November 2009

The Unusual Telecom Industry

The “Unusual” Telecom Industry

By: Julie Schenk, Viper Communications

We’ve all experienced a lot of change in the last year, and the telecom industry is no exception. A technology based industry like the telecom industry is forever evolving, with change being the only constant. Typically this change has always been driven by buyer needs and traditionally, dips in the economy have not necessarily been crippling for the independent market place. But more recently, economic factors are what have been affecting the telecom industry.

During small economic downturns, consumers usually continue buying, they are just more mindful about their purchases. Buyers in the telecom industry are more open-minded to purchasing from the secondary market, as everyone is looking to save a few dollars as long as the product is the same. Telecom industry buyers are also more apt to purchase refurbished equipment, as long as it holds a warranty. Refurbished equipment is usually sold at higher margins, and with the exception of eBay, the secondary market is the marketplace. Over the last decade, the secondary market for the telecom industry has stayed rather constant despite the economy and rest of the telecom industry itself experiencing slow-downs. But not this time. Like every other industry, the telecom industry has taken its hit during this recession. Buyers simply aren’t buying, and with so many companies going under, there is a lot of repurposing of equipment occurring. We’ve seen a lot of suppliers in the telecom industry go out of business (usually owing surviving vendors significant funds), as well as the manufacturers themselves merging (Vertical, Comdial, Intertel, etc). But what is no doubt the biggest “merger” that will significantly affect the landscape of the telecom industry in the future is Avaya buying Nortel.

As a reseller who has been in the telecom industry and secondary market for over 10 years, these product lines (Avaya & Nortel) have been our bread and butter. They have been the biggest players in the small to medium key/PBX market. Their product lines have experienced nice long life cycles, which has maintained the value of used equipment and allowed for market shares to grow. Smaller interconnects are drawn to products that have long life cycles, as there is little time and money for continual training on new products. Independent interconnects are loyal to the products they know and do not adjust quickly to change. This trend seems to be coming to an end, as the telecom industry is now evolving into a new “IP” telephony world, whether it’s an actual consumer need or not. I commonly compare this trend to a similar situation that came up in the mid 90s. The telecom industry came out with digital telephone sets as opposed to analog. Every technically savvy customer instantly needed their system to be digital. To an installer, this meant phones could be wired with one pair, as opposed to four. But for an end-user to actually be able to discern the difference between an analog and digital transmission, let’s just say it was not very likely.

This era’s buzz word is “IP”, and it is probably the most misinterpreted phrase in the telecom industry. Most commonly misconstrued as free calls over the internet, IP telephony applies only to customers with multiple locations that are already connected via a data network, or for remote workers. Although this scenario does not apply to the majority of small to medium business, decisions makers are told not to buy a system unless it’s IP enabled.

Recently, many new manufacturers (and I use the term loosely) are emerging to offer small IP systems for very competitive prices. This is common with new technology in the telecom industry or any industry for that matter; the big manufacturer’s spend years in research and development, roll out a new product, and within a few years tons of small companies are able to provide similar solutions for much less money now that the research is done. This forces everyone to try and compete at the low end of the market. And many of the companies that offered these very inexpensive solutions are already out of business. Combine this inflated market competition with a global economic recession, and you’ve got the climate we’re in today.

It seems to come full circle with the acquisition of Nortel. With all of the headlines of late, large companies failing and government bailouts, it wasn’t shocking news that one of the leaders in the telecom industry, Nortel Networks, was going under. They were “for sale” (at a bargain in my opinion) all summer, and the only mystery was who was going to have enough capital to buy them. As many rumors circulated, it was somewhat obvious all along that telecom industry giant, Avaya, would hold the winning bid. But now that we’re faced with the reality of Nortel and Avaya being one, what does this really mean for the telecom industry? To start, it seems that Avaya is first focusing on enterprise customers, which should not be a surprise. In the enterprise segment, the number of clients is smaller and it happens to be the most profitable market segment, as one client yields hundreds of users. This is also the market segment most concerned with the latest and greatest features being available. Maybe from this merger, a true IP standard will emerge in the telecom industry.

Salespeople like to go after the ‘big fish”, but personally I’d rather have a lot of medium and small fish. What will become of the small/medium key/PBX product lines? Will Avaya find a way to integrate the systems together? Will Partner 18D’s and T7316e’s work on the same system? Will there be Nortel circuit packs available for Avaya Systems? Considering Avaya’s traditional open architecture, it would seem logically easier to put an Avaya phone (especially the Partner series) on a Nortel System. But I have a feeling that Avaya executives would rather keep their branding, so we’ll see what prevails. There has been very little information released from Avaya/Nortel as to what the future holds. The only thing they are saying is that it’s business as usual, and Avaya and Nortel product lines are still separate competing products. But we all know there’s nothing “usual” about today’s telecom industry.