By Khali Henderson

Editor’s Note:
This is Part 3 of a five-part article, Master Agents Revisited. Other parts of the article are:

Part 3 – Minding the Core Store

In focusing on the new, it’s easy to dismiss the old, but the traditional role of the master agency as a distributor for telecommunications services will remain viable in the same ways it has for the past 20 years. “There should always be agent partners in need of ‘traditional’ services from master agencies. These functions will be offered as long as masters continue to attract, support and profit from core telecom agent partners,” said Doug Miller, vice president of operations for master agency Telarus Inc.

Among the six subagents that Channel Partners interviewed for this report, all continued to expect revenue from core telecom services though in decreasing proportions to other services, including cloud, managed and “other,” which they primarily attributed to “consulting and TEM.” These subagents averaged 77 percent of their revenue from core telecom in 2011 and expected it to be about 40 percent in 2015.

Moreover, master agencies’ core telecom competency likely will grow in relevance and importance as more and more channel partners (e.g., IT VAR and telecom equipment dealers), which are inexperienced with telecommunications services, look to offer connectivity in support of managed and cloud services either their own or a third party’s. The “network” is an integral component in the delivery of both.

“Some of our fastest-growing partners are cloud-based sales organizations that haven’t sold network services,” explained Mike Saxby, chief strategy officer for master agency Telecom Brokerage Inc. “While they don’t need expertise on the cloud, they need significant assistance with network. A master can add value there.”

Interestingly, among the MSPs and cloud service providers that Channel Partners interviewed for this article, several viewed master agents primarily as partners for the connectivity component rather than distribution channels for their own services. Some of the masters indicated similarly that MSPs and cloud providers are their subagents.

In regard to master agencies’ core telecom business, the expectation is both for increased scale (in part through consolidation) and also in specialization. Master agencies in the telecom channel are small in comparison to distributors in the IT channel on the order of magnitude of 10:1. There are exceptions, but most master agencies are less than $10 million in revenue, compared to $100 million plus for VADs.

“Our focus and our futures are seated in a deep conviction that we have only scratched the surface of the opportunity to achieve size and scale as a master agent in this industry,” said Rick Dellar, co-founder of Intelisys Inc., which is likely the largest master agency with reported $36 million in annual revenue.

Of course, organic growth through the addition of services and more partner types is expected, but so might inorganic growth through acquisition. In a separate Channel Partners reader poll, respondents expected to see mergers and acquisitions in 2012 among the larger partners, but none had occurred as of this writing in early February.

“Fewer master agents will sell an increasing volume of traditional network services, but that consolidation can only sustain the remaining major players for a limited time,” said Emmet Tydings, president of master agency AB&T Telecom. “Growth is a prerequisite, and growth will be successfully necessitated by addressing currently unaddressed market, and through providing value add that most current master agent models do not provide.”

As traditional services mature and reach the commodity threshold, it will be up to the master agent to seek out new services to refresh their portfolio, said Jim Safran,  president of cloud service provider GreenAppx. “Without a refreshed portfolio of emerging technologies and services they have no chance of recruiting the best subagents for their team,” he said.

Furthermore,  competition for subagents over 1-2 points will no longer be relevant. “Partners will choose master agents based on a variety of reasons, not just commissions,” said TBI’s Saxby. “I see our industry becoming more about relationships and value rather than pushing margins to unprofitable levels.”

Safran asserted the “revolution of service delivery” is no different than other transitions (e.g., long-distance to local, to Internet to VPN to MPLS) weathered by the telecom channel. “Those master agents that have successfully adopted these emerging technologies have been able to remain relevant in the channel and have garnered quick market share and substantial margins,” Safran said. “Those that haven’t end up closing their doors.”

Part 4 – Traditional Functions Remain Relevant