From Master Agent to Reseller

Ailing financial health among carriers. Customer service shortcomings. Billing problems. Accounting scandals. Cutbacks in agent programs. These trends have prompted a response among several master agents to redefine themselves as resellers, take on more risk and responsibility, but also gain more control over processes and payments.

“It’s like a different world,” says David Singer, CEO of ATI, a company that has transitioned from master agent to reseller. ATI resells services from Global Crossing Ltd., Qwest Communications International Inc., WilTel Communications Group and Level (3) Communications Inc.

“Instead of being the person that’s selling stuff, you’re also the provider, and there’s a whole new set of responsibilities and accountabilities that comes along with that,” Singer says. “It’s a whole new set of languages, and it’s a whole different set of water to swim in.”

Part of the attraction of becoming a reseller is being able to control payments to carriers, instead of waiting for money from them. Companies, such as Advanced Telemanagement Group Inc. (ATG), maintain the relationships with the carriers so individual agents don’t have to. “There’s a level of … control over the flow of income … because we pay the carrier [and] collect from the customer,” says Brian Maguire, ATG’s CFO.

“We are our own self-supported ship,” adds Bob Maguire, president and CEO of ATG, which he runs in conjunction with wife Tina Maguire and brother Brian. “We have our own engineers, our own backoffice people. … As a master agent, you’re waiting for the carrier constantly, whereas as the reseller, you’re dealing in a wholesale basis, so you are the carrier. It’s a completely different relationship.”

The margins often are better as a reseller, too. Plus, Bob Maguire says, an agent can be tempted to recommend a solution to an end user that will put the most money in his/her pocket. Being a reseller means ATG often can provide a “better solution at a better price,” creating a winwin situation, he says.

ATG is rolling out VoIP under an agreement with Level (3) Communications Inc. and will be reselling Covad Communications Group’s services as well. “We want to put a few horses on the track and see who wins,” says Brian Maguire.

The desire for control extends beyond wanting to oversee money flow; it also is important to own the customer. ATI decided nearly three years ago to shift into reseller mode. Executives already had strong industry contacts, forged since the company opened in 1991. “Just about when the dot-coms crashed, the level of service from every single provider that I represented was just incredibly poor,” explains Singer. “I could no longer go out … in front of a customer and say, “Look, I signed you up with this carrier [and] they’re going to treat you like a king.” … My whole motivation of becoming a reseller was, I want to provide the best back office in the industry. Our entire company is built on service.”

Delivering on that promise of service helps a reseller maintain ownership of the customer, and companies such as OSS vendor VBOS help resellers and master agents deliver back-office support. VBOS recently initiated its Launch with VBOS! program for master agents distributing UNE-P, VoIP or wireless solutions.

“Our end goal … is to provide the real efficient and comprehensive back office for folks that are just getting started,” says Jeffrey Fraser, vice president of sales and marketing for VBOS. “You can’t just give them a system. You’ve got to give it to them and help them find the other folks that are going to make them successful.”

VBOS further connects new entrants with network, hardware, print and call center vendors. “A lot of these guys are really good at selling and distributing, but they don’t necessarily have all that expertise,” Fraser explains. “Back-office companies reduce risk.”

So, while a reseller has more to lose, there also is more to gain, as ATI’s Singer points out. “The company income used to be about $450,000 [in] our last year of being an agent. Our first full year of being a reseller, our income went from $450,000 to $7.2 million,” he says.

Craig Schlagbaum, vice president of channel development for Level (3) Communications Inc., says he is seeing resellers make from 40 percent to more than 60 percent gross margins. “With that amount of margin they can even continue to run their own subagent programs, but then they act as a reseller,” he says.

“[T]here’s enough margin to do the model they’ve been operating on, but they own the end-user customer.”

Level (3), which traditionally has provided wholesale services to telecom companies, is expanding to the enterprise strictly through its indirect reseller channel. Glenn Russo, senior vice president of partner and channel development, says resellers have the relationships with end users that his company does not have, and those partners also offer complementary services and hardware.

“We see a lot of telco services - what have traditionally been CPE-based solutions like PBXs, for example - becoming services that will be purchased on a network basis,” Russo says. “So combining the network with some CPE for a total solution, our partners bring all of that to the table, which a carrier really can’t do directly.”

VOIP EASES SWITCH

That seems to be a common theme. “In the agency model of old, one of the premises has always been that the RBOCs and the IXCs were the primary service providers,” says Steve Stewart, vice president of channel programs for Level (3). “What voice over IP is really doing is enabling a whole new community to go and compete for the telco business at the end user.”

