Telecom, IT providers engage in turf wars, partnerships as they face the cloud

Telecom and cable companies are eyeing ground traditionally held by IT solution providers as both face the encroaching cloud services market.

The rising volume of complaints by VARs, MSPs and others about telecom and cable companies cannibalizing their business is no surprise as these players duke it out for a stake in the emerging cloud services market.

VARs aren't the only ones pressured to change their business model with the inevitable adoption of cloud services. The disruption is also taking a toll on the telecommunications industry, which is seeing declining revenue around equipment and services.

With the convergence of voice and data, mobile, and cloud computing offerings on the rise, the telecom/IT demarcation line is disappearing, competition is intensifying and partnering between IT VARs and telecom service providers is beginning to take shape.

It's a rocky road at best, according to IT solution providers.

Christopher Staples, president and owner of Advanced Network Consulting (ANC) in La Miranda, Calif., said he has seen resulting competitive conflicts many times, firsthand.

"The telco will promise the customer the world but often doesn't deliver on those promises," he said.

A case in point is a small-business customer that gets its IT services, including hosted Microsoft Exchange, from ANC and from MessageDisk LLC, a hosting company co-owned by Staples.

"The telco will promise the customer the world but often doesn't deliver on those promises.

Christopher Staples,
president and owner, Advanced Network Consulting

With the promise of lower costs for both telephony and hosted Microsoft Exchange services, the ANC customer agreed to a cost analysis by a telecom company. The rolled-up monthly cost from the telco was attractive, so the customer signed up.

The customer switched over its Internet and phone service, but when it came time to switch over to the hosted Exchange, there was a problem.

"What they got were POP email boxes. Hosted Exchange was extra," said Staples. No bargain there.

Staples ended up keeping the customer's hosted Exchange business but said that this type of play by the telcos has been ramping up for the past nine to 12 months. IT/telecom stories like this one are common among his peers, he said.

And it's no wonder why.

To cite one report, in January, Synergy Research Group, in Reno, Nev., published quarterly data that showed that Unified Communications as a Service (UCaaS) is expected to have a highly disruptive effect on the business voice market, with both traditional telcos and enterprise voice equipment vendors in danger of seeing their markets erode. With the writing on the wall for telecom companies, there's a huge push toward offering public cloud services.

The ranks of UCaaS subscribers are forecast to grow sixteen-fold over the next five years, or an average of 76% per year -- enough to put the installed base of private branch exchange lines into slow decline and severely crimping the future growth of telcos' existing hosted VoIP services, according to Synergy.

And according to a March report from The Insight Research Corp., "Managed Services in an IP World: Global Opportunities for Wireless and Wired Networks, 2013-2017," the managed services market will grow faster than basic transport services as businesses of all sizes look to service providers to deliver the next generation of business applications while migrating their telecom networks to IP, cloud and wireless.

Solution providers say their customers -- particularly the small and medium-sized businesses -- want end-to-end services from their IT solution provider. "We're their advisors, their advocates, and they like the level of service that we provide," Staples said.

Sandra Juarez, senior account manager at InVision Technology Solutions -- an established IT provider with offices in Phoenix and Scottsdale, Ariz., that offers security, network, business continuity, remote access/telecommuting and virtualization services -- agrees.

"I've had customers who've gone to a telephony provider to purchase telephony services and systems and they're frustrated," Juarez said, adding that complaints range from not getting the proper evaluation for services or the right solution, as well as poor support.

"We end up picking up the slack," she said.

Telecom, IT providers forging tighter bonds

It behooves telecom and IT solution providers to work together. Each has something the other needs. IT solution providers need to provide an end-to-end solution including core telecom services, while telecom providers need the IT know-how and customer relationship for any kind of sustained relationship.

According to Carolyn April, director of industry analysis at CompTIA and author of a recent report on a survey on the topic, "Partnering Trends Between Telecom and IT Channels," the tide is turning. Partnering between the two entities is taking hold.

"This year we found that the number of partnerships is up, the amount of revenue generated is up, and the partnerships between telecom and VARs is more formal," April said of the survey, which polled 100 IT solution providers (VARs, managed service providers, etc.) and 100 telecom agents.

In the survey, 80% of VARs reported having had at least one partnership with either a master agent or subagent in the last year, up from 70% that did so in 2012. In the telecom world, as an aggregator of services for all major providers, a master agent is akin to a distributor in the IT world. An agent or subagent sells a service to a customer.

Like both Staples and Juarez, April contends that with the convergence of voice, data and cloud, customers want to go to one place for everything and that the days of companies having a separate line item for telecom is going away.

"[Paying separately for IT and telecom services is] less acceptable to customers, [and] telecom isn't prepared to offer the breadth of IT services," she said.

The days of VARs having a telecom provider they can tap for help are slowly giving way to tighter relationships, as evidenced by an increase in joint marketing and joint selling, as well as formalized rules of engagement. Best practices have yet to emerge, according to April.

These more structured telecom-IT partnerships are meeting with success, and the upward trend indicates they're here to stay. According to the CompTIA report, 85% of VARs and 76% of agents were happy with the results of their partnership, and almost none were dissatisfied.

Major distributors such as Ingram Micro Inc., with its cloud telecom service, and Tech Data Corp., with its TDMobility, offer programs that help partners offer end-to-end solutions.

As for Staples and Juarez? Both report getting dozens of phone calls per month from telecom companies looking to partner with them. To date, neither has signed on the dotted line.

"I have several telecom services companies that I trust. I can refer customers to them, and they'll refer customers to me," Staples said.

This was first published in May 2013

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