The chain of a long distance call usually involves few levels of service providers (tier 1, tier 2 and tier 3) that are responsible for transferring a call to another carrier (wholesale) or the end user (retail). Providers that are working in the retail market have two options – deal with the users directly or organise their sales channels through resellers. This article will explain the difference between operators and resellers and why part of them are streaming to become service providers.
The difference between resellers and service providers
The terms 'reseller' and 'service provider' may be understood differently, so first let me explain the characteristics of typical resellers from my point of view. They are individuals or organisations that work like the agents of some provider (usually on a commission basis) or as the sales partners under their own brand (also called white-label). White-label resellers have own customers and apply individual tariff plans which are different from their core provider’s. The VoIP traffic and DIDs (if needed) are obtained from the main provider at the wholesale price. Resellers do not have their own infrastructure and they are managing their operations (registering new clients, applying the rates, putting the profit margins, monitoring calls, reviewing statistics, etc.) through the online portal which is supplied by their provider. The main operation which differentiates reseller from the provider is the ability to manage own carriers. Providers have own switching system (also called, a softswitch) and the full control on it, whereas resellers have just an access to the online portal. The reason of this is that VoIP traffic is the main revenue stream for all providers and they are not interested in creating a competition for themselves. However, some providers offer an additional service – switch partition which allows resellers to add own carriers by paying a small monthly or per minute fee.
Why is it worth being a reseller?
To tell you the truth, if I started the VoIP business from scratch, I would definitely choose the reseller level. The reason of this is very simple - resellers need minimal VoIP technical knowledge as majority of their operations are commercial. Moreover, resellers don’t need to invest to VoIP equipment which allows to start a business easily with the minimal risk and concentrate on the core activities that drive a business forward - marketing and sales. So the main task is to find a good, competitive service provider that would take care of everything and would allow reseller to start the business and generate profit from VoIP services.
Why some resellers move to the higher level
Imagine a company with an ambitious and insightful employee who understands that his or her organisation should do things differently in order to grow the business. However, if such opinion does not match the vision of the employer, the employee may leave the organisation and start own business. It works in a very similar way if you are a VoIP reseller. Sometimes resellers start feeling the limitations of their position. First, they do not have enough control on the business – the price and quality of calls depend only on their provider. Second, it is quite hard to deal with the clients when there’s no influence to fix a problem which was caused by provider (e.g. the core system is down, the line is breaking, the long distance rates are becoming too high, etc.). The only thing reseller can do is to report the problem to the provider and wait till it is fixed. Third, the needs of reseller’s clients may change fast and the core provider may not be so flexible to fulfill them all. Or, in some cases it is just not worth making the changes if the reseller is not a key partner for the operator. In the end, resellers experience a lack of independence and freedom to make own decisions. This is a key factor which encourages them to starting thinking about having own business and becoming the service providers.
Being a provider allows full control on a business which can bring much higher revenue, but at the same time, there are additional responsibility and risks, related to this. Providers must have the ability to manage a complex telecom infrastructure on commercial and technical levels, which means that only experienced and skilled people can work there. Moreover, having the own infrastructure means there’s a need for a higher investment to start a business and more cash flow is required to cover the monthly expenses.
To summarise, I’d say that the best practice is entering VoIP business from the starting level - being a reseller. If there’s a big demand and high potential to expand, it is worth considering being a service provider with own equipment.
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By Vilius Stanislovaitis
VoIP Business Start Consultant, VoIP Softswitch Expert