Agency Channel: Who Wants to be a Reseller?

Posted: 07/2000

Who Wants to be a Reseller?
By Tara Seals

Who wants to be a millionaire? We all do. And, from the comfort of our sofas, we’re sure our final answers would lead us swiftly to an entry in Regis Philbin’s checkbook. In much the same way, agents are looking at the resale business and
saying, “I could do that.” Well, they can … and some have. But it’s a lot easier said than done.

Still, agents are pursuing this–the next step in their evolution–with the support of many consulting firms and at least one major carrier.

It’s not that agents are unhappy being agents. What’s not to like? Agents enjoy standard commission rates, guaranteed residual income, and are able to focus on sales and marketing efforts while the carrier picks up the support issues. The only thing missing is ownership of the customer –where much of a company’s value is placed.

What’s the Difference?

On the surface, the difference between agent and reseller is small; both are an alternate channel for carriers selling network services to the end user. Agents receive a commission for accounts sold on behalf of the carrier and billed by the carrier. A reseller also is acting on behalf of the carrier, but receives a wholesale rate for services, which it then marks up for resale under its own brand, making profit from margin rather than commission.

Looking deeper, this different market position has far-reaching ramifications. An agent is a consultant for the carrier and has no control over provisioning, customer care or the ability to offer products and services in a specific niche. A reseller, on the other hand, becomes much more like the carrier, inheriting the same governmental and operational concerns that their facilities-based supplier would encounter.

Why Do It?

Making the leap to reseller is not a process agents should take lightly. It’s a much more complex business, but it’s also one that agents may be well suited for.

Agents, for example, are experienced at running a sales engine that can help the business support any commitments made to suppliers. They also are familiar with many carrier/reseller offerings and operations and can take the best attributes. And, a consultative agent background lends an edge to customer care. Having experimented with multiple product lines, an agent-turned-reseller already may have a market niche.

For these and other reasons, WorldCom Inc.
(www.wcom.com) launched its Venture Program this year to help ambitious agents make the transition.

The reseller market is actually rather small, says Dave Roylance, market manager of WorldCom’s Venture Program, explaining that the carrier is looking for qualified, experienced agents and other fresh blood to bring into its wholesale program. “It’s a natural progression to go from agent, to master agent, to reseller,” he says. The program has attracted a number of agents already and has been, Roylance says, “very successful” since its launch in January.

What Are the First Steps?

One company that made the transition successfully on its own is Access One Inc.
(www.accessoneinc.com). Lance Honea founded the agency in 1993 with plans to become a carrier within a year.

The biggest obstacle, he says, is overcoming capital requirements. Certifications and licensing alone can cost from $50,000 to $100,000 for national long distance, and roughly $2,000 per state for local service.

Many carriers offer agent channels that require little financial investment, but there are few startup resources for fledgling resellers. Competitive wholesale pricing from the carrier is generally all a new reseller has to work with.

The agent does not have it much better, however. Because an agent does not own his customer base, borrowing against receivables is not an option. That leaves commissions. A 15 percent commission on a $500,000 base translates to collateral of $75,000 a month. Unfortunately, many banks will loan only against two months.

Access One structured a working capital agreement with a bank by pledging personal assets. Many agencies turn to venture capitalists or other investors, or leverage personal assets such as stocks and real estate.

According to Margie Limas, executive vice president of Customer Solutions Group LLC
(www.customersolutions.net), knowing the depth of your resources in terms of technology tools, projected cost, human resources and investment opportunities is intrinsic to a realistic business plan. Effective management of available resources can lead to greater efficiency and profitability, and access to a larger credit line–all of which can offset financial hurdles.

Globalcom Inc.
(www.global-com.com) followed this path and has maintained profitability without accepting venture capital. John T. Shave, founder and CEO of
Globalcom, explains that as an agent, his business savvy and the efficient management of resources led to consistent reported profit growth. That in turn allowed the company access to a larger bank credit line than what is typically available to a new reseller. Globalcom transitioned from agency to reseller in 1996, and the privately held company has grown from a handful of employees with revenues of $1.5 million in 1996 to estimated revenues nearing $95 million in 2001. Globalcom continues to grow, deploying facilities across the country and growing to 200 employees by the end of the year.

Customer Solutions offers “soup to nuts” service for potential growth companies, and helps with business plans and strategy, as well as marketing, regulatory compliance and outsourcing. Limas says the firm could guide an agent all the way through the process, even if he came to them with nothing more than an idea to transition.

The key to a successful plan is real management expertise, Limas says, and explains that reseller company backgrounds run the gamut from agencies, CLECs and ILECs to software companies, utility companies and cellular vendors.

It also pays to be well informed and to research business and management models. “A lot of [management] training is required for some [would-be resellers], but the growth potential is tremendous,” she says. “The real goal in management is gaining insight as to what works, what has been successful in the past and what hasn’t.”

