Declining Revenue was the theme in 2023. That resulted in Musical C-Suite Chairs, stock declines, and layoffs.
Telcos are in a bad spot. Way too much debt and declining profitable revenue. As copper replacement speeds up on those 30M lines still on old plant, telcos such as Windstream, Lumen, Consolidated, AT&T, Verizon and others are losing high margin revenue. MPLS, T1, POTS are all going away. And POTS replacement isn’t going to the telco; it usually goes to a CLEC/reseller or in the case of residential, digital voice to cable or cell phones. Lost revenue. Where do they make it up?
Consolidated (the ILEC based in Cali) will go to a group of investors. Windstream got a new CEO. Lumen got a new CEO. Both suffered layoffs. Lumen sold off CenturyLink assets to Apollo for $7B; then Lumen divested international assets to shrink its $20+B debt load. GTT emerged from BK with a cleaner balance sheet, less assets. Then GTT let the CEO go along with a bunch of execs.
The channel had 3 more vendors in Bankruptcy in 2023: INAP, PGI and Cyxtera. PE owns all 3. Cyxtera did the SPAC route but the debt was overwhelming; the strategy lacking. PGI acquired for $1B but their web conferencing offering was ignored during the pandemic. INAP is a long time mess.
Activist investors have called for the following: (1) ousting Twilio’s CEO/founder; (2) OpenAI’s CEO/founder; (3) to sell Frontier assets; (4) to sell Crown Castle fiber assets.
When a provider has musical chairs in leadership roles, it is never a good sign. Lack of stability in leadership means a lack of confidence within the channel. Uncertainty doesn’t help sales either.
Broadband is the only bright spot in telecom.
It was the year that PE decided that $42B in federal grants to build fiber to the home was a once in a lifetime opportunity! BEAD grants and guidelines were disputed all year – especially the medium. Fiber is preferred but some ISPs want to be able to use wireless, but that means 5G LTE FWA and satellite as well. Yet no one liked it when Starlink won a grant.
Starry Wireless went bankrupt in 2023. JAB Wireless was a WISP roll-up company that re-named as Rise Wireless. They stopped buying WISPs in 2015. They pivoted to putting some fiber in the ground (FTTH), which is why private equity firm GI Partners bought them in 2023. So FWA or fiber?
The FCC also authorized $18 billion in enhanced A-CAM, also known as E-ACAM, rural broadband funding for 388 companies for a 15-year period. More tax dollars for building ISP networks.
The FCC also required Broadband Labeling so consumers would know what the fees were for.
Fiber is a long term asset. BEAD required matching funds. FTTH projects have proven to be successful when done right. Private Equity started buying ISPs and mom-and-pop telcos in order to build up a portfolio of assets now to flip later.
Even T-Mobile got into the fiber broadband game! After selling the Sprint fiber network to Cogent for $1
Broadband gains included multi-Gigabit speed tiers, Wi-fi 7 and now more than half the US households (55%) have access to fiber.
The ACP [Affordability Program] – where ISPs get $30 per household to help pay the bill for really expensive broadband. The ACP will have used up its $14B fund by April!!! The USTelecom Association swears that broadband gets cheaper every year, but we still spend more than $15B in Affordability because our inexpensive broadband is too much for 12M households to afford???? And they want $7B more. This is basically a $21B subsidy to ISPs.
FYI.. USF, NTIA, USDA, BEAD, ReConnect, U.S. Treasury Capital Projects Fund, ARRA, BTOP, BIP and so many more grants, gifts, loans – taxpayers have paid enough to actually have 1GB delivered to every door twice over!!!
BTW, in August, Starlink had a small fraction of the customers it originally promised investors.
Interesting fact: There is a 30% fall out rate for broadband. (In other words, 30 percent of orders are not serviceable). Broadband mapping has become an industry in itself. Where is the fiber? ConnectBase and others charge to answer that question.
PARTNERS!
More partner agencies were acquired by PE backed firms in 2023. Upstack, Bluewave, Amplix, Telarus and more bought agencies in 2023. This will continue in 2024 because no other avenue of growth available to the TSB and “super-agencies”.
I predicted a TSB would fail in 2023. That didn’t happen. With the state of the TSBs I deal with, I don’t know how they don’t fail.
CLOUD COMMUNICATIONS
It was a year of disappointment in UCaaS. Most growth was sub-10%.
Bluejeans raised $175M before Verizon acquired them for $450M in 2020 — and Verizon shut the video conferencing service in 2023. That sums up 2023 in cloud comm!
Consider that 3 years ago, UCaaS seats were $18 on average. Now the average seat is $13!
Zoom has 7M+ phones at $6.61 on average per month.
Mitel bought Atos’s PBX business to double down on-premise. This sector still sees 40% of sales.
Avaya went bankrupt again, but they think it worked out with a clean balance sheet. However, partners and clients have been picking anyone but Avaya since then.
