The Cable Guys: Where They Stand on the Indirect Channel

By Khali Henderson

Cable companies are significant telecommunications network service providers. They are the incumbent telcos’ primary rivals for consumer triple-play spend, but they also have made inroads into the business markets on two fronts: high-capacity and alternative access services for medium and large businesses, and voice and data for small businesses. Most cablecos have one or both offers at this point. What they don’t have is an experienced direct sales force to sell it. That’s why many are engaging the channel with more vigor recently. More providers are on board and the early adopters are sweetening their offers.

“They all seem to getting it, finally. By ‘it’ I mean they are going to have to include the channel in their plans going forward,” said John Macario, president of Savatar, a consulting firm with experience in both channel and cable telephony strategies. “This is probably due to a combination of two factors. The first is that their products are at a stage where they can sell them to real businesses. It’s been a long time coming, but they do seem to be here now. Secondly, they are looking at their costs of doing business.”

The cost of doing business includes two things: One is the transition from a consumer-focus to a business focus and the second is sales costs. “They’ve looked at the cost to build a pure direct model to reach the kinds of markets they want to reach and probably have come to the realization that they need to find a way to effectively add feet on the street by developing an indirect channel,” Macario said.

While they all may have reached this same conclusion (some as recently at this summer), they do not share the same understanding of how to build a channel. “I think some are trying things and going through some of the same internal arguments phone companies went through 10, 15 years ago: Do we do a bounty? Do we need a recurring stream? Is it some combination of the two? How do we deal with conflict between them and our direct sales force?” said Macario. “I am not sure all the MSOs will have a credible program coming out of the gate, but I think once a few of them figure it out, their brethren will be quick to follow and take the best of what’s worked and make it work in their organizations.”

What’s worked depends on your perspective. But Vinny Helfrich, vice president of business development for master agency Teledomani Inc., based in Beth Page, N.Y., advises cablecos to look at the Cablevision model.

Cablevision

Cablevision has been developing the indirect channel longer than its peers; its referral program for its Optimum Business products started in late 2005 and Cablevision added an agent program in summer 2006. The Cablevision agent program started with upfront bounties paid on sales, but in March 2007 changed to include a combination of a one-time spiff and a monthly residual commission, a key component as far as telephony agents are concerned. “No [residual] was the primary reason we did not sell Cablevision,” said Helfrich. “While we knew that DSL was not necessarily the best fit for the client, it was the residual income we were looking for, so we were motivated to push that type of product.”

Today, Helfrich said sales of Cablevision make up 15 percent of Teledomani’s business.

Cablevision has nearly a dozen master agents and about 80 direct agents, said Joe Magliulo, director of strategic sales for Cablevision. It also has doubted its support staff to include three (soon to be four) account managers and four dedicated support staff members.

The company also is soft launching its new SIP trunking product exclusively through the channel, Magluilo said. Cablevision has signed an agreement with Linksys, a division of Cisco Systems Inc., for interoperability with its small business IP communications systems. The bundle will be sold through Cablevision agents and Linksys VARs. That deal was a clincher for agency GTel Networks Inc., a Linksys VAR that signed up as a Cablevision agent last summer in anticipation of the offer, which came out Aug. 15, 2008. Greg Tellone, founder and president of GTel Networks, said the bundle gives him more revenue opportunities, including residual on the SIP service, margin on the Linksys hardware, fees for installation and recurring fees for maintenance agreements. More importantly, he said, since Cablevision is not selling the Linksys hardware, it will be a source of additional leads for GTel Networks.

For Tellone, the leads and the association with Cablevision (agents have to go through a vetting process before they are accepted into the program) are more important to GTel Networks than the residual income.

Cablevision’s big bandwidth services are sold through a subsidiary, Optimum Lightpath, which launched its residual based program in February 2007. The two programs share marketing and recruiting, but part ways when it comes to support staff and back-office systems. Optimum Lightpath has 10 master agents, about a third are shared with Cablevision, said Matt Grover, vice president of sales and operations for Optimum Lightpath. Grover said Optimum Lightpath’s products are 5MB and above, so it’s more for the medium to large businesses. In contrast, Optimum Business is for 12 lines or less.

Agent Tellone said during the Sept. 11 attacks all of his customers went down except the ones on the Optimum Lightpath network, so his company decided only to sell providers with their own facilities and became one of the first referral agents.

