Channel Partners

January 31, 2008

18 Min Read
Reseller Roundtable 2008

McGraws Frank Ahearn

McGraws John Cunningham

TMCs Ron Ireland

AireSprings Daniel Lonstein

PowerNet Globals Michael McLelan

TNCIs Brian Twomey

Resale has been a catalyst for competition in the communications market for more than 20 years. It helped to alter the landscape by bringing lower prices, multilocation billing and diverse routing to long-distance for ever-smaller businesses. Later, it seeded the newly competitive local market with companies seeking to replicate their successes in the long-distance space. The proposition was emboldened by the ability to aggregate geographically disparate local services into one cohesive billing and support program. Despite a sometimes adversarial relationship with the underlying carriers, resellers lack of network forced emphasis on sating customer needs by bringing added value beyond what was commonly available from the incumbents.

The model has at turns been discredited and embraced. To find out how its changed over the years and how its faring today, PHONE+ Editor in Chief Khali Henderson spoke with six executives from five network resellers (see their resumes below) about their opportunities and challenges. The conversation took place at years end and included polling to facilitate the discussion. The following is an edited transcript.

In looking at the services you offer today (see chart below), it looks like the greatest diversification has been toward VoIP-related technologies, not wireless. Why have you chosen not to get into this area?

Daniel Lonstein, COO, AireSpring Inc.:

We started as a wireless data reseller originally. If you look at the MVNO business and how many failures there have been recently its just an incredibly difficult business the way the incumbent wireless carriers in the U.S. have set it up. There really isnt a space for doing resale or MVNO successfully. There have been a few companies that have made it mostly doing prepaid Virgin Mobile, Boost and a few others. A lot have failed. Disney shut down their MVNO. I think thats why you are not seeing resellers going into wireless business.

Ron Ireland, president and CFO, TMC Communications:

Its not commonly offered at least not in an attractive way for a reseller. There are a very limited number of wholesale carriers. The agreements that we have seen for wireless are so far below our margin requirements that its not been worth pursuing.

Michael McLelan, vice president of sales, Powernet Global Communications:

We launched an MVNO and did everything necessary to push it out and we still have a substantial number of customers on it. But we are going to be pulling back from it for the same reasons. We will keep servicing it, but we will not put it out as a big product offering and advertise it as we did previously. Its very hard to make your margins on it. Then, of course, theres the support of the equipment/hardware. With the carriers you are dealing with, its their way or the highway.

Are you vulnerable without it?


We are quite successful with the other product offerings. You cant sell everything. We do not feel vulnerable letting it go along without promoting it.

Brian Twomey, president, TNCI:

I think you are always vulnerable. …To the extent that you rely on other carriers to meet a customers need, there is a risk. Its a matter of balancing that risk versus the strength of the investments you make. The challenge we have of going into an MVNO scenario weve looked hard and long at it is not only is the investment tremendous, but then on top of that your focus on it has to be tremendous and it takes you away from your core competency. So, to us it hasnt made sense at this time. Hopefully, as wireless continues to mature and distribution opens up further, that will change. At this point its a hard balance to get to.

I want to move to questions about your supply base and how consolidation has changed that. Most of you indicated in the poll that you have more suppliers than five years ago despite consolidation among carriers. Can anyone tell me why?


The consolidation forced all of us to look at alternate carriers that we havent done business with before.


I think the old “all eggs in one basket” is not what you want plus offering differing services.

Why are you looking for alternate providers?


I think one reason is product offering you are always looking for something newer and better. Certainly with VoIP services everyone mentioned they are getting into or already selling that might be your traditional carriers you have used in the past or a new entity.

But then the other issue is service and pricing. Any of us who have sold Broadwing in the past have experienced some heartache with the Level 3 acquisition there. I dont think thats a big secret in the industry. That causes you to look elsewhere, to make sure that you dont have too much of your business in what might be a difficult environment.

John Cunningham, president, McGraw Communications:

We are in a switchless model. Footprint is an issue. Having more companies enables us to negotiate with more providers who are more stable post-fallout.

Is carrier management more difficult now?