RingCentral bought Hopin to see if maybe events – virtual or hybrid – would be a sector they could make money at. RNG had a problem picking a CEO. Robbiati lasted 3 months as CEO and took home $9.75M!
Microsoft once again wins the UCaaS sector as they surpass 300M users of Teams. “It was revealed in Microsoft’s Q3 2023 earnings call that Teams has accrued 300 million monthly active users. The Microsoft Cloud produced a quarterly revenue of more than $28 billion, a 22 percent increase.” They are closer to being the default softphone.
Telcos are trying to figure out what to do for a softswitch now that Metaswitch and Broadsoft no longer exist. Alianza won with Lumen and Brightspeed, but then Lumen did a deal with Zoom for phones?!
Cisco announced that Webex Calling now has more than 13 million users, with more than 5 million of those users delivered by the 350+ service providers who own a Broadsoft!
Ooma bought 2600Hz for 4.7x revenue because 2600Hz was its platform!
Sangoma is a mash-up of Netfortris, Star2Star, Digium and so much more. Sangoma got a new CEO who then shed a bunch of execs (probably to bring in his buddies, because that is what we do in telecom. And it rarely works.)
UCaaS Commissions were lowered in 2023 by several providers. This meant that SPIFFs would need to increase, which they did, to get a bump in sales.
UC went to the UC+CC route in 2023. Net2Phone and Broadvoice acquired CCaaS vendors to make the package work. 8×8, Vonage, NEC, Intermedia and RNG also have the package. Quite a few others try layering a CCaaS vendor onto their UC platform. Clunky.
The CCaaS sector has been up and down.
- Lifesize went bankrupt and Enghouse bought the assets for pennies.
- LiveVox was picked up by NICE, who had a huge layoff after.
- Twilio said Flex was going well, but had layoffs AND a CEO ouster.
- Rumors were that Five9 was looking to merge with Zoom again. There is no culture fit there – and Zoom is building its own CCaaS with 700 clients so far.
- Salesforce and Zendesk added CCaaS.
- Quite a few small omni-channel and CX providers popped up.
- Rumor is Microsoft is building a CCaaS.
Let’s say they go all in on CX like RNG, 8×8. CCaaS seat prices are cratering from $160 to $50-100 per seat due to the many competitors in the space. How does that change the revenue model? When they move to cloud they shop.
AI
The board at OpenAI fired its founder/CEO, until a large investor named Microsoft stepped in, then they reinstated him. FYI… OpenAI is supposed to be a non-profit!
Partners say they lack tangible AI offerings to sell and are overwhelmed by vendor marketing around the technology. Just a lot of marketing noise and not enough concrete use cases. I don’t think singing about adding AI is a sound strategy. I think knowing what your customers’ problems are and how to fix them is a sound strategy.
I was going to discuss CPaaS but that is a mess.
Same as last year in UCaaS: No Differentiation. Nothing going vertical.
5G
MVNOs took off. Comcast and Charter are in a unique position that almost all the other cablecos and ISPs do not have. They have a sweet-heart deal with VZW due to spectrum they bought. They are the 2 largest ISPs in the US. They have brand and advertising might. They can leverage their own 5G and wireless backhaul. Hence, why both have profitable MVNO lines with 6M subscribers each!!!
NCTC started an MVNO program for its members – 60 members joined the program in 2023. AT&T has had mobility in its APEX program for years but most participants only use it for 4G backup.
DISH helped T-Mo buy Sprint. Then Charlie proceeded to trip over his shoelaces at DISH while trying to roll out DISH Mobile 5G. So many missteps at DISH, which had to re-merge with Echostar. They need about $20B more to meet the FCC mandates for the spectrum and the merger.
T-Mobile raised rates because DISH isn’t turning out to be the 4th competitor.
CYBERSEC
CyberSecurity – hacks and ransomware everywhere. Utilities included. Cyber Insurance is the next opportunity for partners.
Ransomware Attack Costs MGM Resorts More than $100 Million!
Survey of 1,600 CISOs shows that employee turnover is driving data loss. A full 82% of those surveyed said they believe employees leaving contributed to a data loss incident. Additionally, 62% said they would pay a ransomware threat and 61% said they would place a cyber insurance claim to recover losses. The survey is from cybersecurity company Proofpoint.
In a 2023 survey, 94% of organizations experienced a cyberattack of some form in the last year. That’s why organizations are turning to Cybersecurity as a Service.
TSB
Financials: Intelisys is the only publicly traded technology services distributor (TSD), which makes its quarterly earnings a key indicator for the rest of the industry. ScanSource earnings helped crystallize a trend people in the channel have been talking about for years. While end user billings increased 9% year-over-year for Intelisys, net sales increased 4% YoY. Note that net sales equal net commissions Intelisys receives from the suppliers after passing on part of the commission to the sales partner. Intelisys’ net margin is not growing at the same rate as what’s happening at the end user level. Due in part to TSD’s paying out a larger part of its commissions to its sales partners. It used to be 70/30 split. Now it could be as high as 90/10.
