Techhead Connect has dropped its Telstra distribution agreement and will cease to offer the telco’s (ASX: TLS) mobility products from the end of August.
Techhead Connect CEO, Tim Fussell, blamed insufficient margins and problems with the provision of Next G network connections for the breakdown in the agreement, which netted the distributor $3 million in revenue last year.
“At the end of the day, we set the program up to help Telstra enable the IT channel with those mobility products because they were struggling with it,” he said.
“Because of the launch of the new system, Siebel, it actually delayed the connection process so significantly that even a substantial increase in revenue still wouldn’t have made it viable. Siebel has pushed connection times from an average of 5 minutes per connection to best case of 14 minutes and up to two hours. From our resellers and their clients’ perspective, this was just not acceptable.”
Telstra’s Siebel platform first hit the headlines in late 2008 with the Community and Public Sector Union (CPSU) claiming considerable delays and problems with the system had hit staff and companies hard while also costing the Telco “millions of dollars in lost profits”.
Techhead Connect started its Telstra business model for IT resellers in 2004 with Telstra Country Wide.
“The whole thing is really disappointing and it was a really difficult decision,” Fussell said. “We put four years into it and it was a baby of mine – it was something I was really passionate about.
“The introduction of Siebel and Telstra’s ultimate goal of having one system for the management of all customer information is brilliant. This change is going to provide substantial benefits to the channel and Telstra customers when the project is complete.”
As a result of the decision, Techhead’s Telstra resellers will be offered continued business with rival distributor, ICT Distribution.
“We discussed it with ICT, we are at 150 resellers on our program but only approximately 30 of which were doing business that was worthy of an official Telstra sub-dealership,” Fussell told ARN. “About 30 are being transitioned to ICT.”
The distributor will continue to offer other mobility applications and products including its primary offering, Techhead Wireless Accounting.
ICT Distribution managing director, Ben O’Leary, was unfazed by the prospect of being impacted by the same low margins that led to Techhead Connect’s move and said resellers that chose to make the transition will be offered the same terms as the distributor’s other dealers.
“Distribution is a volume game and our channel is now over a 1000 dealers and growing,” he said. “So it makes it a very viable business model.”
O’Leary also downplayed delays being experienced by the introduction of the Siebel system to Telstra’s consumer operations.
“It hasn’t affected us greatly at this point. The majority of our business is with business customers and a lot of those customers are still on the existing Telstra systems,” he said. “We are hopeful that by the time they come to roll those customers over to the new system, a lot of the bugs will have been ironed out.”
In a written response, Telstra representatives said, "Techhead Connect chose to terminate their distribution agreement to pursue other commercial objectives" but did not make further comment on Siebel or the margins it offers distributors.