To that end as well, service provider Broadvox LLC has readjusted its ‘bring your own broadband’ retail VoIP business model (` la Vonage) to a wholesale model targeting switchless resellers, such UNE-P providers and master agents that want to become resellers. The company already wholesales 200 million VoIP minutes monthly, says President and CEO Andre Temnorod, noting that a half dozen master agents already had expressed interest in reselling (rather than representing) Broadvox’s hosted IP telephony product.

He says master agents, who shied away from the regulatory obligations of local service resellers, are now interested in branding their own VoIP-based local offer, which is not subject to regulation.

Similarly, IPtimize is marketing its flagship VoIP product, Voice Pilot, which is built on Broadsoft Inc.’s platform, provisioned through New Global Telecom and incorporated with IPtimize’s own sessionborder controllers. Resellers and agents can rebrand Voice Pilot, but at an extra cost.

Either way. “We’ll help you market that product and we’ll bring you all these managed services to wrap around it so you don’t have to go build those as well,” says COO of IP Services Jeff Veres. IPtimize also plans to introduce private-label billing early next year and offer that as another managed service available for resale.

Billing and back-office systems are indeed the major obstacle in transitioning from master agent to reseller. To ease this migration, Broadvox is working to integrate its provisioning systems with Profitec Inc.’s billing and OSS service bureau.

Using Profitec’s OmniAgent, Broadvox resellers can send their orders in and activate them on the Broadvox network. Randy Minervino, vice president of sales for Profitec, says OmniAgent required minor modifications, such as line qualification, to support Broadvox’s VoIP services. “It needs to determine, for instance, whether an ANI that’s being ported over is a residential or a business line, because that could invoke some different rating practices,” says Minervino.

As a result of the tight integration, Profitec also will be the recommended retail biller for Broadvox resellers. Minervino says Profitec’s services are priced as a percentage (typically 1.5 percent) of billed revenue plus bill presentment (postage and printing or electronic delivery). “We can do all the printing in-house, but the client can also take the data stream and get it printed wherever they like,” he says, adding that e-billing also is an option with the OmniView electronic billing and customer self-care platform for pennies per end user.

Additional reporting by Khali Henderson

Case Study: Capitalizing on Competition
By Kelly M. Teal

The dichotomy between master agency and CLEC presents unique considerations. The former frees salespeople to focus on the business of making money, while the latter allows the company to maintain higher levels of control over customer service, billing, payments and more. It also entails more responsibility. Business Communications Management (BCM) and McGraw Communications embody the successful melding of both cultures, while remaining focused on the agency versus reseller model respective of each company’s aims.

“In the small-to-medium-size space, it’s easier to sell as an agent because you can go in there and objectively be able to lay out a variety of different carriers for customers, and make sure that you put the round peg in the round hole,” explains John Cunningham, who serves as CEO of master agency BCM and as president of McGraw Communications, a CLEC formed in 1996. BCM opened for business in 1992. “On the carrier side, it’s actually easier to deal with agents because people are looking for the back-office support and continuity of commissions and those types of issues. So they both have their advantages.”

If a master agent seeks control of billing, customer service issues and carrier payments, a good option can be to transition to the reseller model.

Part of the growing pains associated with being a master agent hit BCM when the troubled Cable & Wireless decided to exit the U.S. market and sold its operations to Gores Technology Group LLC. “We had to spend a lot of our resources in migrating … customers and we lost a lot of customers in the process, which obviously affected our revenue,” Cunningham says. That revenue plummeted from $2.1 million to $500,000 annually.

“Plus,” Cunningham continues, “we lost a year of our lives.We could have been using our resources to grow our business, but instead, we were swapping out circuits and dealing with customer service issues, and billing issues, and account code issues.”

Being on the McGraw side of things means the company mitigates similar problems for agents, allowing them to focus on selling. For now, BCM is McGraw’s master agent, and McGraw then distributes through BCM’s subagent pool, which numbers approximately 110 people. In turn, BCM uses McGraw’s project management and engineering support capabilities.

“The biggest challenge for master agents that want to become resellers is, historically, master agents are very good at distribution and they have a very good portal to manage orders,” Cunningham says. “The biggest challenge for them is going to be the back-end stuff. They have to provide … customer support.”

There also are regulatory issues to consider, he adds, suggesting a hybrid solution for master agents who don’t want to take on all the infrastructure. “We’ll co-brand bills with them and do revenue-shares on profits and other programs … to accomplish what they’re looking to accomplish without them having to take a full dive into becoming an actual phone company,” he says.