A Phone Man's Point of View™

By Mike Sandman
Chicago, IL

Phone system sales and MACs (Moves and Changes, or Moves-Adds-Changes) are about to increase dramatically. Any time large numbers of workers are laid off, companies move to smaller quarters. Their phone system is going to get moved, or they’re going to get a new system.

If you’re selling something, you pray for an impending event. Layoffs are an impending event, leading to moving to smaller quarters, which is another impending event. Floods, fires, lightning storms, hurricaines… they’re all impending events where the prospect has to do something – it’s not an option.

Nobody likes the idea of making money from other people’s problems, but that’s what makes the world go around. Y2K was an impending event that caused a huge spike in the phone and computer business. Another one of those would be really nice!

After the Internet bubble burst and 9/11, a lot of people were laid off in the US (a lot of off-shoring went on). Although the phone business slowed for a while at the time, there was a definite upswing as companies moved to smaller offices – right up to the start of the Iraq war. Things got pretty bad in the Interconnect business after the war started, but the home automation/entertainment business went nuts as home sales skyrocketed.

For an Interconnect, moving a phone system and doing the network and phone wiring is profitable. Maybe not as profitable as ten years ago, since most spaces are already wired for both phone and network today.

MACs have traditionally kept Interconnects going through economic downturns. For whatever reason, the management of many companies love moving people around (even when they can’t afford to?). They love moving the phone room or server room, and they love moving desks to a different side of a room from where the existing cable is. All that requires new cabling.

Today, IT guys do a lot of phone MACs. It’s unlikely IT will have the time to handle the wiring and phone system move, in addition to all their other responsibilities keeping IT going.

Huge numbers of phone systems were sold in the US through 2001. They’re pretty good systems with just about any feature a company needs (compared to older models from the early to mid 1990s, which weren’t so hot), and most of those systems are still working fine today. There are lots of parts available on the secondary market for most systems, at reasonable prices.

These installed systems are getting older, so a company who’s moving is going to have to make a decision about moving the old system, or buying a new system. The reasons for buying a new system are:

1. The customer needs or may need the ability to have remote workers, or the boss wants to work from home (or the beach). This is pretty easy with a legacy phone system that has an IP add-on option, or an IP phone system. Not easy with a legacy system with no IP add-on capabilities. Maybe the old phones will work with the new system?

2. The customer’s phones are dirty, discolored and ugly – and they have the money/credit to buy a new system – even though the old one works fine (nothing a little Telephone Polish and some new desis wouldn’t fix!).

3. The old system is so much larger than needed that it would be cheaper to buy a new system, than move the old system – and they have the money/credit to do it.

Whether companies can get the money/credit/lease they need to do the move is a good question? In the past, companies could borrow money pretty easily in an economic downturn. Leasing phone systems has been easy since the 1980s. This is the first time since it became legal to own a phone system that it’s been really difficult to borrow money. If your leasing company won’t approve your credit worthy customers (because the leasing company can’t find money), all bets are off.

This is the time to get your leasing company ducks in a row!

Another concern is whether a phone system manufacturer will make it through this credit squeeze? Everybody is having a tough time borrowing money, including phone system manufacturers.

During the last downturn in the economy, hosted phone systems weren’t an option. It is now. Your customer may opt to just get network wiring installed, buy or rent some IP phones, and do the move.

Depending on the network infrastructure and Internet connection, a hosted phone system can sound pretty good – or pretty crummy. Customers will accept crummy sounding calls these days. A large percentage of the calls coming into a business are from a cell or VoIP phone. It’s not a pretty picture when the customer’s phone sounds crummy to begin with, and then you add crummy sounding incoming calls.

Another consideration is whether a hosted phone service go out of business? Will a CLEC go out of business? Maybe. There’s a zero percent chance a LEC will go out of business.

If a CLEC or hosted VoIP company goes out of business, porting the company’s phone numbers to another provider, even the LEC, can be difficult to impossible. Certainly not a quick process, and in the meantime the company is dead in the water. This isn’t theoretical. Norvergence and Sunrocket left tens of thousands of businesses without phone service when they suddenly went out of business a few years back (in a better economy than this).

Until the economy improves, it’s probably safer to rely on a LEC for phone lines. CLECs and VoIP providers can’t find money, either.

Companies who survive this will be the ones who can reduce overhead to the point where they can make money again. Some companies can do this easier than others. Both Interconnects and phone system manufacturers have gotten a lot of experience reducing overhead and controlling overhead in the last eight years, so they’re some of the most likely companies to survive.

Besides quality and reliability, a hosted VoIP system has is the same problem you’ll have with many of the phone systems you sell… Lack of features. What? You’ve been selling systems from XYZ company for decades, and they have all the features! No. Not quite.

Legacy phone system manufacturers have gotten rid of the old (experienced) guys in sales, marketing, engineering, design and management who “grew up” with the phone business. The phone business as we know it has only existed since the early 1980s – maybe 25 years of electronic phone system sales.