Both Tellone and Helfrich said Cablevision’s willingness to listen to its partners about changes to process and product is another big plus. Both reported changes were made based on their input. “I know I am having an impact,” said Tellone.

Helfich said because of the cooperative nature of the MSOs, he was introduced by Cablevision to executives at the No. 1 and No. 2 cable companies, Comcast and Time Warner Cable, respectively. Each was investigating its own channel strategies. These were welcome conversations as far as Helfich was concerned. Like many master agencies Teledomani is nationwide, so working with Cablevision, which services the tri-state area (New York City, New Jersey and Connecticut), covers only a small part of its agents’ territories. “We’d like to sell services in their footprints as well,” said Helfrich, noting that in many cases Teledomani’s agents could position the cable company network as a primary or backup network along with the traditional telco. “You can provide true redundancy and that’s a real hot button for customers these days.”

Comcast

Since those initial conversations, both companies have come to the table with offers. Comcast in January launched a referral program, wherein it pays agents a one-time bounty on referrals for SMB accounts to direct sales force.

Ed Gallagher, vice president and general manager of business services for the NorthCentral division of Comcast, said to target the SMBs the cableco has invested heavily in a direct sales team that, in each of its four regions, has doubled or tripled in size in the last 12 to 18 months. This growth coincided with the launch of the company’s business-class voice product. “We now have a bundled product offering for small and medium businesses – voice, data and video with some nice desktop features, including Microsoft Exchange and McAfee virus protection,” he said.

Gallagher said the referral program is complementary to Comcast’s investment in the business product, sales force and back office. “We know that there is a high percentage of small and medium businesses that use third parties – VARs and agents. We feel that this opens up an ability for them to get to know Comcast and for their customers to experience our quality.” High-capacity services also may be available for referral depending on the region, he added.

The program is managed nationally, enabling agents to sell across divisions, but each region handles recruitment, training and day-to-day support for agents in its footprint, which is the largest of all the MSOs and the fourth largest residential phone company. Comcast serves 39 markets and the District of Columbia.

Because of the program’s newness, Comcast executives declined to reveal the number of participating referral agents. And, it also declined to offer the national program managers name for publication.

Gallagher said Comcast will look to evolve the program and “will look at other options as we progress.” He stopped short of promising a residual commission program as part of the roadmap.

Time Warner Cable Business Class

In contrast, Time Warner Cable launched its national partner program in March 2008, with a residual commission model.

Ken Fitzpatrick, senior vice president of business services for Time Warner Cable Business Class, said he looks at the partner program from the customer’s perspective. “How we can bring value to the customers, how we can make it easier to buy from their providers. If that’s through a trusted adviser and a third party, we have to embrace it,” he said. “My commitment to this channel is great. I’d like to see our revenue grow to 15-plus percent coming from this channel.”

Launching a new channel requires a learning curve, Fitzpatrick said, adding his company has been going through that for the past 12-18 months. He said the keys are making it easy to work with the cablecos and getting the right agents on board.

The Time Warner Cable Business Class program is exclusively two-tier. So far, the company has recruited 11 master agents, including Teledomani. The most recent, Intelisys, was announced in early September. Brian Snortheim, director of marketing – alternate channels for Time Warner Cable Business Class, said a few more agreements are pending.

Since the program was launched, Time Warner Cable Business Class has added its Business Class Phone service. Fitzpatrick said the launch this year has gone well; so far the company has sold 50,000 lines and has 16,000 customers as of the end of second quarter. It was rolled out market by market beginning in January. This summer, the company also began allowing its agents to sell the service. Initially, it is being offered through three master agents – Teledomani, Telecom Brokerage Inc. and World Telecom Group.

Teledomani’s Helfrich said Time Warner Cable is not as quick to change as is Cablevision, but he understands the difficulty of such requests across a larger footprint. He commended them on having online tools available right out of the gate.

“What we have found over the last six months that we’ve had the program in place is a warm reception. I think our recruiting efforts and the caliber of partners that we have signed have proved that,” said Snortheim. “Not only does the Time Warner name resonate well with them, it seems like there is a lot of excitement to get going with the cable industry.”

