Huge Challenge for Telecom Channel

There’s good news and bad for telecom channel partners in a new note published by the Yankee Group. The good news is that Yankee Group Senior Analyst Caroline Ashley argues tier one service providers must incorporate channel partners into their small and medium-sized business managed services sales efforts.

The bad news is that telecom channel partners are uniquely ill-equipped to do so.

Ashley argues that small and mid-sized businesses and organizations will not widely adopt managed services from the tier one service providers because they lack the customer support infrastructure.

In addition, providers don’t have detailed understanding of customer needs. Channel partners do, she argues. Unless tier one providers fully embrace the channel as a core part of their managed services efforts, they will be “marginalized to selling core connectivity products, while other service providers, independents and value added distributors and resellers supply the demand for managed services.

“Most service providers we interviewed in Europe use a direct sales model supported by a channel strategy,” says Ashley. But that isn’t going to work for new types of managed services.

When SMEs select suppliers for IT infrastructure, price is a top concern. But the skills and technical capabilities of their suppliers, trust, relationship with the supplier, accessibility, responsiveness and a willingness to learn about the business of the SME are key issues.

Ashley argues those traits are more common of channel partners than tier one providers.

“Service delivery and service support are the Achilles’ heel of the service provider sector,” she says, noting that large service providers tend to have poor customer relationships.

Ashley says Yankee Group’s feedback from IP PBX equipment vendors illustrates the issue. “They’re hesitant about the tier one service provider opportunity because back-office operational systems may not be able to support managed services, she says.

Back office support systems within the service provider environment are typically not enabled to support the monitoring and ongoing management of accounts, nor are these systems optimized for lots of customization, much less support for lots of different applications and suppliers.

SMEs, on the other hand, tend to want a trusted supplier, one that can provide ongoing advice on new technology developments. This requires a more-sophisticated account management process to provide a single point of contact, whether virtual or actual, for technical and non-technical support.

Here’s the tricky part. Not every conceivable contestant is well positioned to succeed in the managed services business that is developing.

Internet service providers and telecom service providers, for example, typically are rated as poor in account management capabilities. As a result, ISPs and large telcos face significant barriers to developing their managed service portfolios.

Overall, ISPs tend to be rated worse by SMEs for account management than service providers, in fact. “We also believe that smaller service providers can move more quickly than tier one ISPs,” Ashley notes.

Value-added distributors, as you might suspect, are positioned highly in their capabilities to provide managed services, as after-sales support is a key competency. To put matters simply, “things break.” That’s the on-going revenue model for an information technology specialist.

That manifestly is not the business model for a telecom channel partner and that’s where the rub comes. To what extent does managed software more closely resemble the IT support model, where there are installation, configuration and management issues even after a service is turned up?

And to the extent customers are not going to be comfortable buying managed software services without such competencies, what is the role for a supplier unable to provider those services?

Independent consultants, likewise, are perceived as local, on the ground and having good customer interaction and relationship skills. They virtually must have these skills to stay in business, in fact.

For the moment, it therefore appears, managed services providers will seek to partner with VARs and other smaller data specialists rather than tier one service providers. And to the extent that telecom service providers sell services provided by tier one service providers, that leaves telecom channel partners out of the loop.

Even in the more-germane business phone system space, large telcos and their channel partners might be ill-equipped to compete in the growing managed telephony space. Managed PBX services are a hybrid approach where a customer owns the premises phone system but pays a service provider to manage the system, instead of supporting the platform internally.

Much the same might happen in the unified communications space, which, by necessity, involves integrating desktop PCs, application services, mobile devices and business phone systems.

The vertically integrated model of service development and provision for SMEs is broken, Ashley maintains. And though channel partners typically are part of a large service provider’s sales approach, the channel tends not to get the attention it must as more-complex managed services rise to the fore.

Some of that attention is in the back office, where systems must be developed to support

multiple software systems. It simply won’t do to create separate operations support systems for every software application a service provider wants to offer.

The back office corollary to aggregation of rich suites of software is a single, integrated OSS capable of supporting all managed services. Obviously, large service providers also will need to source the on-the-ground support capabilities as well.

In a recent survey on the subject, Yankee Group found 34 percent of European SMEs (with between 2 and 500 employees) ranked “high availability” as among their top three IT infrastructure concerns, to nobody’s surprise.

Orange Business Services is getting there, Ashley says, though most of the work so far is in bundles of data connectivity and telephony services.

In the mobility area, pricing plans for fixed and mobile services, but not necessarily fixed-mobile convergence, also are important, she says.

Managed IP PBX services likewise require relationships with channel partners for installation, service and support.

More than 30 percent of European SMEs say disaster recovery and business continuity are among their top three priorities. More than 50 percent believe that backing up data to prevent failure is a priority.

So far, though, 61 percent of SMEs are most likely to keep security initiatives in-house.

IT training and IT implementation also are key issues for SMEs as 32 percent and 38 percent of European SMEs, respectively, saying that this is one of their biggest concerns.

Telefonica is using its PC maintenance service to lead the widening of its portfolio of managed services to the SME sector, Ashley notes.

So far, software as a service and fixed-mobile convergence are lower priorities for SMEs, and SaaS might be tough for service providers as well. First, although SaaS is attractive to SMEs, SaaS is outside the core capabilities of the service provider.

But Deutsche Telekom is an example of a service provider that launched SaaS to its SME customer base. DT offers Microsoft Office, enterprise resource planning and customer relationship management applications.

So here’s how the good and bad news stacks up: there will be growing channel opportunities for service providers and their channel partners in the managed services and application space. And channel partners will be essential for success.

The bad news is that not all types of partners are valuable. To the extent that managed software and applications require support on the hardware and local network fronts, data providers are the desired partners.

“Things break.” That’s going to as true for hosted software as for computing infrastructure. To get and keep a customer, suppliers will have to figure out how to fix broken software and hardware, not just sell it.

This is a core problem for large telecom services providers and their channel partners as the value proposition moves from “connectivity and bandwidth” to “applications.” Basically, this is just another example of the state of the business.

“Dumb pipe” is an evergreen requirement for modern computing, communications and application effectiveness. But it is only a part of the business, and not the part of the business where high margins and customer loyalty will be easy to preserve.

Over time, valuable partners will be those supporting all sorts of advanced applications. And those applications will require a higher technology support requirement than has been the case in the past.

The channel will grow in importance as hosted and managed services become more important. The issue is what skills the channel must possess to do so. And it doesn’t appear that all channel partners are equally equipped on that score. IP