As part of the business plan, selecting the right carrier also is important, Shave explains. He says those carriers that have had a proven, successful reseller program in the past are more likely to be good partners for the brand new reseller. A history of caring about its switchless reseller program, timely call record processing and invoicing, and a carrier support team that’s accountable to the reseller should all be part of the package. It’s also important to negotiate a reasonable contract that has the ability to keep you competitive when margins start to shrink. “As a reseller, you want to choose a carrier that wants to do business with you,” Shave says.

What About Certification?

Once the business plan is solid, the first task of the would-be reseller is certification and regulatory compliance. For the unregulated agent, hiring a tariffing agency as well as a lawyer becomes inevitable, according to WorldCom’s Roylance.

Forms must be filed on an annual basis with the appropriate federal and state agencies. Resellers must be certified with the public utility commissions in states where they operate, and also must register with each state-level secretary of state as a foreign corporation. Also part of the certification process is tariff filing in each state. And
of course, resellers are held accountable to the FCC.

Table:Agent-To-Reseller Checklist

According to Venture Program statistics, there are roughly 400 annual forms to be completed for the nationwide reseller, and typically it will take about a year to become certified on a national basis.

Other hidden headaches are federal, state and local taxes. There are 2,500 taxing districts throughout the United States, and levies range from library and fire district taxes to 911 access and federal taxes. The national reseller files hundreds of tax returns every month for sales tax in every jurisdiction. Again, outsourcing or hiring an in-house CPA may be necessary.

WorldCom’s Venture Program also can help in this capacity. The program assists agents through partnerships with experts in various areas, such as certification, financing and taxation so that startups can concentrate on sales and marketing. A partnership with a certification attorney, for example, allows resellers to become nationally certified in 120 days–improving speed to market.

But Roylance says agents can make short work of a paper chase by focusing on a region. “You can cover 50 percent of the country if you get certified in just five states,” he says. “New York, Florida, Illinois, Texas and California have the majority of the high population areas.”

An agent can continue being an agent, while zeroing in on one or two prime regions in which to start reselling, he says, adding that as their customer base grows, the agent can add new areas.

What About the Back Office?

As an agent, carriers pick up most of the customer support, billing and service issues. In contrast, a reseller owns most back-office operations, such as the provisioning of service with the LEC, primary interexchange carrier (PIC) concerns, customer support, data entry, billing and accounting.

Third-party verification (TPV) becomes important as well. If a reseller solicits a customer to change long-distance carriers, anti-slamming precautions require a letter of agency (LOA) from the customer seeking the switch, or a TPV recording authenticating the change in service request.

Agent-turned-reseller Shave recommends negotiating with a successful, well-staffed company for TPV, call processing and provisioning, and hiring quality people for customer service. In the resale business, good customer service can go a long way for bureaucracy-wary customers, he says.

Shave’s recommendation goes double for outsourcing billing. “The telecommunications industry is laid with the bones of successful agents that transitioned to resellers and attempted to be their own billing company,” he says.

Billing systems must be able to break out telecom charges from taxes. Otherwise, the FCC will apply federal taxes to the whole bill. The system also must be able to monitor call detail records (CDRs) coming out of the switch to avoid duplicate billing.

Accurate and timely billing is critical for resellers to build and maintain working capital required to offset carrier payment terms, he explains. If the billing system doesn’t work properly, the entire cash flow chain breaks down and the reseller may find itself on the hook for a large sum of money.

Qualifying for deeper wholesale discounts requires volume; a standard figure is $250,000 per month. While agents also may make a commitment to a carrier, they aren’t necessarily held accountable for deficits. In contrast, resellers contract to pay the carrier regardless of receivables, usually on net 30 terms.

A well-organized credit and order procedure and timely billing and collection become integral to risk management. Two options are outsourcing the billing or contracting with a LEC to put charges on the local phone bill. In the latter case, negotiating a billing contract can be long and drawn out. WorldCom’s Venture Program offers partnerships with a vendor already contracted with most
LECs; new business rides over that existing agreement. Similarly, there are many LEC billing clearinghouses to choose from, such as Billing Concepts
(www.billingconcepts.com), Integretel Inc.
(www.integretel.com), HBS Billing Services
(www.hbsltd.com) and OAN Services Inc. (www.oanservices.com).

And if a reseller would prefer to bill directly, there are a number of service bureaus who can assist them, charging on a per-subscriber basis.

There are even companies that will do it all. Customer Solutions’ TurnKey Outsourcing program partners resellers with vendors to outsource everything from billing inquiries
to telemarketing.

With increasing resources, the agent-turned-reseller model is becoming more visible. The opportunities exist, and the obstacles, while formidable, are scalable with good business sense and a well-formed plan.

Tara Seals is agent channel editor for PHONE+ magazine.