(from an interview by Dan Baldwin, TA Executive Director)
Most everyone who's anyone in "The Channel" was at the Washington DC Channel Partner show last week and I've been speaking to as many channel experts as I know to learn what they learned about ongoing changes in the channel.
This past week I had the opportunity to interview Chris Barton, Owner & CEO of WCS. Chris is a great resource for anyone in the industry trying to solve a complicated multi-location customer program or just trying to stay in business as a voice and data business consultant or reseller.
For years now whenever I get a call from a TA member with a customer problem I barely understand I tell them to contact Chris. Chris will either tell them how to solve the problem or to "walk away" from a time trap that will never generate revenue. Chris is also one of the first of the "everything under one bill" providers. Chris can figure out how to bill your customer's cleaning supplies on his telco invoice.
Anyway, what I wanted to learn from Chris this week is where he saw the channel industry going with the biggest carriers looking for "non-traditional" agents and what agents, resellers and CLEC needed to be doing to position themselves for prosperity (if not simply survival) over the next several years.
A transcript of the interview follows:
Dan Baldwin: Hello, this is Dan Baldwin and today I am speaking with Chris Barton, CEO and founder of Wholesale Carrier Services. Chris, thanks for speaking with TA today.
Chris Barton: Great Dan. Nice to be on with you again.
DB: It was good seeing you at the trade show and we are glad that you are taking some time to share your lessons learned from the trade show. Those people who are not familiar with Chris, WCS or Wholesale Carrier Services, has been in the market place as a kind of a one off provider for a dozen or more years and you've seen it all, done it all, got about a 130 solutions all under one label.
CB: Yes, correct. We're effectively a nationwide CLEC and a billing aggregator of a 125 different carriers and the product portfolio you just mentioned which is everything from voice, data, internet to collaboration services and voice over internet and data center solutions.
DB: Great and for the agents that have called me, if I don't know how to solve the problem, I just refer him to Chris because Chris has heard about every single problem and he is either got away to solve it or tell you don't touch that deal and you'll never make money.
So anyway, Chris, let's talk about what we've learned at the show. You have a couple of things that hit you. Let's talk about CLEC consolidation – what do you see going on there?
CB: Oh, I think with the recent announcements that some of the majors, certainly Qwest and Century Link, and that there have been a number of other minor transactions occurring, One Communication and some of the other folks out there making announcements, there's definitely a turn where size begets strength and the market that's rapidly collapsing margins and certain traditional products like POTs lines and some conversion to voice over IP, long distance minutes becoming product bundles that are over unlimited, things that have turned traditional providers to what I would call value, and going to more security with possibly a larger partner, and I think that's good for the industry. Some areas and other cases in my world, I don't always see that as positive because we rely on a very complex supply chain to meet all of these complex needs of our customers, so loss of providers through consolidation isn't always a good thing.
DB: Right. Do you see that the “National CLECs” like MegaPath where they can provide theoretically dial tone, anywhere, are they going to become stronger or they're going to get caught up on this as well?
CB: You know, that's a very good point. The Covad, MegaPath, SpeakEasy merger makes a lot of sense on a lot of fronts, but like any merger I think that most people would agree particularly Telephony, this is a statistical fact that better part of 70% of merges fail due to cultural challenges or integration benefits that were never realized or been on market dynamics that just shift during the process. In the case of Covad, I think having a wholesale brand under Covad, more of a retail web front type store with Speakeasy, and then to go in between MegaPath agent/SMB market model, it suits their business plan very nicely and allows them to do the core network piece and then also get into the enhanced services of selling business class voice over IP or providing more of an enterprise approach to a nationwide customer. So I view that as a very positive merger.
Platinum Equity has done a very good job over the years of bringing together a lot of the dispirit interest, monetizing them and turning them into better companies and I think that as a vendor to WCS, Covad, in particular, is a very, very strong provider. But they will have their challenges. They are trying to bring together three companies under one roof (I think they are half a billion dollars now). So there's a lot of management challenge in bringing all of that together, so the jury is still out and we'll see that our team is supporting us very nicely thus far.
DB: Right. That takes us in to our second point that we're going to talk about, but actually let's jump to hosted VoIP because the hosted VoIP provider, the Smoothstone’s to the Telesphere’s, the Alteva’s and some of the higher end ones, want to say we're a nationwide CLEC and that we can provide phone number, dial tone anywhere and put it all together, but, you're seeing some challenges facing these hosted Centrex type providers due to net mutuality/neutrality?
