Who Will Win the Race Back to the Future?

Remember when there was one phone company? With all the merger activity in the telecommunications industry, doesnt it seem that we are heading back to the future?

With SBC Communications Inc. buying AT&T Corp., Verizon Communications Inc. swallowing MCI Inc., and Sprint Corp. and Nextel Inc. merging to create Mega Telcos, the number of big-brand players is decreasing rapidly, and its beginning to feel like 1982 all over again.

From a broad business perspective these mergers make sense for the parties involved.

The impact of consolidation on SMB customers and channel partners, on the surface, seems to be negative. Fewer, larger carriers mean fewer product choices for both SMBs and channel partners. Less competition means higher prices for SMBs and less attractive programs for partners. But there is a ray of hope for channel partners: Mega Telcos will find it difficult to serve the SMB market especially with complex products like VoIP.

Fast forward to 2006. Imagine the owner of a 30-employee accounting firm calling one of the new Mega Telcos to ask about switching to a VoIP system to save money. Large carriers traditionally have serviced the small business market using inbound sales centers because the revenue generated by an SMB sale wasnt enough to justify the cost of a face-to-face meeting. For Mega Telco, the situation is even worse; all of Mega Telcos sales staff is focused on enterprise accounts, so the call center rep will need to handle the sale. The rep, accustomed to selling local/long-distance product bundles will be expected by the SMB buyer to:

In an SMB VoIP market still dominated by early adopters, and, given the logistical and technical complexity of the sale, it is doubtful that even a top-tier inbound sales center will be successful. In short, this will be a difficult sale for Mega Telco without the help of channel partners.

In fact, a recent study of the SMB VoIP market by my firm, Savatar, found direct sales forces of all the leading carriers were unable to consistently execute the sales process described above in face-to-face meetings. This is a clear opportunity for channel partners to profit from consolidation.

Which partners will succeed?

If youre still only selling TDM voice solutions, you will miss the opportunity. Price erosion for voice products will continue and you will find it is increasingly difficult to differentiate your company from the scores of others selling similar products with similar features. If you are one of the many data VARs that are telephony phobic, you too will miss the opportunity. While demand and margins may remain high in the short term, dataonly sales will decline as the SMB market migrates to VoIP.

The channel partners that succeed will need to evolve their technical skills to include voice, data and networking expertise. Enhanced skills will lead to a broader range of revenue opportunities: new CPE, networking and wireless will add to monthly recurring charges. Additionally, youll need skills to provide services like e-mail and Web hosting, business collaboration software tools and others.

Most importantly, the best channel partners must become more systematic in the marketing and selling practices. As VoIP products mature, feature sets will become homogenous and pricing pressure will occur. Mega Telcos name and radio ads wont help you much either.

Top-flight channel partner organizations will need to work hand-in-hand with their vendors to create market demand by targeting the right prospects with the right range of services at the right time. Has anyone in your shop completed a detailed segmentation of your market using criteria that matter? Or, are you still dialing for dollars using the Yellow Pages? Have you executed a targeted marketing campaign against that segmentation?

Savatars research offers some telling advice to channel partners: the SMB market doesnt know much about VoIP; they dont understand, or need, all the bells-and-whistle features in the standard sales arsenal; and theyre not wooed (believe it or not) by ROI. The data does tell us that theres lot of room in the SMB market for channel players who can discuss total cost of ownership (TCO) and who recognize that better pricing and bundling strategies provide a significant competitive advantage.

The SMB market is fertile ground for VoIP, but the road for Mega Telcos and their channel partners is new and perhaps a little trickier than selling into large enterprise accounts. Knowing what makes this market tick, and evolving traditional sales and marketing approaches to target this segment will give channel companies a significant early advantage. In any case, it will be interesting to see who gets back to the future first.

John Macario is president and founder of management consulting firm Savatar.