Technically theyre still phone companies, but traditional providers of voice services are making more and more of their money these days by selling data services. And theyre partnering to a greater extent than ever before with data integrators who can provide necessary back-end connections, as well as voice integrators making the switch to data services.
Savvy companies, like Qwest Communications, jumped on the data opportunity early. Though financial forecasts can change at a moments notice, Qwest CEO Joseph Nacchio has a bullish outlook for 2001.
Many other telcos arent quite so fortunate. With long-distance prices continuing to fall through the floor, some telcos are cutting their workforces. WorldCom, for one, fired 6,000 employees last week, because voice revenue is falling faster than expected. The layoffs were WorldComs first—ever.
Vendors of high-end voice systems also are feeling the pain. Lucent Technologies, for one, lost a whopping $1.58 billion in Q4 and sales fell 28 percent to $5.84 billion during the period. Lucent blamed the bloodbath on “softening” product demand in the CLEC market.
Lighten Up Given the voice crisis, its not surprising that the one bright spot for telcos is data services. With their existing customer connections, its far easier for telcos to pitch high-speed lines such as digital subscriber service (DSL) and data hosting services than startup competitors.
Naturally, hardware vendors and integrators are working to make the shift from voice to data. IBM, for one, is doing a brisk business selling servers to telcos, and last week the company inked a deal with BellSouth to deliver turnkey e-business solutions combined with broadband services to midsize businesses.
IBM is looking to sell more hardware in the deal. BellSouth is looking for an ongoing revenue stream in the data world, where its sales are expected to grow 30 percent this year. Thats up from 27 percent growth in 2000.
“This will be in the market within 60 days,” says Ian Bonner, IBMs VP of global business development. “We expect to see revenue start flowing fairly quickly.”
Take a Bite
Take a Bite BellSouth and IBM, meanwhile, are holding out a big carrot to their business partners, offering opportunities selling turnkey solutions and consulting services, as well as a piece of an ongoing revenue stream for the customers broadband connection.
“This is a pure go-to-market play,” says Donna Lee, president of marketing at BellSouth. “This has sprung from what business partners and their customers both want. Its focused on the midmarket and business partners are part of the model.”
It also has sprung from an increasingly tight relationship between data hardware vendors and telcos. IBM and BellSouth inked another deal last year to front-load MQSeries and DB2 into BellSouths wireless phones.
IBM likewise signed a deal with Qwest last year to build 28 data hosting centers around the country and to rent out 25 percent of the floor space in those centers.
Cram Session In the midst of an uncertain economy and a flood of earnings warnings, one of the most upbeat projections was delivered recently by Qwest. The company said that of all the services it offers, the fastest growing piece was the data side of the house. It also said that it intends to meet its 2001 revenue projections, buffeted in part by those data sales.
Even at struggling WorldCom, for one, data revenue is rising swiftly. The companys strong data strategy—coupled with its depressed stock price—has triggered several takeover rumors. The latest purported suitor is struggling SBC Communications. SBC declined to comment on the takeover rumors last week.
Back at Qwest, executives sound upbeat. Thomas Hall, senior VP of indirect channels and government markets at Qwest, says that voice, data, private lines and IP services are all growing, but the highest growth clearly is in the IP and hosting areas. The upside for business partners is that most of those sales are indirect and hold the promise of a steady revenue stream.
Still, there will be challenges. But Qwests partners must devote more resources to get trained on those services. And Qwest will need to sink more resources into support and education to make the IP push work as planned.
“Weve got to teach new partners how to fish,” says Nik Nesbitt, VP of Qwests Business Partner program. “Were about to roll out a Qwest certification program that will work with vendor certifications from Cisco, HP, Sun, Microsoft and IBM.”
Going to Pieces
Going to Pieces? AT&T also is deep in the throes of partner education, and for good reason. While its long-distance business continues to slide and shareholders continue to attack the companys breakup plan, AT&Ts data business is growing at a staggering pace. The companys data and IT operations posted $9 billion in revenue last year, and its currently growing in the mid-30 percent range. Its IP business is growing more than 100 percent.
“Education is the No. 1 investment Im making,” says Keith Olsen, VP of global channel management at AT&T. “Even the applications guys dont know how to leverage hosting. When you find one that does, its like finding gold dust.”
AT&T has constructed an entire university program that spans everything from technology to sales training and revamping business plans for business partners. “You can win mind-share with education, but you win heart-share by leveraging that education into real profits,” he says.
Those profits come from a variety of different skill sets, all of which need to be integrated into customer solutions. That means merging everything from asynchronous transfer mode, frame relay, data hosting and a broadband infrastructure all the way out to an integrated Web front end and wireless communications and multiple layers of security.
It also means that to play in this market, youll need some strong allies because no one can do it all. In some cases, this scenario is so complex that it spans well beyond a single company or government entitys boundaries.
AT&T, for example, acts as a global network operation center for the president of the United States. “When the president is in New York City, our data center is his bomb shelter,” says Olsen.
Get Your Cut of
Get Your Cut of Wireless The situation is no less complicated when it comes to integrating a wireless system into a large corporation that has built up frequently incompatible departmental infrastructures over the years. The wireless voice market has gotten so commoditized that companies like Ericsson have abandoned even making cellular phones. However, theres plenty of money to be made in providing a wireless data infrastructure and integrating that with a corporations back end.
That is why companies like Air2Web are so busy beating the bushes for integration partners. The wireless infrastructure company, and dozens more like it, cant get a toehold in the market without front-end to back-end integration skills.
“The main effort under way right now is to align ourselves with credible partners,” says Patrick King, VP of channel development and alliances at Air2Web in Atlanta. “Its a critical time for a large number of business partners. Cash is tight, product margins are down and theres a transition of technology which is causing them to adjust their business models.”
King says his companys training classes are filled to capacity, and so far most companies havent even started running mission-critical applications over wireless. That likewise translates into opportunity for the telcos, which are neck-deep in providing wireless services. And now that data is starting to flow, that stream should only get richer for the telcos and their partners.