Reselling Hosted VoIP May Not be as Easy as it Looks

Channel Partners

March 1, 2005

13 Min Read
Reselling Hosted VoIP May Not be as Easy as it Looks

Wholesale VoIP has been in the news lately, and the news hasn’t been all that good.

Level 3 Communications Inc., supposedly one of the premiere wholesalers of hosted PBX services, is pulling out of the business, shuttering its (3)Tone service, which is being resold by as many as 100 service providers. Level 3 will shut down the service on June 15, so its customers now are casting about to find a replacement for the service.

Other retail service providers are finding frustrations and challenges in reselling a wholesale service. A source at Armstrong, an operator of cable and telecom systems and reseller of consumer VoIP service Vonage Holdings Corp., says the company is considering deploying its own consumer VoIP service and getting out of resale. The company has made no official announcement.

For the resellers that have taken the plunge in the last year to become retailers of wholesale VoIP, particularly hosted IP PBX, the new service has been challenging, even troubling, but not without rewards.


Just getting started was the first challenge for IPtimize Inc., a reseller of New Global Telecom’s (NGT) 6Degrees service that customizes its offerings. “It was slower than I had planned just getting all of the pieces working together, getting the billing platform up, getting experience with the provisioning tools, then selling a new customer, and then the service delivery and setup process. It all took longer than we thought,” says Clint Wilson, executive vice president of development. The typical IPtimize customer has 20 to 100 desks, with most in the range of 40 to 60.

One immediate stumbling block was local-number porting. IPtimize hoped to be able to do it in two to three weeks but some changes took up to six weeks. “So the lesson learned is: go in with a new number application as a secondary line, then bring the primary line over, after the fact, as a migration,” says Wilson.

CAL Communications Inc., a VoIP reseller in Chicago, and also an NGT customer, has had “nothing but good experience with them. They trained us, sent guys here, and if there were any issues, they took care of them right away,” says Carlos Lopez, president, CAL. “And believe me, there are a lot of issues, because everyone is learning this new technology.”

An absolute necessity is a survey of the customer’s existing LAN to determine if it is up to the task of VoIP. Sometimes the news is bad.

CAL is in downtown Chicago, and many customers are in larger buildings. “We go into a customer site to demo equipment, and it doesn’t work because they don’t have enough bandwidth in the building,” says Lopez. Instead of saving a customer money, the service could end up costing more. “A company may be paying $200 per month for DSL, and we go in to sell VoIP and say, you need to spend $500 to $600 per month for a T1 for more bandwidth. Costs just went up $300 on bandwidth alone,” says Lopez.

IPtimize, however, says, “That is an investment that businesses want to make, because then they know that they have a quality network, one that those applications can ride on.” IPtimize tries to ease the pain with a financing package from a company called Campco that includes an ‘investor shield.’ “It provides security against technological obsolescence during a lease obligation,” says Wilson.


Access lines to the customer have long been an issue and continue to challenge the reseller. “One of the major problems we have is [with] the bandwidth at customer sites,” says Lopez. “It is not what it should be, and that causes lot of problems. Customers are calling to complain, but really the problem is with their own services.”

IPTimize sees alternative access as “more and more available,” says Wilson. The company is moving to providers, such as Mpower Communications Corp. and Time Warner Telecom and Expedient, which bought the Yipes fiber network. “They are doing gigE for the price of a data T1, so access is going to change,” Wilson says.

To solve access issues in Chicago, CAL is considering deploying its own wireless network and is operating a test now. Not only will the company deploy wireless, which it expects will give it coverage of 50 percent of the office locations in Chicago, but it also is testing a technology by a company called Telkonet Inc., which will use the electrical wiring in office buildings to deliver data. The technology recently received FCC approval, and provides access that can be controlled remotely from 1.5mbps to 25mbps. CAL is working with the City of Chicago to get safety approvals.

IPtimize also is using wireless by working with wireless ISPs, says Wilson. “I look for access providers that can provide a quality connection. Then I act as agent.” The reseller can’t provide quality; that happens at the access level. “What is important for me is that they have reliability and not go down for several hours during the day,” says Wilson. “The call has to go through and terminate, and we are continually watching that.”