CB: Well it's a kind of a two fold question and let me split it into two. The first component would be the concept of having a central office in the sky and all your DID's point to that and you provide effectively a virtual telephone network over hosted IP Centrex and it makes a lot of sense. It's got scale. It's got a lot of financial benefits and properly built and properly run, it should work and the problem in that word is ‘should’ means that all things are lined up and the stars are all straight, but what we are seeing with hosted IP both in our own deployments and in the deployments we talked to with customers, they're happy and unhappy.
There is a tremendous amount of planning a significant amount of effort that must be placed on the Channel partner shoulders, out in the field, to properly spec and configure these networks. So that the service provider can deliver a quality product each and every time and that's a very large challenge and this is not selling dial tone through copper POTs line, this is more basically building station level configuration at the desktop and then sizing appropriate products to it. So, Alteva, a wonderful company, and does a fantastic job out there, and I'd like to be a big supporter of the unified communication platform. You know, the Smoothstone’s and some of the other folks very well respected brands and I think that they all have their place in the market but, what I think is curious is that it relies on a network to deliver the quality and everybody has got there on approach - some are delivering the network with their product, some are delivering bring your own broadband, they don't want to be in the business that's managing the bandwidth, and some are trying to be CLECs, but have no idea how to run a multi-location multi network CLEC which is necessary if you're going to serve an enterprise customer, you can't just throw them on hodgepodge with DID's and bring these all back to your cloud and not provide him with the service level that he is accustomed to for his public telephone service, so there's more than that meets the eye to it than the market we serve which is predominantly the $50,000 a month and up customer.
You know, hosted IP doesn't make sense in a lot of cases because premise IP from a financial perspective really in a long run and makes a lot of better sense, it gives the customer control and more of a manifest destiny over at the direction of their infrastructure. So we kind of are on the fence right now - is hosted IP really here for the market we serve? Pieces of the call centers make sense with single location or maybe a small set of locations with a lot of seats. Others that are thousands of locations dynamically built with maybe 4 to 10 seats each. You know they are just going to premise solutions with headquartered brains somewhere. So that’s rise to a different kind of sale.
DB: I went to unified communications conference earlier in the year and it was sponsored by NAC, Avaya, IBM and the big hardware guys and they don't seem to be wanting to give up, the mid-level enterprise group, they're saying hey, you just take our servers and put it in a COLO and it's the best of all worlds. It seems hosted, but you don't own all of the equipment.
CB: Correct. So there's a hybrid. It's much like our business model and we have a traditional agent looking model with it's classic commissions. Then you have a buy and sell kind of relationship and then you have a totally private label. You could say the host in Centrex world kind of looks like that today with premise and hosted. You outsource when it makes sense. You, quasi-outsource and manage to cut your cost and then if you really want to invest because you have an IT Department you do exactly what you described.
You hang some boxes, you take responsibility for them and you cut out effectively the service provider who's billing you for that on a per se basis for the rest of your life. Everybody’s got their own config and it's the job of the channel partner, and this is where the struggle is coming in, to assess what makes the best sense in an otherwise pretty choppy market. It's not what I would call for every channel partner to make that assessment
DB: So, what I hear you saying then is that the partners that are drinking too much of the hosted VoIP Kool-Aid, I mean, they need to drink like an equal amount of the IP PBX Kool-Aid, it to make sure that they're sharing with their clients an even picture of what's moving forward.
CB: Yes, I mean, there's not really a correct answer necessarily for even one individual customer, there can be multiple approaches, whether you buy a box and that you can even do both in some instances but generally speaking, the customers were asking for - I had a legacy network. I'd like to move to the new technology of IP.
How can I get there? And the channel partner generally takes them in a direction because it's so complex to sell it and it's so challenging for the buyer to really get his arms around it, to introduce many solutions, it starts to bring that sales dynamic into place that says too many options, slows down your sales cycle. So, it's natural that, there's probably a single approach focus for a lot of channel partners because it is a lot to digest.
DB: Right. Now, you heard something going on about net neutrality, how is that going to be playing out in your point of view?
CB: Well, I had a chance speak to some regulatory attorneys and some folks over at Comptel and there's some really serious issues facing the telecommunications industry, particularity the resale community as we know it. You know, we all lost the NAP war to the political action committees of AT&T and Verizon and Qwest and, well, an honest fight was made at Capitol Hill, that didn't turn out as planned. Comptel and a number of other regulatory support groups and carrier political action activist have done a fairly good job, I think, of going out and representing the interest of the competitive carrier community. To make sure things like Qwest and Verizon recently were pushing really hard to deny even key one special access and hundreds of CO’s around the country. Qwest was successful in say, Omaha, Nebraska (that market is now non-competitive). You can't buy a loop. So there was an effort that was shot down primarily due to what I believe is a democratic caucus saying we do not want unfettered market influences to determine whether services are available.
