“I’m not saying it isn’t a threat, I’m simply saying it isn’t high on our list. Every week we look at the customers who have left us and analyse the reasons why. I still haven’t seen any major customer leave us for a VoIP solution and this is out of a sample size of c20,000 business customers.
“I think the threats facing our industry in the next 2-3 years are more to do with changes in product mix. This industry was built on selling fixed line calls with margins of 30-45%. Any product with margins this high allows for room to pay high commissions to your sales channel, regardless of whether the sale channel is direct or indirect. It is wrong to say that call margins are dropping rapidly because they are not. Falls in wholesale costs have often more than offset falls in average retail prices. The key issue is declining call volumes.
“Our challenge is simple; the solution is not. As an industry our highest margin product is shrinking and all of the new products we can sell are roughly half of the margin of calls. This not only means we have to sell twice as many to stand still, it also means that we do not have the ability to pay high sales commissions on the newer products.
“We have to stop selling on price. A perfectly valid criticism of our industry is that we are obsessed with selling on price. If you come from a background of selling a commodity such as minutes, then for many years you may have simply competed by offering lower prices. We have to change that mentality. We are developing some excellent new products that are technically superior to the ones they are replacing but we are pricing them so far lower than the previous generation that we are immediately making them into low margin products. This is madness.
“Why are we not launching new products at higher prices and reducing them over time? Some resellers seem to be unable to stop selling on price alone; either because they are addicted to competing on pricing, are unable to sell solutions, or are just financially desperate. We have to rid the industry of these sales techniques. The true dinosaurs in this industry are these sales people, not specific products.”
The future is bright …
The latest OFCOM survey of our industry shows that business spent £13.9Bn on telecoms in 2008, and half of the businesses surveyed said they planned to spend more on telecoms services over the next year. A third of businesses intend to spend more on internet, particularly higher bandwidth. Almost unbelievably 1 out of 10 businesses is still not connected to the internet!
Ian Fishwick continues, “It is easy to get gloomy in the middle of a recession but this shows very clearly why the future for telecoms resellers is bright.
“However we still have a lot of work to do as an industry because 1 out of 3 businesses think that telecoms is just a utility and therefore don’t understand how technology can be used to improve their profitability. Only 8 out of 10 businesses are satisfied with the service they receive although to be fair most complaints are about slow broadband and poor mobile coverage. We often make the mistake of thinking that businesses all change their suppliers regularly but that is not true. Only 1 out of 3 businesses have changed supplier in the last four years. The most common reasons for not moving are nothing to do with technology: they don’t know how to compare suppliers, think pricing is complex and difficult to compare, and don’t like long contracts.
“The increasing availability of more robust broadband and higher bandwidth at lower prices means that there is a great opportunity for all of us. I do wish that as an industry we would get better at naming products. We have a lot to learn from the TV industry; we’ve all been brainwashed into thinking that HD television is the new must-have. But that is only because all of the suppliers in the TV industry agreed to call it the same thing. We urgently need to agree a better name for business-grade broadband. Suggestions please. Can I suggest that ADSL Annex M is not terribly catchy?”
Rob Sims, managing director of total channel solutions provider, Tempest, says that despite the declining minutes market there is still a real opportunity for resellers offering traditional product sets, so there is no need to panic.
“However, the same resellers need to be aware that the market is steadily veering towards IP-based telephony solutions and that they need to start to consider amending, adjusting and expanding their offer in order to stay in the game.”
Sims believes there are three phases to the transition from fixed line minutes to voice over IP.
He said: “The first thing you need to do is ensure you have all the basic elements in place; including calls, lines, NTS and broadband.
“Ask yourself; do I have the facilities in place to be able to cross sell products into my customer base? Does my system enable me to look at products I may need to add to my portfolio in the future or provide the flexibility to enhance current product sets?
“These should be the first, short-term, quick wins that will boost revenue and help lock out competitors.
“Phase two of the transition is to recognise that you will have to change in order to survive the market, which may mean working with a facilitating partner.
“Data services product sets, fixed to mobile convergence and mobile opportunities are fundamental for the future, but if you don’t have the right access required you can’t deliver the applications which your customers require.
“It is important that you do not dilute your buying power. Look for partners who can provide a single source offering for all services and make sure you are maximising the efficiencies of all your systems.
“The final step in the transition is to capture your customers’ access circuits and think about the things you can sell into them.
“You cannot be all things to all men, as every customer has different requirements, so choose the customers you want to work with and make sure you have capabilities that meet each of their individual requirements.
“Fixed line continues to have a place in the market and will always do so, but none of us can be complacent and think things are not going to change.
“In order to maximise margins, resellers need to get their offer right, decide where they want to be in the future and make sure they have the right partner in place to develop future applications.
“The future of telephony will be driven by business efficiencies and productivity and requires more sophistication than making a simple phone call!”
Dave Breith, CEO of O-bit telecom says choosing the right distributor for any VAR is key; “Anyone can supply you Lines and Calls. The end decision is normally based on who is the cheapest, but, is the cheapest always the right solution for you?
“There are many distributors in the market and all claim to have the best service, support blah blah blah…. But when it comes to the crunch, are they actually in control of your telecoms or do they just buy a bit cheaper than you from a network and then pass it on?
“O-bit telecom runs its own voice and data network which sets us apart from the rest. Value-added services where you cannot afford to get it wrong like Broadband, hosting, inbound numbers, IPVPN and MPLS is where the value is added. Anyone can just buy cheap lines and calls, but the long-term prospect of your business should not be reliant on these services.”
Despite the economic uncertainties, 2009 was a vintage year for consolidation in the telecom reseller sector. Adam Zoldan of Knight Corporate Finance says that in its first year, they advised on 10 transactions, varying in size from around £1m to Daisy’s £17m acquisition of Redstone’s telecom assets.
“It was a year when many observers expected a rash of distressed sales, but in reality the reseller sector held up extremely well and valuations remain strong.
“This trend is set to continue into 2010. The traditional telecoms sector is not growing; the once significant pricing gap between legacy operators and the dynamic reseller sector has narrowed, contract terms are more stringent, and high levels of customer service offered by the reseller community has dramatically reduced churn. The result is that organic growth is now more difficult and more expensive, and in turn this is the driving force behind many acquisitions.
“So what is the future for resellers? Those looking to continue with basic calls and lines, should consider an exit now as the market will decline and competition will only get stronger. The timing for a sale is good, valuations are strong and there is plenty of appetite from buyers.
“However there is a proliferation of opportunities to increase value. The irresistible move to IP telephony will afford organic growth opportunities to upgrade customer lines. Mobile operators are finally embracing the channel, and hosted IT and software services will become more prevalent and offer a whole host of new recurring revenue services. All of which plays directly to the strengths of the reseller.
“The telecom reseller community delivers cost-effective customer solutions and their greatest attributes are arguably profitability and sales ability. For those resellers that harness these attributes and embrace new services the opportunities are as good as ever. Matt Riley at Daisy has proven what a reseller can achieve, and at Knight we know that the next Daisy is already out there.”
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