So how do you pay the TSD investors?? You took in $650M or more, how do the TSD’s pay it back with 9% real growth YoY?? Big Question all Partners should be asking. Smaller masters are now competing for the same partners as PE backed TSDs.
“As smaller TSDs want to take customers that we sell to today and lure them over, they’re willing to take little or no margin to move the customer over,” Scansource’s Baur told Channel Futures. Annualized end user billings exceed $2.4 billion for Intelisys. For now, Baur said they are willing to take a lower margin on these deals to remain competitive. He encouraged vendors to ensure that TSDs are making enough money on deals that they can reinvest, back in the business or the vendors lose too. Big vendors like fewer TSDs, fewer contracts, fewer relationships to manage. I keep hearing the rule of 3. But that only works if the TSDs understand their Value & deliver on it consistently for vendors & selling partners.
Scansource lost a lot of people in 2023.
US credit card debt went up from $20K to $30K for households looking for relief. The Bankrate average for credit card interest rates is close to 21%, which is for the best qualified borrowers (those with higher credit scores). For store cards, the average is 28.93%.
The Black Friday and Cyber Monday billion-dollar US spending spree was fueled by “Buy Now, Pay Later” shoppers.
Student loan payments were reinstated this year. Not much in the way of student debt relief.
This is an element of the macro-economics talked about on every quarterly earnings call in 2023. That and rising interest rates. 80% of American households are in a worse financial position now than they were before the COVID pandemic hit, per Yahoo Finance. In addition, credit-card delinquency rates at the top 100 banks in the US is 2.63%, up from 1.71% a year ago, per MorningStar.
Among the 13 VC-backed companies that went public in 2022, not one was profitable. WeWork filed BK in 2023. Instacart went public in 2023 at $10BB, after a 2021 private-round valuation of $39BB. Since then instacart has lost value every day, bumping against $7B in market cap. Rent the Runway and Allbirds are each down 96% from their IPOs. Of the 310 SPACs launched in the past three years, 10 have registered positive returns.
Channel Marketing got worse in 2023. Many vendors turned to daily emails to partners. Why? I don’t see any value in an email every day from any program!
Besides lousy marketing to channel partners, what became apparent in 2023 was how few people who are given a microphone understand the channel at all. That includes the CEO of Scansource. The one thing that is all too clear is that many folks think it is one channel. It isn’t. It consists of at least 8 segments – Agent, VAR, MSP, ISV, Affiliate, Inter-Connect, TSB, VAD – that each have different business models, avenues to sales, challenges and so on. To treat the whole channel as homogeneous – or to talk about partners as if all of them are MSPs or all of them are Agents – is ridiculous. Yet it is done time and again.
Craig Schlagbaum said good-bye at the end of 2023.
I said this last year:
I know that this all comes down in a flaming ball of fire. When vendors like cyber-sec are laying off in the tens of thousands and UCaaS vendors are eliminating sales teams, do you think that the sales numbers are up or down??? AT&T and Verizon are struggling with debt and new avenues of revenue. Selling network, voice and replacement services are the core of the channel — but also it is the core of most sales people in this business. Selling data center, cloud services, cyber-sec, customer experience and other emerging tech like AI require a different skill set, mindset and motivation. If you are motivated by ink, transactional sales is how you keep going. How do you go from closing weekly to closing monthly or quarterly? Even if those are bigger sales, the triumph of the sale happens less often — and other skills like effective follow up are now a requirement whereas in transactions follow up isn’t nearly as important. Mindset is just as important as skill set. It is like if the partner doesn’t think cloud is for everyone. How do you get them to sell cloud to everyone then? You don’t.
The key to success: maximize the partners you currently work with and duplicate them! Period. Take the friction out of all of your processes. Make it easy and desirable to do business with you!
The key to winning in 2023 is to make your partners successful. Stop looking for new ones. Milk your own cows. You have other services to sell to the partners’ customers. You have MDF money that you can use to do Lead Gen for the partner. There are a ton of ways to grow sales through partners who have already sold your stuff. Focus on them!
https://channelplaybook.com/telecom/rationalization-in-2023/
Best comment in 2023: “How can you put the rubber to the road when all you hire is retreads?”
“Conferences are just networking events interrupted by sessions.”
Lower new biz quotas to make attainment believable and build momentum. People don’t sell more because their quotas are higher (😱), they sell more when they are winning. It’s OK to pay more for that revenue – it’s harder to win now. [source unknown]
“Peter Drucker once said: ‘The greatest danger in times of turbulence is not the turbulence — it’s acting with yesterday’s logic.”
BTW, if you missed this in April, here is the TSD Round Table hosted by AireSpring moderated by Peter Radizeski.