The pure essence of the Telecom Reform Act of ‘96 was supposed to address these issues and some of the functions of internet. Well, what's happening now the have kind of moved away from, the carrier's have, and their political action committees, it moved away from the traditional sense of let's try to tie up the local loop, the last mile piece. Now, they're going into the cloud and they're saying, internet peering as we know it, is not covered by the Telecom Reform Act and they're making arguments in the Senate right now that they don't really want to have the, what I would call the responsibility, the requirement to peer back and forth effectively, potentially shutting off the ability of any reseller or even common carrier to be able to access the internet in the same fashion as say, AT&T and Verizon or dominant ISP does.
It could also affect in a big, big way the prices paid back and forth for what I called common transport. So some of the conversations I had were really alarming. I think the biggest fight that the telecom industry is ever seeing against these multi-hundred billion dollar companies is really at hand today, it probably won't show itself until later part of next year, since some of these things that are going on, but it is something that I would encourage anybody who's launching a voice over IP company. You mentioned some very significant names in the business and many of these folks are in an executive level because I've talked to them, have no clue that this is going on and…
DB: And this could create a huge problem for the hosted VoIP companies.
CB: Yeah, I can't tell you, for those who are listening to this broadcast, Comptel is our trade association, they do charge dues, but those dues are paid -- there's two full time attorney’s that work in Washington DC and regularly lobby for the interest of a competitive communications industry and, if it weren't for some of the efforts of Comptel, we wouldn't be talking right now. This would be a very, very different landscape, so it's important that people choose to participate and I even commented to some of the folks - we've always been a contributor, but not always a member.
It's very, very important that these things are taken care of and our interests are represented because the people that were basically pushing up against in sales and in regulatory are hundreds and hundreds and hundreds of times our size, and with financial might and market prowess so we have to be careful.
DB: TA will contact Comptel then to see if we can get some content to share with our members.
And now, in the telecom expense management space, I mean, you're big in that space, but you're seeing some things that are rather surprising you about copper and POTs not being dead?
CB: Yeah, it's kinda funny. I know many people have you have just subscribed a u-verse or some of the Qwest high speed products and certainly FIOS and the Verizon backyard for their consumer services at their home. FIOS chose the copper to the curb, copper to the home, actually right to the D mark path, which is a huge investment. They’ve now backed away from further infrastructure deployment and they're just building out sales into the market they already have. AT&T recently announced that they will be delivering next year a hundred megabit over standard twisted pair.
CB: So you'll be taking a full hundred meg Ethernet intergrade port over the traditional 102 year old copper plant facilities that are in the ground today. That's a game changer. And that's a dual bonded video cell technology live and real here today. Pieces of that technology being used to deliver u-verse the 24 megabit downstream prospective to the consumer. They're going to launch it's all business and replace their DSL platform. So imagine a world where DSL - I don't know what the distance limitations would be, but imagine we're very high bit rate delivery methodology can come across the standard copper plant. Look how fast you can deliver DSL to a customer today.
That's what the Covad’s and all these other folks have grown from so, when you look at that, you kind of have to look at the world a little differently and say, well, there's a reason why Verizon was ripping all the copper off the wall and they're putting a time frame. And there's a reason why AT&T went down the path they did, because they are smart, the former Bell Labs guys, they know what they're doing. And one of the things I'm looking forward to is that copper, from a POTs line perspective, isn't going anywhere. I mean, there's a large number of lines certainly diminishing every month.
But, the concept that enterprise class customers are going to take out all their copper and replace it with Voice Over IP and some of these other technologies, simply is ludicrous, it's going to take years and years for this to happen. And as a result, telecom expense platforms to manage all the billing, to manage all the incremental charges that are being stuffed into that billing, and all the technologies that lay on that lay on top of that copper are all still going be in place years from now.
It's just, like I don't know if any of the other customers you talked to have this, but we still have ISDN per minute, whole minute bill customers doing video conferencing at 10 to 25 cents a minute. Because they just haven't bothered to pull out their IP equipment even though we've made a recommendation to do because it’s in their network, which is not the highest priority thing they're doing that day
DB: So with the AT&T delivering a 100 meg over twist repairs substituting that were DSL might be (??), it's going to make them a formidable competitor such as we're already competing fiercely against the Comcast and the other cable companies in single locations losing quite miserably. So this will make that challenge even bigger?