Frank Ahearn, CEO, McGraw Communications:

In some ways its more difficult. We have 18 carriers that we deal with, including the rollups like Level 3, which has four of our previous carriers Level 3, Broadwing, ICG, Focal. We still have all the divisions to deal with, so its difficult. Their invoices still come scattered under different banners.


They are working on Project Unity.


The overall answer is it seems to be more difficult to nail somebody down and have one point of contact.


We still have just as many individual relationships to manage.


The names have consolidated, but the processes have not consolidated.

What are your primary challenges with carrier suppliers these days?


Frankly, its about service and support being the biggest challenges we are facing. The carriers across the board are in a cost-cutting mode over the last few years. Yet, the service requirements have only increased. We have had to take on an increasing share of the responsibility to deliver a solution to the customers.

Based on the poll, all of you agree that provisioning is the biggest problem?


Dont forget that we do a lot of business with Qwest; Qwest Jan. 18 of 07 did a system upgrade. …The day will live on in infamy. Basically, it ruined a lot of their systems. They have been recovering from that. Its been challenging year because of that.


They fixed retail before wholesale admittedly.

Are other carriers doing similar things that have been painful?


The Level 3 acquisition of Broadwing, I think from a reseller perspective, has appeared to be poorly planned.


Their acquisitions were poorly executed and caused problems.


If you compare it to PAETECs, which seems to be more structured and well though out.

Are you migrating to facilities?


When you say migrating, in our case, we are adding, not changing all our customers.


We are adding, complementing the resale matrix we have.


We are, too.

It sounds like you are adding and not migrating?


Its not that easy.

What is your plan to leave some on resale?


In our case, we are putting in a network that complements the resale program that we have. Customers can migrate as they are ready to. VoIP clearly becomes a critically important service to have. We will move them but not prior to them being ready or prior to the channel being ready.


It doesnt make sense for everyone. Its not a solution for every customer. There are a lot of customers who, because of the equipment they have, are better off remaining on a TDM solution. The reason you see the move to facilities is because the cost of facilities is relatively small compared to putting in a TDM-type network eight or five years ago. Its still expensive, but so much less expensive that it changes the whole equation. There are still a lot of challenges. A lot of people want to use traditional PBXs. Migration isnt necessarily easy and might not be the best thing for the customer.

We are going to switch gears and talk about UNE-P. Four of the five panelists said they are former UNE-P resellers. Each of the companies commercial agreements with the Bells today and hope to have them in the future. Why are you continuing with that supply base on the local side?


Customer demand. Its not as profitable as many of the other services; however, there is still demand. And you still get to make good margin on the long-distance associated with it. To the extent customers need and want it, they will need to migrate to the next generation of technology and if they do that, they will need help through that migration


Its good to keep the access to the customer open.


Absolutely, its about what the customer wants.

Proportionately, do you have a lot of customers on those agreements?


Very few.


Very few.


We have most of our customers on it because we use it as backups for PRIs.


A large percentage of our smaller customers are using them.

What are the value propositions for resellers today? Some possible answers are aggregating usage for greater discounts, becoming a single point of contact for communications services with geographically diverse providers or service types, consolidating billing for locations/services, providing billing reports, etc. These were historically true. How about today? What are you telling your customers?


We position ourselves as providing a higher level of service. So, we always competed against the RBOCs directly. Now that the RBOCs have pulled away resources from the small- to medium-sized businesses, the ability to go to one single shop thats going to get the services in a timely fashion and be responsive. We layer that on with being switchless in that we can put the round peg in the round hole, provide disaster recovery at least on a basic level on the local, long-distance, and even the Internet running BGP. Thats basically our value prop.


Its changed over time. If you go back five years ago, the biggest thing we had to offer was a great discount.




Yet, over time, as services have been cut back in what we are getting from support from the carriers while the complexity of the services has increased, the importance of being able to bring together provisioning processes across multiple carriers has been critically important. You combine that then with single bill the consolidation that that allows it really requires that you differentiate your service based on service delivery.

So a lot of the things I listed are still applicable?


I would agree. I think all those things are applicable today. You add to it the service component. With all the consolidation of the carriers to manage those relationships for your customers is big. They do not want to deal with it.


