Telecom Agents Swarm Into Midmarket VoIP

What a fitting analogy for the midmarket VoIP space, now that large carriers like Verizon and Qwest Communications International have taken steps to reduce the commissions and profit margins of their reseller agents. Changes to the 2007 agent contracts of Verizon and Qwest, both of which went into effect in January, are making it more difficult for many agents of the two Baby Bells to make money.

In the case of Verizon, the changes actually disenfranchised many former MCI agents that were brought on board after the merger between Verizon and MCI.

Those agents hit by the contract changes want to make up for the lost revenue somehow, and further diversification of their services into VoIP and next-generation IP data technology is a logical way to do so, said Tom Hsia, general manager of Servion Global Solutions, a South Pasadena, Calif., solution provider with telecommunication expertise. Of course, this means a significant increase in competition in the midmarket VoIP and IP data sectors, and a challenge as to which of two camps will have more success at closing VoIP deals— traditional network-centric solution providers or voice-savvy telecommunication agents, Hsia said.

Fred Reck, president of InnoTek Computer Consulting, Bloomsburg, Pa., has already begun to see an increase in VoIP competition from telecommunication agents that clearly display an increased appetite for landing next-generation IP services deals. InnoTek partners with Nortel Networks' Norstar Integrated Communications group when customers want IP telephony solutions added atop InnoTek's network solutions because InnoTek "is just not prepared" to handle a VoIP rollout, Reck said. The appearance of more aggressive, highly skilled voice competition in InnoTek's territory is unsettling, he added.

Less loyal to the carriers that dealt them a pay cut, many of these impacted agents have begun running their VoIP work through smaller bandwidth providers such as Level 3 Communications because they offer much higher resale margins than the carriers do, explained an agent affected by the new Verizon partner contract.

"A lot of guys have jumped heavy into the [VoIP] space, and even into wireless solutions, because they have to ramp up alternatives," this agent said on condition of anonymity.

Apples to apples, agents can get much higher VoIP commissions from a Level 3 than from a Verizon because the smaller bandwidth providers have selective, limited distribution that brings high margins, the agent said, adding that the reality is the smaller bandwidth providers like Level 3 know this and use the better margins as a draw to agents that have taken a carrier pay cut.

"At the end of the day they have to provide some margin shelter for the guys looking for that shelter, right?" he said.

Level 3 has seen something like a 20 percent increase in new partners over the past six months, and many of those partners have a "distinct ILEC footprint because they are looking for alternatives," said Craig Schlagbaum, vice president of national partner sales and programs at Level 3, Broomfield, Colo.

Solution providers ramping up their own VoIP offerings have cause for concern as an increasing number of agents increase their efforts in the midmarket IP voice and data space, said Servion's Hsia. The reason is that success in the midmarket VoIP space could prompt legacy telecommunication service providers to begin to compete against the bread-and-butter networking offerings of traditional solution providers.

In fact, a legacy telecom background may make it easier for a telecom service provider to enter the networking space than it is for a networking solution provider to master the art of VoIP, Hsia said. As for the Baby Bells themselves, they may be eyeing the midmarket space for next-generation voice and data services, but they are not very good at it, said Scott Strochak, CEO of Xtelesis, a master agent for AT&T and other carriers in Burlingame, Calif. The Baby Bells may be able to bid any size job, but their large size and bureaucracy layers mean they simply lack the agility to properly serve midmarket customers, he said.

Thankfully in all this, there are plenty of potential midmarket VoIP and IP data services customers to go around for everyone right now, said Quy Nguyen, CEO of Allyance Communications Networks, a carrier-neutral master agent in Irvine, Calif. Nguyen said a new breed of customer he dubs "the Now Generation" is pervasive and ready to adopt VoIP and other high-speed, high-bandwidth IP services.

"And it just makes the opportunity more lucrative for everyone," he said.

Verizon, Qwest and AT&T declined to comment for this story.