Tim Cavill is a man with big plans. He has identified where he can sell unified communications into vertical markets such as finance and healthcare; he has teams of engineers skilled at deployment and operations; and his call centre and accounts managers are ready to take on more customers.
But, Cavill, a former SAP executive, is not just running any enterprise integrator. He is the managing director of the local arm of an international telecommunications company - Orange Business Services.
Although he works for a telco, he's serious about selling more than broadband and phone calls. Tim Cavill and Australian general manager Geoff Smith, ex-IBM and DEC, were brought into Orange from outside the telco industry six months ago with a singular mission.
"We are well on the way of transforming Orange into an organisation that is not a telco," says Smith.
Telcos have had a rough time. Deregulation destroyed government monopolies, then the introduction of phone-call bearing data networks undercut the pricing of long-distance calls.
Just as convergence of voice and data networks destroyed profitability of the old model, so it is revealing new models for telcos. Unfortunately for resellers, most of the roads to profitability head straight for IT hardware, software and services.
"There is no telecommunications company in the Asia Pacific that is not looking at expanding their business proposition," says Andrew Dutton, vice president for Asia Pacific at VMware.
"If you own the network, you know the logical next step is providing a cloud service - either to host movies and entertainment, or as a data repository or as an application host."
CRN spoke to resellers and vendors about the impact of telcos moving into IT services and the threat this poses to the reseller channel. One adage holds true - the channel will always survive - but exactly how, and who, is a longer story.
Telcos have a couple of advantages that make them the holy grail for vendors of commoditised IT products in any shape, whether hardware or software.
First, their reach is unparalleled. Every business with a phone connection is a telco customer - in other words, they cover 100 percent of the market. That's an attractive figure if you're looking to sell a router.
Second, they are good at doing tasks on a grand scale, such as routing calls and laying networked cables - or hosting cloud services and operating data networks.
A third development that plays to the telcos' advantage is the maturation of IT. Many products and technologies are getting much simpler to install, to maintain and to replace.
The hardware game
Netbooks appeared at a time when consumer IT sales were falling off a cliff. The Global Financial Crisis and sub-prime mortgage implosion were centre stage and everyone was sensitive about spending.
Cheap-as-chips netbooks arrived at the right time. The only problem was that few involved - vendors, distributors or resellers - could make much money on the things, because prices were hardly higher than the cost of production.
Enter the telcos, which began selling netbooks to secure highly profitable, two-year mobile broadband contracts. The model emerged in Western Europe in 2008 with T-Mobile and Orange, and then spread to Singapore, Taiwan, Australia and the US.
A Gartner report released in August said telecoms service providers were one of fastest growing channels for mini-notebook sales in the Asia Pacific.
This mobile-phone model worked well for the telcos' partnering vendors too. The netbook's rise worldwide was largely due to the over 50 deals between netbook manufacturers and telcos, says analyst Canalys.
Established notebook manufacturers had been left flatfooted by new entrants such as Samsung which had ridden the telcos to achieve market share.
Coulling attributed the telcos' impact in selling this range of IT hardware to massive advertising campaigns and their large mobile-phone user base.
In return netbook users were lifting data revenues "far beyond" those generated by smartphones, says Coulling. There are drawbacks, however.
Telcos "are not as skilled at selling/supporting these products and will find it difficult to compete on price if deciding to sell devices without a [broadband] contract", Coulling says.
Canalys says the telcos could extend netbook sales to small businesses making ad hoc purchasing decisions.
Gartner predicts netbook sales through telco retailers will rise from 9 percent in 2008 to 12 percent in 2012, "making this channel a viable alternative for original equipment manufacturers in the future and should be included in all [go-to-market] strategies".
The netbook has provided mobile-device vendors with a very strong case study for the telco channel.
Unified by communication
If mobile devices are one area favoured by telcos, desktop phones are another.
Before deregulation, government telcos supplied phones with connections. But the complexity of early IP telephony systems shut out telcos from all but the biggest deals, effectively handing over the sale and maintenance of phone systems to IT resellers.
Now that the technology is maturing, the pendulum is swinging the other way.
Telstra and Optus sell standardised IP telephony systems to small business as well as enterprise, as does Vodafone through its year-old Business One service.
Business One, an alliance between the carrier, Cisco and BlackBerry maker RIM, gives SMEs a fully integrated package that includes on-site equipment for wireless networking, an IPPBX, mobile and fixed line IP handsets, and bandwidth and mobile phone minutes.
Companies make an upfront deposit on the hardware and a monthly per user repayment that covers calls and bandwidth.
Shoretel recently signed a deal with Telstra Business Systems to bundle its IP telephony gear with Telstra fixed line and mobile services, which are funnelled through Telstra bundled partners.
"The Telstra deal opens up 780,000 customers to Shoretel," says Vasili Triant, ShoreTel's managing director for Southeast Asia. The fact Telstra is selling its products cements Shoretel, a relatively recent arrival to Australia, as a legitimate competitor in the IP telephony market, he adds.
"If you want to grow your coverage within the market you have to have a tier-one carrier reselling your product. A huge portion of customers are looking to upgrade their networks. They turn to the telco carrier to bundle all that together," says Vasili.
Shoretel signed the Telstra deal in March but the telco didn't start selling its products until May. In the first full quarter for the agreement, it accounted for 20 percent of Shoretel's turnover.
Vasili expects Telstra sales will increase to account for 50 percent this quarter, partly due to the increased visibility in the program. While the vendor is also investing in the reseller channel outside of Telstra partners, Vasili expects the telco deal to "dramatically affect" Shoretel's market share.
Under the arrangement, hardware is sold on a monthly payment plan that converts the sale to an operating expense, which is useful for SMBs wanting to manage their cashflow.
Telstra provides the equipment and the reseller installs and carries out on-site service. Telstra-registered Shoretel partners make less on a Telstra sale than when selling directly, confirms Vasili.
Vasili says Telstra's decision to form the Telstra Business Services program was an admission that selling its Commander equipment division was a mistake. After the sale, Telstra "realised that there was a huge portion of the customers that was looking for that bundle thing," he says.
Vendors who rely on referrals from telcos rather than bundling are in a weaker position because a sales rep can change his mind on any given day and refer a customer elsewhere, says Vasili.
"When a manufacturer takes on a partner they are standing behind it for the foreseeable future and there is a difference in the support and representation of that product," says Vasili.
While IP telephony for SMBs appears to be fully in the telcos' sights, unified communications and video conferencing aren't far behind.
Telstra already sells a bundled video conferencing system to the enterprise using Polycom equipment. The bundle, paid per month, includes bandwidth for all video conferencing calls.
Videoconferencing vendor LifeSize believes Australian telcos are a little slow to embrace the technology for smaller businesses.
"Carriers haven't embraced video yet," says Patrick Micallef, regional sales manager for LifeSize.
"The challenge for them is to integrate a business within their current cost structure."
Micallef says he is open to work with telcos but so far the vendor only has one on its books, regional service provider Community Telco. Video conferencing is a logical application for a telco to sell because it is one of the most demanding applications to run on the network, says Micallef.
"The benefit for the service provider is quite straight forward. They need the apps to deliver demand."
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