In our business, we are dealing with a lot of larger-usage customers. We talk about our single point of contact, aggregating multiple carriers, etc. There is no question that pricing drives decision-making. Even though people dont like to talk about competing on price , at the end of the day, a lot of deals come down to price. Its still a big, big driver. If the carriers that we resell decided as they have, for example, in the wireless space that they dont want resellers by raising wholesale pricing significantly or dropping retail pricing and there was no margin space or cost advantage, I think it would be very difficult.


I disagree. We have a different philosophy that we are providing a different level of service and we dont have to be cheaper. Yes, we have agents out there that dont bring the value prop we bring and price it out more competitively, so to speak, than we would with our direct sales force.

[However,] to Daniels point, they are pricing [lower]. We resell PAETEC, as most of these guys do as well, and their sales staff is becoming so aggressive right now, its killing us.


I was referring more to the pure LD side. We do a lot of dedicated LD and, in my experience, its very price-driven.


You have to be. We do a lot less of that. We do more of the five or six different applications its local, LD, data, managed services so its a lot stickier. We feel that if we are going to sell something on price, we are going to lose out on price as well.


The commodity services are still price-driven. The more technology-driven services that require integration or greater involvement in management are less price-driven. You still have to be competitive, but you dont have to be the lowest.

What are your big challenges and opportunities for 2008?


I think that the opportunity is still there for resellers. Theres still a place for it. As Daniel mentioned, the pricing pressure on the LD side is certainly there. Our greatest competition is probably the direct sales forces for each of the carriers. Someone else mentioned that as well. PAETEC is aggressive. Qwest is aggressive.

I think there is opportunity on the TDM side. As much as we know there is an industry migration to VoIP and other IP-related services, there is still a lot of life in the TDM world. I get just as many customers coming back to TDM from a VoIP product as we get those looking for a new VoIP product. I think the opportunity lies in new products, new technologies. You have to be diligent about finding the right ones, making sure you have the expertise in house to sell and support it.

Is there a specific initiative TMC is planning for next year?


I think its probably delivering VoIP in a way thats useful to my end users. Thats been the challenge. SIP trunking is great. Hosted IP is right for some customers. We are doing what we can to find a VoIP solution thats not just a replacement for TDM, but that actually offers an application to the end user that helps drive their business.

John and Frank, how about McGraw?


I think the biggest opportunity lies in the larger carriers focusing inward. There is a huge opportunity for resellers like ourselves to focus on the customers and being able to explain what the options are. People talk about convergence and customers want to know what that is. The bigger carriers are more focused on consolidating their systems and their larger customers. There is a big niche and an opportunity for resellers to get that business.

Also, from the customers side, I think they are used to resellers now. I think there is a sense out there that the financial distress is behind us. From that perspective, there is a huge opportunity in the small- and medium-sized business space just to sell, whether its traditional services or VoIP basically blocking and tackling.

Frank, do you have anything to add?


John and I are pretty much on the same page. The only other thing I would add is on the agent side, I believe we, as resellers, are all gaining traction due to credibility. We are all doing a pretty good job trying to differentiate ourselves. I think we are getting more and more traction among agents and that will be a big opportunity for the next few years to come.


One challenge point would be that everyone is looking for big pipes. When we talk about retail versus wholesale margins, I think that could be a challenge as we move forward because, to Daniels point earlier, if those large carriers want to hold that for themselves, that could be a challenge for resellers certainly.

Brian, can you address TNCIs opportunities and challenges?


As I look at it, the ability to continue to service, to provide solutions that integrate multiple carriers into one single customer solution is a key challenge. The ability to seamlessly provision and then provide the single point of contact for support is going to continue to be critically important.

From our perspective, one of our key initiatives going into 2008 is while providing a VoIP solution, making it clearly understandable to both channel and the customer. Its also to provide the channel with the provisioning tools, with the ordering tools, that makes it all seamless no matter what they sell whether they provide RBOC services, carrier services or up market with MPLS or VoIP. Its to make the order process the process of interacting with the end user as simple as possible.