Fitzpatrick said this is due in part to the changing competitive landscape, which is characterized by consolidation among the incumbent telcos and the implosion of smaller CLECs. “The choice for these agents has decreased substantially as it relates to dealing with companies that own and operate their own networks,” he said. “I think the cablecos’ commitment to the consumer and the business is to give that choice through the investments that they have made in their network systems.”

Charter Business

Charter Business is about to put its toe into the master agent waters, too.

Since 2005 the company has operated a referral program throughout its territory — tier 2 and 3 markets in 29 states – wherein it paid a one-time bounty to local VARs. In 2007, it rolled out a sales affiliate program that enabled VARs to sell the service instead of throwing the lead to Charter Business direct sales force. Commissions on sales are upfront. “Where some of the referral agents tend to be more in the SMB space selling coax-based services, the aim with the sales affiliate program is more on the higher-end services (fiber-based services) as well as new services like our dial tone service,” said Jack Gordon, manager of channel sales for Charter Business, noting the company counts hundreds of referral partners and about 50 sales affiliates.

In the second half of this year, however, the cableco will take the next step toward a residual-based opportunity. In August, it signed an agreement with World Telecom Group to be Charter Business’s first master agent. The pilot program will run for about six months, ending in first quarter 2009. A national accounts team, which also serves cable aggregators like MegaPath Inc., has been charged with supporting the master agent pilot program.

Charter Business will be looking at metrics such as the number of leads WTG generates, how many of those are serviceable and how many of those are converted to billable accounts, said Steve Webster, director of sales channels for Charter Business. “What we are piloting is our back office, being able to support a master agent and being able to turn around serviceability checks very quickly,” he said. Gordon said these metrics also will inform how the cablecos educates the channel on what it can do and when to positions Charter Business.

Webster said the company also will be looking at its systems and processes for orders and commission payments. A partner portal is being constructed and hoped to go live during the pilot.

Assuming all goes well, the cableco plans to extend the program to other master agents in 2009; it will not accept direct agents for its residual compensation program, but will maintain direct relationships through its referral and sales affiliate programs.

Cox Business

Rounding out the top five cablecos is Cox Communications. The cableco’s business-focused division, Cox Business, also has been considering its indirect sales options. But, it has “taken a different tack” than its peers, said Tim McKinley, vice president of field operations and channels for Cox Business. In May, Cox Business signed an agreement with Nortel wherein Cox will resell Nortel’s Business Communications Manager telephony gear and Nortel will operate an outbound call center selling Cox services. Nortel’s call center, field organization and NOC organization provide sales, installation and maintenance services white-labeled as Cox. McKinley oversees the operation.

“This allows us to maintain the trusted provider relationship with the accounts and there is a tremendous amount of upside. What it provided to us is immediate feet on a street from an outbound sales center perspective,” McKinley said, noting that Cox Business does not have its own centralized outbound sales program. “It immediately lifted the number of people we had on the phone.”

While Nortel has its own indirect sales channel, it will not be employed on behalf of Cox.

The initial rollout was in Kansas in mid-July. “We’ve had some fair success in the last few weeks, turning several customers to a bundled package,” McKinley said, noting the program will be extended to Oklahoma the first week of October and greater Louisiana by the end of the year. Nevada is likely to be first on the 2009 schedule.

McKinley said Cox does not have a national agent program, but instead will seek out partnerships like the one it has with Nortel. In the individual markets, there may be one-off channel programs agents can participate in, but it’s not widespread. “We had some systems that tried agent programs and didn’t get the bang for the buck,” he said. Part of the problem, he explained, is the ubiquity – or rather lack of ubiquity – issue.

Other Cable Providers

The Big 5, as it were, are not the only ones to be considering their channel strategies in 2008. Suddenlink, the seventh largest cableco, also launched an agent program Aug. 1. The cableco is targeting local VARs and integrators to sell fiber-based services in the tier 3 markets it serves, initially in eight of its 18-state footprint. Suddenlink has a business-class voice service, but it’s not for sale through the agent channel at this time.

In contrast, RCN Business launched its indirect sales program primarily to sell its new RCN Talkware hosted PBX and SIP trunking services, which launched in August. The services are available nationwide, but sales are targeted to areas where RCN Metro has footprint, including Boston, New York City and Washington, DC. Agents will make about 10-15 percent commissions depending on volume.