For McGraw Communications Inc., one of the resellers of the Level 3 service, reliability had been something of an issue at the beginning. “The technology is good, and I think it was just a matter of time before it would work,” says John P. Cunningham, president of McGraw. Level 3 had two data centers for the service. “If you were in the newer node, the service was good. They had issues in the old node.”


Finding the price points and margins that work both for you as a reseller and for customers is one of the toughest challenges.

McGraw says, “You need to come to market with a vanilla-and-chocolate product and lay on features later. I could give you a laundry list of the things that [the Level 3 service] did not have, but the reality is, Level 3 has a great network, a very good reputation and credibility,” says Cunningham. “We could have gotten a lot of business based on that.”

CAL, based in a downtown area, is finding margins thin. “The pricing [from NGT] is still kind of high,” says Lopez. “When people hear about VoIP, they think the cost for telephone services is going to go down, but we still are going to charge $30 to $35 a month for each phone. The cost is still up there, so there isn’t much savings.” NGT offers different service levels from a basic phone to luxury service with many features, “but price is still up there and higher than it should be,” says Lopez.

IPtimize’s business model is different because the company also is an integrator, which enables it to get revenue from the installation and ongoing monitoring of systems. “I am not trying to run the business on just margins from hosted VoIP,” says Wilson. “If we were just relying on that, yes, we might have problems. But it is just one tool in our kit, and we can have a very profitable relationship with the customers.”

IPtimize also offers, services the customers could not afford before. With VoIP, they provision their own phones and no longer pay for moves, adds and changes. IPtimize encourages them to spend that money on mission-critical services, such as “monitoring and watching the firewall, and doing periodic assessments on Internet security and IP network for quality-ofservice assessment to be sure that structure has proper throughput.”

Finding the right customer is important. “If they don’t have the network, if they have to pay to upgrade, where are the savings in that?” says Lopez. “The ideal customer is one with multiple offices and people working at home … and people who travel a lot.” Road warrior customers, he reports, are delighted with the capabilities of the softphones on their laptops, a strong selling point for CAL.

Like many others, IPtimize has found that small business customers want new services but often loathe to part with their PBXs or may want new IP PBXs. Instead of selling only hosted PBX, “we put together recommendations that blend the two,” says Wilson. Customers can keep their PBXs but add extra services, such as unified messaging, from the hosted platform.

Wilson adds, “Let Toshiba manufacture it; I just distribute and support it. The VoIP wholesaler manages the network and switches, and I manage the use of the app as a reseller.”

Despite the issues with the Level 3 service, McGraw is committed to the product and is searching for another wholesaler, because the company does not wish to deploy its own infrastructure yet.

Rules for Resellers

When deciding whether to buy or build, there are many factors and choices involved in deciding whether to resell or deploy your own VoIP service, and which products to buy or resell. tekVizion Inc. is a consulting firm that specializes in integrating VoIP systems for service providers, whether they are doing resale or deploying their own software.

“One of the biggest challenges is looking at what you think the growth model is going to be. Then you decide what do you need to buy,” says Tracy Venters, vice president of solutions engineering, tekVizion. Also, “the ability to do something custom on it is very important right now, because otherwise you are just competing on price.”

Although Level 3 will no longer be available to provide hosted IP PBX services, the company remains an active player in VoIP origination and termination, VoIP longdistance, providing local DIDs and even E911. There are multiple choices for these services, with some of the players including AT&T Corp., MCI Inc. and PointOne Inc. Often, service providers have more than one agreement for VoIP origination and termination.

Another choice is whether to deploy new access infrastructure, such as wireless. “One customer wants us to help him put together a package with access being Motorola Canopy (a Wi-Fi system),” says Jerry Mistrot, solutions engineer, tekVizion. “Granted that rural phone companies do not have a lot of money to invest, but it may not take a lot of money. … You can buy a system for $100,000, $200,000, a lot of investment but they own the equipment, and you make a lot more revenue doing that.”

