Channel Partners

April 1, 2008

5 Min Read
Soap Box: Dont Create Your Own Recession in a Recession-Proof Business

Larry Fishelson, COO, Dynalink Communications

Welcome to telecommunications, the second largest industry in the world behind defense. Even the richest man in the world is in the industry; Carlos Slim of Telmex surpassed Bill Gates for the honors in 2007. Why would you say telecom is so high up? I say telecom is like death and taxes — unavoidable. Everyone needs a phone, a way to communicate. It’s virtually recession-proof. No matter what happens in the world markets, everyone will need to have communications service. Moreover, companies constantly are looking at ways to save money, so they will look to telecom as one way to cut costs.

Despite being a recession-proof business, there is a mind-boggling scenario at work that puts agents’ revenue streams at risk. Here is how it happens: You are a telecom agents’ out to make big money in this industry. The wind is at your back — all you see are blue skies, green lights and the beauty of American entrepreneurialism. You wake up, get out there, leverage your relationships, compete head-to-head with the direct sales teams and, hopefully, sell telecom services to businesses. When you are successful, you then fight through service delivery, missed firm order commitments (FOCs) and porting problems to get the customer up and billing. Then, you wait for months before finally receiving a commission check. Just when you think everything is grand, you get a letter stating that your carrier has reorganized and you will no longer receive commissions on your base.

Is this what the industry has come to?

Every agent, including you, is in this business for one reason: an annuity. You want to build up a base of accounts earning enough residual income to satisfy your income requirements and ability to retire. Everyone has his or her own personal goals. But, generally, the way it works is the agent brings in business, the carrier keeps the customers, the agent is paid and everyone is happy down the line.

So my question is why would you, as an agent, do business with any carrier without a solid evergreen agreement? A solid evergreen agreement states that as long as your accounts are in good standing with the carrier (on the service and paying their bills), you will continue to get paid.

“Enter at your own risk” is the neon sign that should be at the front door of any agent trade show or carrier’s front door. It’s amazing how many agents today are being robbed of their hard-earned money. You can bring business to carriers for years, and then one day wake up to find your carrier has cut you off.

The bizarre part is that it makes no sense for the carriers either. Carriers set the margin they want to make. Paying an agent is a variable cost. Carriers pay an agent based on what he or she brings in. They are not paying the agent’s salary, benefits, vacations and expenses. They are paying for performance.

Part of that performance is retention. The retention rate for agent-sold accounts far surpasses the retention rate for direct-sale accounts. Part of the reason for this is that when a direct sales rep leaves a company, the first thing he tries to do is take the business he sold from the last company to the new company. Everyone knows this happens. Let’s face it, people buy from people, so the rep has a great chance of taking the customer with him. The beauty of the indirect channel is agents are paid a residual to keep the customers on the carrier and keep the gravy train rolling. Why would carriers that have seen churn from the direct side bite the hand that feeds them by shutting down agent revenue? Haven’t they learned from their experiences with direct reps that all they are doing is forcing an agent to take the business to a new carrier?

The cost of acquisition for any carrier is high. There is provisioning, order entry, etc., so to lose existing revenue pulls money from the bottom line in more ways than one. Carriers not only lose the revenue from that customer, but they incur additional costs to replace them with a new customer.

Let’s recap this scenario: 1. A carrier recruits an agent to bring in business and pounds him with commitments to ensure he does. 2. Once the agent’s base is built, the carrier finds a loophole in the agreement, enabling it to stop paying commissions. 3. By cutting the agent revenue stream, the carrier has forced the agent to move the business to another carrier. 4. Go back to Step 1. You don’t have to hold a degree from Wharton’s business school to see this is a bad economic cycle.

So, before you decide to retire to Hawaii, you need make sure you have solid evergreen agreements with the carriers you work with. If a carrier won’t give you an evergreen agreement, then why deal with it? You would be better off going to Las Vegas and putting money down on the roulette table. There is a similar chance of success. In both cases you are gambling, putting your money at risk. Instead, protect the money you have earned. Be smart, be wise, and don’t create your own recession in a recession-proof industry.

Larry Fishelson is co-founder and COO of DynaLink Communications, a nationwide switchless CLEC founded by a top master agent for agents. It offers agents, among other things, evergreen agreements.

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