The initial batch of electronic phone systems from the 80s had a lot of problems, just like the initial batch of any technology. By 2000, traditional phone system manufacturers had really perfected electronic phone systems.

In the early 2000s when the economy turned down, most phone system manufacturers brought in new design and engineering teams from third world countries (to save money). New generations of phone systems were total redesigns, but they were still pretty reliable compared to 80s systems.

The biggest problem with these newer systems? The firmware isn’t great. Third world engineers try to translate how features are supposed to work, but since they had never actually used a phone system in their county, they didn’t read or understand English, and there was nobody to ask, a lot of features don’t work as expected. Slowly, these problems are getting ironed out.

If you’re going to sell a phone system and you’ve determined which features your customer needs, make sure those features are present and work as expected in the new system. Even though a feature is listed in a brochure, it might work differently that what you or your customer expects.

If the customer who buys a new system has been using a feature for years, and expects it to work the same in the new system (because you told him it would, or the feature was listed in the brochure), there are gong to be problems getting paid if a needed feature doesn’t work. You might even be told to take the system out, which can get very expensive for everybody.

It’s a good idea to get out your copy of the Installation Checklist and use it to make a needs analysis to determine how the customer uses their current system, how the customer’s company has changed or is changing, and what they’re expecting from a new system.

A consultative sell, where you use your experience to make sure your customer gets the most value and the best productivity for their phone system dollar, will make you a hero for years to come. Take your time. Sales you make today are going to be the basis for future growth at your company. The extra effort today will mean great referrals tomorrow.

Some modern phone system manufacturers and hosted VoIP providers have decided to leave features out of their systems both to save money, and bring their system to market faster.

Why put in a feature if it’s only going to be used by a very small percentage of buyers?

Legacy phone system manufacturers didn’t put in all those features because they had nothing better to do… They put them in because the Interconnects were telling them they were losing sales because the system was missing a particular feature. It only takes one missing feature to blow a sale. The fewer features a system has, the fewer prospects there are to buy the system.

Some of the most desired features missing from hosted VoIP systems and some modern phone systems:

1. Square key system features, where each line has its own button and light on each phone (to see which line is idle, on-hold or ringing).

2. Handsfree intercom, which allows one employee to call another employee on the intercom, and the called employee to answer handsfree.

3. A BLF (Busy Light Field) on the phone to indicate whether an employee is on the phone, or not.

4. Internal paging where an employee’s voice can come over the speaker in all, or just a group of phones.

Why would these important features be left out of a real or hosted phone system? Mainly because the people who design the systems don’t know anything about phone systems. They’re getting better, but it’s at the Interconnect’s, customer’s, and phone system manufacturer’s expense. It’s costing everybody right now, and I’m not just talking about IP phone systems.

As an Interconnect selling a phone system to a company, it’s in your interest to be absolutely sure the system you’re selling is both dependable and has the features your customer needs to be able to operate their business as efficiently as possible (with the reduced staff, which prompted the purchase of the new system).

One aspect of new IP phone systems that’s going to be a tough sell to owners of legacy phone systems, are licensing fees. Legacy systems sold since the late 90s have been incredibly dependable.

Most of these customers were used to paying for a maintenance contract – because they needed it for their older system. Today, customers rarely call for service on the newer generations of legacy systems. It’s about impossible to sell a maintenance contract. Not many T&M service calls, either. MACs are about the only recurring revenue.

In the past, legacy phone system manufacturers had recurring revenue when they sold phones, station cards, and trunk cards for MACs, and well as software to expand or upgrade a system.

An IP phone system usually doesn’t have trunk cards (or not many). No station cards either. It can probably even use IP phones from a different manufacturer, so after the phone system manufacturer sells the system, there may be no recurring revenue. What’s worse, in the initial sale they don’t sell a trunk card per 4 or 8 trunks, or a station card for per 8 or 16 stations. Other than limitations written onto the software that can be unlocked with a license key, the cost of the IP system’s hardware and software is the same whether the customer has 10 or 1,000 phones – but the IP phone system manufacturer had to pay for the development of the system that would support 1,000 phones, even if the customer is only using 10.

It’s unlikely an IP phone system manufacturer will stay in business long without licensing fees. The good thing for the Interconnect is that they make the markup on the licensing fee (unless the manufacturer cuts out the selling dealer). While license fees are going to be a tough sell to older customers used to legacy phone systems, they’re going to make sure both the manufacturer and Interconnect survive – and that there will be someone to service and add on to the customer’s phone system in the future.

The real dollar and cents questions are:

1. The size of current licensing fees, and how high they’ll go in the future.

2. What licensing fees will do to the secondary market for phone systems and equipment, which is currently an important part of the Interconnect’s business (even though The-Mart and Gear are gone).

Get ready for the wildest ride the Interconnect business has had in almost a decade!

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