIP operation by downloading this new eBook sponsored by PHONE+, xchange and i3 Networks at

Brix Networks
GlobalTouch Telecom Inc.
Info Directions
Jacobs Rimmell Ltd.
NACT Telecommunications Inc.
VoIP Logic LLC

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