Imix Shish
Imix Shish is an associate at the law firm of Levine, Blaszak, Block & Boothby, LLP, where he negotiates enterprise...
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Imix Shish | June 27, 2013 |


Avoid Getting Locked In To Your Wireless Carrier

Avoid Getting Locked In To Your Wireless Carrier Maintaining an enterprise's flexibility to move lines between and among carriers is increasingly difficult.

Maintaining an enterprise's flexibility to move lines between and among carriers is increasingly difficult.

In today's wireless market, carriers are increasingly presenting enterprise customers with agreements and amendments that rival their wireline counterparts in complexity. One result: Maintaining an enterprise's flexibility to move lines between and among carriers is increasingly difficult.

Switching costs are higher than ever, and those costs are less and less transparent. Even early termination fees (ETFs) are rising--some carriers are imposing early termination fees on corporate end users that are north of $300 per line, less a trifling amount for "time served". Though this is the most obvious and apparent cost of moving a line, it is not the only one and perhaps not even the most important.

Mobile services agreements commonly feature an overall discount applied to the customer's monthly service charges. These are often computed using a floating "attainment tier" pricing model, meaning that the higher the number of end users (or total end user spend), the higher the overall discount percentage. There can also be a fixed monthly discount that is sometimes contingent on an annual or term commitment.

However, as frequently mentioned by my colleagues Kevin DiLallo (LB3) and Ben Fox (TC2), the overall discount percentage isn't where the true savings are found: these are obtained by negotiating custom plans and/or plan credits and then establishing and abiding by a wireless deployment policy that makes the most of the custom pricing. (As odd as it may sound, many enterprises go to great lengths to negotiate bleeding-edge pricing for certain targeted rate plans, only to subsequently allow their corporate-liable users to select any plan they want, foregoing the benefits of the painstakingly negotiated bespoke pricing.)

In recent years, wireless carriers have begun to make these custom pricing arrangements more difficult to maintain. Specifically, they are making some or all custom pricing terms (including must-haves such as ETF waiver pools) contingent on a customer maintaining a defined number of corporate users or a defined level of per-corporate-user spend (or, less commonly, total end user spend). This contingency is often closely tied to the customer's current user and/or spend levels, though it may sometimes exceed them, and may be worded as a requirement that the customer maintain its current "attainment tier" level or commitment level.

To make matters even worse and more complex, "mini-MACs" (minimum annual commitments) can be expressed in terms different than those used to establish the customer's discount. For example, a customer's "attainment tier" may be measured in end users, but its rate plan conditions may be measured by corporate-liable spend.

In practical terms, such contingent requirements may deny the customer any real flexibility to lower its user and/or spend levels as needed, because once the customer ceases to meet a requirement, it loses some or all of its best pricing or pricing-related terms and conditions. These indirect switching costs can quickly add up, and can even surpass the direct costs of switching.

For example, if a customer needs to terminate a number of lines due to a business downturn, experiences a mass employee-liable user migration to another carrier, or simply awards a significant part of its wireless business to a different carrier, its remaining user population could be faced with forced migration to rack rate plans and/or the loss of any custom plan credits; indeed, the customer may even lose its ETF waiver pool (possibly retroactively).

Because of the above, enterprise customers are finding it increasingly challenging to credibly threaten to move users to a competing vendor, and the carriers are taking full advantage of these ties to erode customer leverage and maximize vendor lock-in.

How do you combat this? Typically (and unfortunately) there is no easy answer. You can start by addressing the issue at the beginning of your wireless procurement cycle, making it clear to your vendors that their pricing shouldn't be contingent on the types of "mini-MACs" described above. If the vendors push back, you're at least better positioned to insist on reasonable contingencies that build in some flexibility to move or discontinue lines (and keep your ETF waiver pool).

These risks reinforce the importance of competitively procuring wireless services. Conversely, if you wait until the last three days of contract negotiations to bring up these issues, you may already be sunk--savvy vendor negotiators will condition the entire wireless pricing proposal on a narrowly defined contingent requirement structure and won't hesitate to threaten to blow up the deal at a point when you are no longer prepared to do that.

Procuring and managing wireless services is hard enough without the carriers stacking the deck. Customers who don't recognize and deal with the contingent aspects of their wireless pricing could find that their risk-free, flexible, rock- solid business deal is actually an expensive and inflexible house of cards.


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