Michael, we havent heard from you.


I have 22 years in this industry and 15 years with PNG. PNG has been around 15 years. We are a $100 million facilities-based company that does a lot of resale. With that base and that structure over the years, we have faced a lot of opportunities and challenges and weathered it well. We are doing well. Having the large base of customers and different products we are selling, we weather things well. So, as we move into the enterprise space and muni Wi-Fi and VoIP network we are fully enabling VoIP on our network but we still have a great base there. On the TDM, we sell a great deal there. We may bring them back from VoIP.

The opportunities are there, they continue to be, but the challenges are there, too. They may be different, but we have had challenges for the last 22 years. I chuckle to myself because in 1985 we were selling against AT&T as a reseller. That wasnt easy to do. You had your challenges there having credibility. Whoever said we have the credibility now as alternate services providers, we have that. It comes down to what we are going to provide as a service and the relationships that we have with the customers. The quality of that relationship comes down to the service and pricing, too.

Daniel, do you want to wrap this up for us?


We have a couple different challenges. I think the biggest opportunity will be our biggest challenge as well. 2008, for us, is the year that we will be pushing our facilities-based SIP trunking application. We have a campaign that we released at the last Channel Partners show, “Just SIP It.” We think it sounds cool, but we will leave it to other peoples opinions. We have been pushing the “Just SIP It” campaign, SIP trunking and putting in gateways for customers that dont have SIP already. Its a great opportunity. Its also an enormous challenge because its different than straight resale. Its a lot more management of network and other pieces. And, its not traditional services like switched LD. VoIP and being facilities-based are our biggest opportunity and biggest challenge.

Talking about pricing, we have a policy that we wont lose on price. That is just our policy. Its doesnt mean that we dont think we have great value; its just our policy that we dont want to lose on price. We think customers will appreciate all of that as a package. Its hard to do as the industry starts dropping margins and pricing.

Lastly, I would say, the slight challenge I think everybody will have is if you have been out there, as we all have, saying we can offer multiple networks for redundancy and now when you become a facilities-based carrier, there is some redundancy, but its not the same things as saying, “I am going to put in a circuit from MCI and one from Qwest and offer toll-free routing across both.” Now its my VoIP network and I am the carrier. I think thats one challenge everybody is going to have going from positioning yourself as a multicarrier solution to being a facilities-based carrier and its my network. Thats my two cents.


If the quality is there and you have that relationship with the customer, then you wont have an issue.


Right, but its harder to push it because now its a connection to my switches. Its not like I am giving you redundant access across Tier 1 networks.


I will encourage you then, because we have had good fortune with using our own network.

Reseller Resumes

Frank Ahearn, CEO, McGraw Communications

Ahearn oversees carrier relationships and network design for McGraw. Ahearn sits on the Verizons Wholesale Advisory Board, COMPTELs CEO Council and PAETECs Reseller Advisory Board.

John Cunningham, President, McGraw Communications

Cunningham co-founded McGraw in 1996. His primary focus has been acquiring and retaining customers in the 45 states that McGraw serves. He is on the Qwest Advisory Council and has served on the Level 3 wholesale advisory council.

Ron Ireland, President and CFO, TMC Communications

Ireland came to TMC in 1998 and was named president and CFO in 2007. He oversees all operations, including negotiating contracts with the companys underlying carrier networks.

Daniel Lonstein, COO, AireSpring Inc.

Lonstein is COO for AireSpring. Previously, he was the co-founder and COO of AddTel Communications Inc., and has extensive experience in sales and marketing functions both inside and outside of the telecommunications industry.

Michael McLelan, Vice President of Sales, PowerNet Global Communications

With more than 20 years in telecom, McLelan oversees direct and channel sales for PNG. He also served for four years as chairman of the Prepaid Services Council for the Telecommunications Resellers Association (now COMPTEL).

Brian Twomey, President, TNCI

With more than 25 years experience in telecom, Twomey oversees all strategic direction, product management, technology development, sales relationships, marketing, finance and business operation for TNCI.


AireSpring Inc.
McGraw Communications
PowerNet Global Communications
TMC Communications

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