Managed Telecom Grows Amid Telco Rubble

Aug 19, 2002

Erin Joyce

Amid the rubble that is the telecommunications landscape these days, a sub-sector of companies has sprouted and appears to be thriving.

They call themselves managed telecom service providers: companies that buy voice and data services from wholesalers and deliver it in bundled services over an Internet connection.

Just don't call them Voice over IP providers, or IP PBX. "We do much more than that," says Daniel Hoffman, the founder and CEO of M5, a New York-based managed telecom service. Launched in 2000, M5 provides long-distance and local phone service, T-1 Internet lines and all the bells and whistles of call features one expects.

Hoffman says he and his buddies created M5 out of their experiences running one of the original ISPs in New York, Interport Communications, which they later sold. "At Interport, we spent $15,000 on a Toshiba PBX system, then another $70,000 to upgrade it over the next four years as the company grew from 10 to 70 employees. We specifically designed MTS so that businesses could avoid this kind of expense for soon-to-be obsolete traditional phone systems."

These days, his pitch to small businesses goes something like this: given the telecom providers that have filed for bankruptcy, leaving smaller customers in the lurch for voice and/or data services, why not go with a managed telecom provider which purchases services from all the major providers such as Verizon, AT&T and Sprint?

"That way, we make sure they're not exposed to one major provider that may have failed."

How it Works
A standard M5 package includes a T1 Internet access line, a back-up ISDN line, managed router, flat-rate call plan with local and long distance and all the bells and whistles one expects in voice systems (direct dial phone numbers, conference calling), voice mailboxes, auto-attendants, forwarding off-net to mobile or home phones, transferring, caller ID, intercom, call lots, hold music, call accounting and do-not-disturb, to name a few.

M5 connects clients to a shared-tenant, hosted PBX over private IP connections. You might call M5 and other providers such as Dallas-based Red Gap Cisco shops. Both deliver the services with Cisco networking equipment and the Cisco 7960 IP phones (which the customer can buy or rent).

In M5's case, the hosted IP/PBX software is provided by Vocaldata and the the point-to-point T1 lines are from Verizon as well as either ISDN or DSL back-up. M5 manages connectivity to the PSTN on behalf of its clients.

The customer pays anywhere between $10 to $135 per seat each month. Hoffman maintains that the company saves customers about 23 percent a year compared to what they pay for the same services separately. Already, the company is closing in on its 100th customer and is preparing to expand beyond the five boroughs to New Jersey.

Other companies providing similar bundles include Pingtone Communications of Virgina, Kancharla of Alabama and CeriStar. "What they do is integrate a number of platforms together: the local data, features, transfers, call forwarding, all the PBX features," says Christine Hartman, a research director Tele-focused research firm Probe Research. The voice-over-packet expert says she sees managed telecom services as a little more than a healthy niche thus far.

But one key aspect of these bundled services, she adds, is long-distance plans that are priced, similar to cell phone plans, by minutes.

"That's the advantage that companies like M5 can leverage to their advantage. If a customer decides not to outsource, to instead buy a PBX system, that means they have to negotiate long distance with somebody else."


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