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Managed Telecom Grows Amid Telco Rubble

Stealing the Provider's Customers?
Despite its potential savings and the simplicity it offers, M5's business model bears an eerie resemblance to bankrupt CLECs (competitive local exchange carriers), the start-ups borne of the 1996 Telecommunications Act that eventually met their downfall when they had to compete with their suppliers such as Verizon (an incumbent local exchange carrier).

But M5's Hoffman prefers to look at the arrangement another way: Every customer that M5 signs up represents incremental revenue to the suppliers such as Verizon. "We're actually competing with phone system providers such as Panasonic and Avaya. And that's a market that Verizon would love to get into. By using their lines and volume, we're bringing customers to Verizon."

Meanwhile, Verizon is also getting its feet wet in the managed telecom service game, albeit outside the baby bell's dominant regulatory region in the northeast. In an alliance with Dallas-based GoBeam, Verizon has begun offering wholesale bundled voice/data services called Verizon Voice Over Broadband in the Chicago market.

"We believe in our relationship with Verizon," Hoffman says. "We're a partner, and we're pleased to see them reaffirming the validity of our model (with the Chicago trial). We could compete with them eventually, but we're also a close partner of theirs."

Nice Idea, But Still a Niche
David Willis, a vice president of global networking and strategies with tech research firm META Group, says the marketplace for buying these bundled services is still a few years off. Still, he sees niches to fill in the meantime.

"Local T1s are starting to increase in price and ILECs can charge more because there's no more competition," he says. Plus, hosted PBX platforms can help businesses reduce the number of access circuits they need, which can be pricey.

But there are also other says to reduce those costs, he adds, such as multiplexing, statistical multiplexes, ATM (define) and voice-over-frame relay.

"It's just that Internet protocols win out because it reaches everyone you want to reach easily," he adds.

Another consideration with these new bundled services, he adds, is that already-installed PBX systems that M5 and other providers such as Red Gap want to replace have depreciation cycles of about seven years. "It takes a while to wash (old technology) out of a system."

In addition, META Group conducted a survey of most of the major corporations last year and found that 45 percent were not ready to support voice and data technology on one platform. The bottom line: they would need to invest on the data side in order to be prepared to add a voice system to it.

For that reason among others, Willis says the market for these services is still early. "We see this with an average install base of about 100 seats in a small company, with maybe a few big companies giving the technology a try in certain workgroups."

Probe Research's Hartford agrees.

"I believe the transition to voice-over-packets is a 20-year transition. And most of that work will be done on the edge of the network. That's where M5 is making the economics work. That's not to say it won't be powerful in the long run."

"But it's also basically an outsourcing decision for many of these companies and how much companies want to outsource. And right now, a lot of companies are fed up with technology. This way may solve (their problems) faster."