Because these services are available from many sources, “a mom-and-pop telco truly can be a reseller,” says Mistrot. What is important for a smaller wholesaler is “how they customize their service offering to be different from the broadband providers in their own backyard,” he says.

It is important that a reseller have some flexibility in putting together services. Wholesalers usually have “predetermined packages of services and don’t want to break them up,” says Mistrot. “They put together three or four packages and know they will make money at it at a certain price point.” But resellers should demand that the packages be opened, at some point, and customized. “If you just resell a package of basic services, that can be costeffective, but in a perfect world you can pick your own.”

There are service models other than full-featured hosted PBX. “You don’t have to buy a full IP Centrex offering to sell something to Joe the plumber with three phones, especially if you have a trunking mechanism,” says Mistrot. There are IADs, such as Epygi, with enough PBX features for a small business and support for calling over the Internet as well as PSTN connectivity for local calls on fax machines. “It depends end users and what they need,” says Mistrot. And service providers that are able, should consider multiple offerings for different audiences, he says.

One of those options should be a partial move to VoIP. “It is better to offer migrations,” says Mistrot. Not all potential customers are ready or financially able to dump their PBXs. “You can resell things like IP conferencing services, no matter what the customers have at the edge,” he says. “You can sell services to any of those endpoints and not be limited by the IP infrastructure or protocols.”

If a service provider decides to deploy its own hosted PBX service, the best-known providers are BroadSoft Inc., Sylantro Systems Corp. or VocalData (now part of Tekelec), “though there are many others that are cheaper and have different feature sets,” Mistrot points out. And another choice is to deploy an open-source hosted PBX, such as Asterisk or the SIPfoundry, the best-known suppliers.

If a reseller is putting together disparate applications, provisioning software, such as the package from Leapstone Systems Inc., may not only reduce stress but also produce significant savings in staffing.

Another decision is endpoints, “which may be determined by the end customer,” Mistrot says. Endpoints range from simple one- to two-port terminal adapters in the Vonage mold to futuristic-looking expensive IP phones will large screens. “There are so many on the market now, and they are pretty cost-effective,” says Mistrot.

Venters adds, “if you are looking to get into the market now, you had better be looking at a Wi-Fi endpoint. People want a cordless phone whether for the home or office.” Also, she adds, “Quickly, we will see the GSM/Wi-Fi phones. That is definitely the way it’s going.”

Endpoint choices may be limited to what is compatible with the wholesaler’s system or with your own hosted PBX software. “You have to consider, for example, what Sylantro works with and what can I offer my customers,” Mistrot says.

Sometimes the choices are limited only by the vendor’s ability to get compatibility testing done. “Often, there are other endpoints that could be supported but have not been trusted against the platform,” Venter adds. tekVizion works with major providers of IP centrex applications, “and they outsource interoperability testing to us in many cases.”

Even as the choices are made to resell or build, and what to build, service providers should plan for the future, and that means possible change. It is important to plan “to keep a consistent user experience, if you buy a product upfront but may want to switch to other products later,” says Venters. “An important piece of that is the Web portal. If you have a custom Web portal, that plays into branding and is a differentiator. And, if you design the right kind, you can switch out what is behind the portal, and the customer will never know it.”


Armstrong www.agoc.comAsterisk www.asterisk.orgDigium www.digium.comAT&T Corp. www.att.comBroadSoft Inc. www.broadsoft.comCAL Communications www.calcomm.comExpedient www.expedient.comIPtimize Inc. www.iptimize.comLeapstone Systems Inc. www.leapstone.comLevel 3 Communications Inc. www.level3.comMcGraw Communications Inc. www.mcgrawcom.netMCI Inc. www.mci.comMotorola Canopy Communications Corp. www.mpowercom.comNew Global Telecom Inc. www.ngt.comPointOne Inc. www.pointone.comSIPfoundry Inc. www.sipfoundry.orgSylantro Systems Corp. www.sylantro.comTekelec www.tekelec.comtekVizion PVS Inc. www.tekvizion.comTelkonet Inc. www.telkonet.comTime Warner Telecom www.twtelecom.comToshiba America Inc. www.vocaldata.comVonage Holdings Corp.

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