CB: I think so. I think that the challenge that we're all facing in this business is that when you're selling things for a $100 a month or less in quantities and in quality, the people are willing to consume, to run their core backbones in the market where they used to pay hundreds of dollars. You got to look at your business model and say, is this sustainable? What part of the market am I addressing? And, do I want to make a living? Even if it's at 30% margin. Do I want to be in the business where I have to sell $79 products or, in the case of hosted Voice Over IP, $29 products by the thousands so I can make a living, and I have to support all of that. You know, there's arguments to be made for both, and I'm not saying right or wrong.
I'm just saying that the decision has to be made by CLEC owners, such as WCS and others, where is this business going and what part of the industry do we want to play in? Our company has chosen for 15 years to play in the mid to large enterprise space because that's where we enjoy the technology adoption, that's where the guys are really on the edge, pushing the envelop to put new technology, so there’s something fresh and new to talk about. I can't say that's the same for the SMB industry - small to medium customer that spends $500 a month on their telephone bill.
DB: Right. Right. So I guess…
CB: It's a different approach.
DB: So that takes us into our final comment that I guess we both learned at the show was that for agents to survive moving forward, they have to take the advice of the carriers at of the show and be doing delivery and some value that puts them in conversation with our clients virtually everyday.
CB: Yes, I mean that's a really good point. The traditional agent I think over the years has actually begun to evolve - so that's exciting. When I walked the trade show floors in the last several years I haven't seen a lot of young faces, I haven't seen that many new faces, I do see what I call people within the industry for 10, 20 years continuing to make a living and a good living. But what we're beginning to see more of, and this is where the interesting part starts to develop, is the application guys are starting to enter the fray - people that write software for the iPhone and for the Android platform.
You're seeing guys monetizing content over the copper line or the Ethernet connection. The money is not going to be long term in my view but per minute to per meg carry rate, I’ll just called that transport. The money is going in the things that you add to it whether in the back end applications like unified communications that LT the cells or if it's more data center, management platforms for managing your boxes or VM ware, things like that. I don't think you're going to see a peer play telecom in the new world much longer, because there's just not going to be any money left in it. And the agent who don't transition are going to have to make a decision, and they going to be wireless guys where there continues to be a lot of spend, or they're going to manage the churn and manage the base for as long as he can do business and try to make a living doing that.
You got to make a conversion at some point to, as you point out, following where the carriers and money goes. The best way to do that -.there's no finer way than to read annual reports of the top 10 carriers - where are they spending their capital budgets. And you'll see the same three things: wireless, cloud, and Ethernet. That's where all the money is going and that's where we should be all selling. So that's what we're trying to build to as we speak.
DB: Well, my take away from the show is five years from now is really going to be 2 kinds of telecom agents or channel partners as we understand that the ones that, consult like WCS to the middle of our own enterprise customers. They've got hundreds of locations across different LECs. And so their billing is complicated where they need telecom expense management and wireless expense management. So you have all those types of agents. And then on the local level, you'll have brick and mortar interconnects that are also offering any sort of phone system, any sort of IT and they've got all the local trunks. Does that make sense to you? To see any other successful agents five years from now?
CB: Sure. I think the infrastructure guys and the trunk roll guys and the people that really work on the network and build things are going to be a very, very positive part of the distribution strategy of all carriers. And there's the application service guy who are selling telecom as part of the delivery mechanism to make money in maybe multiple places. But I think there's another guy out there. And the other guy is a guy that's been in the wireless space, so I'm starting to see them calling us more often. They're pure play wireless guys that have built either call bodegas or small local distribution farms to sell mobile phones for the Sprint’s and Verizon’s of the world and AT&T, of course, I don’t want to be disrespectful.
They began to realize that wireless does connect to the terrestrial network and the customers really want both, so they got to integrate in order to continue accelerate their handset deployments because it's all kind of converging. And that takes a lot of skill and very few people are going to have all that skill under one roof so partnerships are being formed more and more regularly, I mean, the last several large bids we've done here at WCS have all involved between 2 and 3 hundred million dollar plus companies. Because you can't deliver all things to an enterprise customer without what I call specific subject matter experts in their fields. And when you bring all that together, that's a consultative selling you're talking about and that's that agent who knows how to do that is going to win in those next five years you discussed.
DB: Great. This is Dan Baldwin. I've been talking to Chris Barton, the CEO and founder of Wholesale Carrier Services. Chris, thanks for talking to TA today. Anything you want to share on closing?
CB: Just join TA - it’s a great trade group. And, continue to be a part of the telecom regulatory side - it's very important for all of us.