Posted: 12/1997

Agent Channel

A No-Brainer

By Gary Kim

Want to bet on a sure thing? Bet that the agent channel will
continue to grow in importance as the entire telecommunications
business gets more competitive. Keep the emphasis on channel.
Just as supermarkets are a channel for a wide variety of products
sold to customers who generally live within three miles of the
store, so agents represent shelf space for a wide variety of
products to be sold by a bewildering cast of suppliers. As
competition really heats up, and new technology arrives at a
blistering pace, customers are going to be confused. They’re
going to want safety, especially in the small- and medium-sized
business market space. So people with relationships–who are
trusted–will have a higher profile role. At the same time agents
will be handed a much broader range of products to sell.

Other safe bets are: The line between agents and resellers
will continue to blur, and the range of agent products will
balloon. The reasons aren’t hard to fathom.

Up to this point, the sole product available to most agents
was long distance. But local, wireless, Internet, electrical
utility and other services will begin to be available over the
next several years. There simply will be more products to sell,
in turn creating more lucrative opportunities for agents.

At the same time, new carriers are springing up, including
Internet service providers (ISPs), competitive local exchange
carriers (CLECs), personal communications service (PCS)
providers, satellite broadcast, terrestrial microwave and These
firms need sales channels fast, and more. most are focusing on
mass and smaller business markets–the customer segments most
appropriate for agent sales.

The other coming change: a wider variety of agents. To sell
more complex data networking products, many carriers may sign up
interconnect or value-added reseller companies. In other cases,
incumbent local exchange carriers (ILECs) or regional Bell
operating companies (RBOCs) may function as agent channels, at
least until the mainstream local carriers are able to get their
own internal sales operations up to speed. "I think you’ll
see mom-and-pop local exchange carriers (LECs) and RBOCs becoming
agents at least until they become a single source," San
Antonio-based U.S. Long Distance (USLD) Vice President John Welsh
says.

The corollary: New types of agents, capable of selling frame
relay, asynchronous transfer mode or other data networking
products, may arise alongside agents who continue to specialize
in voice products. At the very least, new agents whose focus is
local services will enter the business, especially to serve the
needs of business customers.

Cost Is Key

For many firms and market segments, the agent channel simply
is the best way to reach the target audience. "It’s the
least expensive channel out there," says Sean Trepeta,
sales/marketing vice president for US Buying Group, Alsip, Ill.
Carriers can afford to build their own global account
organizations when selling complex services to transnational
corporations that need robust data and voice infrastructure on a
global basis. But that truly global audience numbers only
hundreds of firms worldwide.

Likewise, national account organizations are justified for the
500 to 1,000 largest U.S. corporations and government agencies.
But the picture begins to muddy when carriers look at the medium
business segment, and it becomes nearly opaque when the focus
drops to the small business segment. About 90 percent of all U.S.
firms have 20 or fewer employees, while 0.02 percent of the
largest firms have 11.6 percent of the locations. To put it
another way, in 1993 less than 750,000 U.S. locations were
operated by those firms with 500 or more employees. More than 4.7
million locations were businesses with 20 or fewer employees.

The residential market, most observers agree, is where the
agent channel or mass media advertising is the only viable
channel, primarily because the cost of sales is so high for any
single account, each of which tends to be small. "The
incredible success of Excel has upped the ante to an
affinity-based sale, at least for the residential market,"
says ATLANTIC*ACM CEO Judy Reed Smith.

Bill Stevens, CEO of the Mayfair Group, Chicago, couldn’t
agree more. "The agent channel becomes more important as
reseller margins shrink," he says. "Residential
affinity has to be sold, or the agents and resellers die."
Mayfair, for example, relies exclusively on the agent channel as
does WorldxChange.

Cable & Wireless, Vienna, Va., for example, initially
emphasized value-added resellers and interconnect firms to market
its business long distance product. But the firm has moved away
from that model, to emphasize "people with
relationships," says Michael Ferzacca, Cable & Wireless
vice president and general manager, alternate channels. "You
can always bring technical expertise to bear when you need
to," Ferzacca says. Five years ago, about 5 percent of the
monthly revenue came from agents, whereas today agent revenues
make up 25 percent to 30 percent, he adds. "Agents really
contribute. They aren’t a necessary evil."

"This is a business for resellers and agents," says
Martin McDermott, senior vice president of American Communication
Services Inc. (ACSI). Annapolis Junction, Md.-based ACSI is a
CLEC targeting business customers in the Southern Tier.

Minimal overhead is a big attraction. "Your rates and
commissions have to come down when you take on the overhead of a
direct sales organization," says Rick Eberhardt,
WorldxChange’s vice president of sales, whose firm uses the agent
channel exclusively. "The agent channel absolutely will get
more robust in the future," Eberhardt predicts.

Still, many carriers say they will continue to balance the
agent (indirect) sales channel with the use of direct sales.
USLD, for example, uses both agent and direct channels, and
agents represent a key channel. USLD runs direct sales from 23
offices, says USLD Senior Vice President Stan Masters. But about
10 percent of total payphone business comes through the agent
channel, while 75 percent to 80 percent of the hospitality
industry business is generated by the agent channel.

Pros and Cons

From a carrier’s perspective, agents can be a blessing or a
curse. When the channel is supported, carriers get the advantage
of people whose real advantage is relationship management.
"We’re finding some of the best relationship-builders are
agents," USLD’s Welsh says. The downside, of course, is the
relationships belong to the agent, even if the account legally
belongs to the carrier. That means an agent always can take a
good chunk of business along whenever he or she decides to work
for a different carrier. "It’s their customer," Trepeta
says.

But that’s simply a risk a carrier has to run if it wants to
sell competitively, says Stevens. "Resellers don’t have the
faintest idea how to get the business," he says. "The
agent channel controls the distribution."

Still, many firms prefer not to rely solely on one channel, no
matter how important that channel may be. "A smart company
works with a direct sales force and agents," says John
Loughlin, director of agency sales for Network Plus, Quincy,
Mass. In part, that’s because the channel is full of people who
"move quickly, get disenchanted with the business and leave
it," he says. "They’re fickle."

Some firms haven’t yet decided whether long distance agents
provide the right channel for more complex products, though
agents are definitely part of the mix. If ACSI’s McDermott has
any reservations, it is that agents used to selling voice may not
be able to sell data. "Our agent program applies only to
voice products, because we don’t yet know how to train people to
sell frame relay."

In any case, carriers will continue to look "for people
and companies who have relationships," says Gerry Cull,
Midcom’s manager of carrier sales. That includes individuals as
well as interconnect companies, ISPs and other channels. Carriers
also will look for agents with a clear idea of who it is they
want to sell products to. "We ask for a marketing
plan," says Scott Reagan, business development manager for
Matrixx Telecom. "If you can’t produce that you probably
won’t be successful."

Relationships are key both for residential multilevel
marketing as well as for smaller business accounts, Smith says.
But enhanced industry and technology knowledge may become more
important as well, especially if data products and local services
are added to the mix. "Carriers may need to be fussier"
about who they have selling data and local products, Smith
suggests.

Still, the agent channel is bound to prosper, because
tomorrow’s highly competitive business will be founded on account
control, and agents can supply that. At the same time, carriers
will have to learn to do more with less. All of which is highly
conducive to agent channels.