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Telecom: A Gap in the VAR Cloud Play


By Josh Anderson

While there may not be consensus on the precise magnitude of the market opportunity represented by cloud-based services, it is becoming clear who the leaders are among cloud service providers. Four of the five organizations identified by Gartner  as leaders” were telecom providers AT&T, Verizon, Terremark Worldwide (recently acquired by Verizon)and Savvis (being acquired by CenturyLink).

If telecom providers are in a leadership position for cloud services, it is therefore critical that local and regional IT firms position themselves to ensure their continued participation in the market landscape and to prevent losing an excessive share of IT expenditures to cloud competitors.

These local and regional firms typically cannot afford to lose lucrative service revenues to a cloud provider. Commoditization already has compressed margins on hardware and software. Most local and regional IT firms subsist on revenues tied to professional services in the form of integration and maintenance, break-fix or fixed-fee management.

Given the direction of the market, local and regional VARs, IT service providers and MSPs must determine a way to participate in the transition to cloud-based services in order to avoid losing revenues and market share to large providers.

The telecommunications industry has a long history of success with multitiered indirect sales channels. While these channels have traditionally focused on telecom-specific agents acting as brokers, some carriers and master agents are beginning to focus on VARs and systems integrators and to develop programs tailored to their unique requirements.

Particularly in the SMB market, IT firms participating in these programs can expand the scope of their capabilities to include both carrier-provided cloud-based and traditional telecom services, thereby allowing them to leverage their existing relationships with clients to become the primary service provider even as clients move increasingly to the cloud.

Benefits

The benefits of integrating these programs into an IT firms business model are extensive and touch on many of the challenges facing that industry today.

  • Enhanced value proposition for clients. IT firms that are able to provide a comprehensive solution including WAN and cloud service options can substantially differentiate themselves from their local and regional competition.
  • Protection from competition from telecom providers. Offering telecom services allows IT firms to preempt carriers that are increasingly offering cloud services and outsourced IT management.
  • Revenue diversification and stability. Telecom services provide ancillary revenue with no associated cost of goods sold. The typical residual compensation model enhances this value by providing income throughout the contract term typically two to four years.
  • Access to the largest component of IT expenditures. Telecom represents the lions share of IT expenditures, so acquiring even a portion of a clients telecom spend could mean a substantial overall increase in revenue per client.

Best Practices

Benefits aside, integrating telecom services into an IT firms service portfolio is rarely plug-and-play. Telecom services are such a critical component of the total IT solution that its vital that VARs and service providers are prepared and have sufficient support, either internally or through the carrier or master agent. Mismanaging the telecom portion could have negative repercussions for the entire project.

Before a VAR or MSP ventures into telecom, they should consider some best practices and beware of common pitfalls.

  • Properly set customer expectations. Many IT firms are accustomed to controlling the project from end to end, but with telecom services there are a number of moving parts at minimum the carrier providing the service and the local carrier providing the physical wiring to the customer site. Issues specific to the particular carriers and locality can make a huge difference as well. As with most things, its far better to under promise and over perform.
  • Understand the nuances of carriers and their products. If a VAR or service provider is recommending a particular suite of carrier services, the performance of that carrier will reflect on the VAR. Its critical that IT firms selling telecom services understand the strengths and weaknesses of the carriers and their services, and that they openly communicate that understanding to the customer.
  • Treat telecom services as an integral part of the solution, not a bolt-on. Many IT firms look at telecom services as simply an add-on to their solution, when in fact it should be treated as a functional component on the same level as hardware and professional services. The most cost-effective telecom service might merit a material change in the hardware and professional services portion of the project, and vice versa.
  • Have a plan for integrating telecom into your sales and project management processes. Many executives at IT firms make the decision to get involved in telecom services, only to run into major issues integrating that function into existing sales and implementation processes. Take time to think about potential issues like compensation for salespeople, integration into the qualification and proposal processes, and management of roles and responsibilities when it comes time to implement.
  • Determine how to deal with post-sale service and clearly communicate the support protocol to the customer. Customers perceive a total solution, and often assume that issues with carrier services should be directed to the VAR. IT firms should determine ahead of time who customers should contact in cases of carrier service issues, and proactively inform the customer of that support protocol.

Josh Anderson is the founder and CEO of

Telephony Partners

, a telecom master agency he founded in 2002 leveraging engineering and software expertise. He also is a former member of the Channel Partners Advisory Board. This article was excerpted from a white paper, Telecom Revenue Opportunities for VARs and Service Providers,” which is available from the Telephony Partners website.


Looking for More?

Join Josh Anderson for the VAR Workshop: Shoring Up a Services Model” at the Fall 2011 Channel Partners Conference & Expo, Aug. 24-26 in Chicago. For more information, visit www.channelpartnersconference.com.


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