With the onset of added competition, telecommunications companies have been looking further up the value chain to offset lost revenues. No longer are they content to sit at the edge of the network and offer long distance, mobile and local carrier services. It's the LAN they want, and they're bringing deep pockets and big pipes to do so.
Even though telcos have been eyeing the network integration business - an area most channel companies like to call their own - for years, the convergence of IT&T and current economic e-trends has brought the issue to a head. And while channel doomsayers of the past cry "new foes", the majority of telcos and the channel recognise last century's partnership edict is more important than ever. xenophobia on line twoA carrier's greatest fear may be churn. With more than one carrier to choose from, customers depend less on who provides an outside line. This in turn challenges telcos to work harder on customer retention.
Rita Arrigo, industry development manager e-solutions for Cable and Wireless Optus, claims that in the past, carriers operated on a largely managed account basis. This strategy doesn't translate in a networked world where voice/data convergence, IP telephony, Internet streaming and online applications drive business processes.
"We're not about long distance and mobile anymore, we're about network solutions," says Arrigo, who has watched telcos explode into new areas. This attitude is sending a chill through the channel.
According to the Service Providers Industry Association (SPAN), there are 49 carrier licences in Australia - not to mention the 46 telephony-cum-ISPs that also resell carrier services, and the 856 ISPs that could potentially do the same. Although these numbers do not sound staggering, juxtapose Australia's relatively small population that hovers around 19 million and the massive financial backing some carriers have here and overseas.
"As competition increases in the long distance and mobile market, and margins diminish for local calls, telecommunications companies are looking up the value chain," says SPAN's chairman Phil Singleton.
Singleton, who has been chairman for more than three years, claims the industry is rife with speculation on where this trend is going. However, because he believes that no one company can be all things to all customers, the trend for telcos to move further into network offerings compounds the importance of affiliations.
"The ability to forge business alliances is going to be crucial; in the next couple of years," he says. "This is hard to do because historically Australian businesses haven't been successful at building and maintaining relationships."
Likewise Arrigo -is quick to dispel the fear of competition in favour of a more collaborative approach. "A new era is beginning for how carriers look at the channel," she claims. Even though they look like an enemy, carriers absolutely need to partner with the channel."
A partnering trend noted by Arrigo is the recent prepackaging of services by some carriers. She says telcos are partnering with software and hardware vendors for the technology, while providing the pipes and management themselves. The channel is then called in as the sales force and resells the bundled product as a "solution".
The result is threefold: the customer is locked into a three-year contract, the vendors step back because their sale is completed, and the carrier-channel partnership collects ongoing revenue.
Customers - a necessary evil?
Carriers are shifting away from old-style billing arrangements of single lines and capacity in order to avoid a billing war with other carriers, claims Andrew Walton, national technical director for managed services at Marconi Australia. As a systems integrator, Marconi has geared its whole business towards partnering with the carrier market.
According to Walton, customers are demanding total solutions from single lines through to total network management. "A carrier can then go to a customer and say, We'll give you your phones, data network and manage the whole network; all you have to do is pay a monthly fee.' And they can lock them in for three years," says Walton. "It's a bit of a spin on the outsourcing model."
SPAN's Singleton also foresees a shift from complex pricing models to a more simplified "easy-to-understand" way of doing business. With this comes a rise in customer expectations that is oblivious to the messy interface between a corporate's view of telecommunications - "of phones always on and always working" - with the reality of IT, plagued by network downtime and problems. "Both of these worlds have to move forward together and it's going to take a bit of time for this to come together," he says.
All telcos, admit it's going to be a digital world. But do they have the skills to handle the digital side of telephony/data networks? Singleton answers: "Yes, the large telcos will; but some won't."
On the SME front, C&W Optus' Arrigo claims smaller customers are more adventurous when choosing a network than large companies. Price has become the paramount purchasing decision for these companies, while the technology used becomes largely irrelevant - as long as it works.
Driving this trend in the SME market, is the greater dependence the sector has on connectivity. Small and medium businesses used to be able to get away with old-school communications - the phone, fax or letter. Now it's e-mail, procurement and Net access.
Applications - the value in "value add"
Rob Gillan, chief technology officer for NetComm and self-confessed glutton for punishment, has been responsible for a number of carrier start-ups including Optus in 1991. NetComm received a carrier licence last year and is awaiting the roll out of a DSL network through metro areas offering a range of communications including phone, data, streaming video and other services.
Gillan sees the role of a carrier as just that - a conduit for the channel to offer services. He believes the right model is to get the reseller to own the customer's service contract. "The reseller partner plays a large role in our strategy," affirms Gillan. "Why would I put the staff on and have that overhead when I can pass it onto the reseller and everyone gets a piece of the pie, and the pie gets bigger."
With e-commerce applications such as procurement and convergence (as a cost-saving measure) driving business, new carriers have the edge over the incumbents, according to Gillan. "It's very hard to converge things with incumbent equipment," he says. And he argues that as the reliance on the Internet increases, the image of incumbent carriers will disappear. Everyone will be competing on the same level - on what applications they offer.
And who is better at providing integrated applications than the channel? That's a question Gerry Sutton, executive director emerging business for Telstra, feels is a no-brainer.
"Our business at the end of the day is core technology, putting copper into the ground, satellites in the air and that sort of thing," says Sutton. "Telstra also provides the intelligence layer of the network, in setting up frame relays, ATMs and so forth."
But it is the third layer, the applications layer, that Sutton sees as the money-spinner - and this is where the channel comes in. Integrating the applications that run across the network requires a lot of considerations: is there enough bandwidth? the right infrastructure? the right router configuration? These are just the tip of the iceberg.
"Our expertise is in the intelligence layer," says Sutton. "So we're looking to find partners who are experts in applications.
Telstra recently signed a widely publicised partnership agreement with specialist security company SecureNet. Using Telstra's carrier network and a secure environment within a Telstra building, SecureNet will enable customers to effectively outsource their e-commerce transaction security requirements.
"[Providing applications] is certainly a new revenue stream we haven't had before," says Sutton. "It's a worldwide trend."
So if partnerships - let alone the raft of mergers, acquisitions and consolidation occurring in this market - are the way of the future, why isn't the channel opening its arms to its telco brethren? Perhaps the answer is in choosing your friends wisely, and your carrier-partner even more so.Photograph: Richard Noone