Closer collaboration

The contracts that a carrier and a consultant forge take many different forms, mainly to accommodate the arrangement the customer desires.

When it comes to helping companies establish e-business processes, carriers offer a wide range of solutions — hosting, co-location, transport and security, just to name a few.

However, what companies actually use the Internet for — establishing customer-facing presences and business processes electronically — is not the traditional realm of service providers.

That work is usually left to the consultancy firms, typically the Big Five and their smaller counterparts — a group that carriers are working with more often as they move beyond providing just connectivity.

The synergies between consultancies, such as Accenture and KPMG Consulting, and carriers are obvious. By teaming, carriers can offer their customers system integration services, software platforms and business advice, while the consultancy firms can couple their portfolios with hosting, co-location, transport and a host of other carrier specialties. Both carriers and consultancy firms have taken to teaming.

WorldCom, for example has partnered with more than 100 different firms that do work such as system integration and Internet consulting. Accenture partners with most major carriers in North America and overseas, according to Fred Fosnacht, a partner in the company's communications and high-tech practice.

“We'll go in and contract with a Big Five,” said Ron McMurtrie, WorldCom's vice president of e-services. “WorldCom will manage the end-to-end agreement. We'll use the partner for platform and integration work.”

The relationships between carriers and consultants are usually established in two ways. Either the carrier and the consultancy firm team up to make a pitch to a prospective client, or one forges an existing relationship with a client and brings that client to the other.

“These relationships are still kind of loose. They're still in the definition stage,” said Kneko Burney, director of e-business infrastructure and services with Cahners In-Stat Group. “They're still trying to figure out what that sweet spot is.”

But Burney predicts the industry will see more partnering. “The [telco] can bring unique capabilities to that integrator,” he said. “For the telco it's important for them to start branching out because they need to get more involved in providing business services and not just connectivity.”

Like the relationships, the contracts that a carrier and a consultant forge take many different forms, mainly to accommodate the arrangement the customer desires. Financially, though, one of the companies will usually pay a finder's fee to the other for bringing it business.

Because such contracts are usually made on a case-by-case basis, there is no standard regarding where the lines of responsibility lie. But according to Tom Patterson, managing director for managed services at KPMG Consulting, if the consultant and the carriers have established relationships going into a project, the partners usually have a rough understanding of what boundaries not to cross.

In addition to making negotiation easier for the consultant and the service provider, such an established relationship can also be sold as more affordable for the client. If a client goes through KPMG Consulting to find a carrier, KPMG will sometimes establish a higher service level agreement (SLA) with that carrier than what it offers to the client. The cost of padding the SLA is usually passed on to the client. If it has an established relationship with the carrier, however, KPMG Consulting will not build in the SLA cushion, resulting in a lower cost service, Patterson said.

Currently, service providers tend to avoid signing exclusive contracts with consultants and vice versa. One reason is an exclusive relationship could bring the companies' objectivity into question. Carriers work with consultants to open up new sales channels, but an exclusive relationship would only serve to close these channels.

“[Exclusivity] is not really going to happen,” said Melanie Posey, analyst for IDC. “Neither side is going to tie themselves to an exclusive relationship. If Accenture said, ‘We will send our clients to ‘X’ data centers,’ they would have no leverage [as an impartial consultant].”

In addition, according to Accenture's Fosnacht, picking a carrier is ultimately the responsibility of the client, who should base the decision on straight-forward criteria such as quality of service and network coverage.

However, he said, Accenture might be open to entering into more involved relationships with carriers in the future should the right situation arise.

For example, a particular carrier's network functionality, particularly in third generation wireless or location-based services, could give Accenture's clients a differentiated solutions set, he said. “That's where in the future it might be appropriate to have some unique relationship that goes beyond what we have today.”

If there are such synergies between carriers and consultancy firms, consolidation would appear to be a naturally occurring event.

In a few cases it has already started. In 1997, for example, Sprint bought Paranet, a consultancy firm providing integration, management and support services for distributed computing technology. Last year, Sprint included Paranet in its newly formed E|Solutions unit.

“[Consulting] is a need that our customers have told us they have and as we built Sprint E|Solutions and launched the company, the response has done nothing but grow,” said Joe Edward, vice president of marketing for the unit.

But widespread consolidation is not likely, say carriers, consultants and analysts. Trying to provide the system integration, software platforms and strategic consulting that the Big Five do in addition to performing the typical jobs of a carrier such as transport, Web hosting and co-location would simply spread a company too thin, they say. “I think what we do is very hard. I also think that running a telephone company is very hard,” said KPMG Consulting's Patterson. “I think growing within your core competency is a better way to enhance shareholder value.”

VC watch

Company	Description	Amount	Lead investor(s)	Purpose
Arbinet-thexchange	Online bandwidth exchange operator	$35 million	EnerTech Capital	Working capital, expansion
AirFiber	Wireless optical equipment provider	$3.5 million	GM Ventures	Product development, distribution, sales, marketing, customer support
Lightconnect	MEMs manufacturer	$15.8 million	Incubic	Manufacturing, market penetration, product development
Celion Networks	Optical networking equipment vendor	$45 million	Lehman Brothers Venture Capital	Group product development, field trial
Geobot	Messaging software developer	$2.2 million	Delta Capital Management	Product development, sales, marketing
Mobilian	Developer of chips and software for wireless radio	$43 million	Dell Ventures, Jafco America Ventures	Product development
Compiled by Toby Weber