Why are Carriers in Trouble?

A customer has a PRI at $600 per month. The agent hears the client mention IP PBX (News - Alert). He immediately offers up the “I can save you money and move you to a SIP trunk.” The SIP Trunk is less than $500. The client is happy. The agent is happy that they made a sale. But what have they really done?

They lowered the overall telecom spending. They dropped margin. I would argue that it costs roughly the same to provide a PRI as it does to provide a SIP trunk, except that a PRI is standard, generally more reliable with better call quality. I know. I know. You will argue. Go ahead.

Panel after panel on SIP trunking talks about PRI replacement, not value add, just how to get the PRI business. Nevermind that a SIP trunk is a specification that comes in numerous flavors that may or may not work with customer IP PBX. Think about the overall mentality in this industry: drive down retail pricing at every turn.

Wholesale Internet bandwidth is down to as low as $1.50. Wavelengths are down to $6K. How does an agent make a living with even big ticket items driving down cost? How does the carrier make money? Hardware, interface cards, collocation, power, ILEC rental, admin costs and the cost of sale have not gone down significantly in the last 5 years, but the cost of services has. That's why margins are so low in telecom and why debt is so high.

And it's not just the agent. Direct sales people have competed with me and other agents for business using inside promotions to drive the contract rate down even lower. It's a race to the bottom, and no one wins. As I explain to my consulting clients, if you want a raise or more benefits, your firm has to make more money. But they also have to make more margin. You can't do that selling $400 T1 services -- PRI, trunks, or whatever. IT

Peter Radizeski is head of telecom consulting agency RAD-INFO (News - Alert) Inc. (http://rad-info.net/).

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