Should you combine your organization’s wireline and wireless contracts and commitments? Before deciding, there are some key issues that need to be considered.

The biggest difference between fixed and mobile commitments in the current market is in the impact of short-falling, or not making the commitment. With most fixed agreements there is a liability associated with not retiring the required amount of revenue in the timeframe allowed (typically an annual cycle). Whether the penalty is 100 percent of the difference between the amount retired and the commitment, or it is some smaller percentage (as is often the case with pre-discount revenue commitments), it is a hard dollar commitment in terms of exposure if missed.

On the other hand, mobile commitments traditionally trigger reductions in the amount of discount that is applied to the services when the commitment is not met. Some providers have standardized on unit or number of phone commitments, while others use revenue, but the impact of missing either metric is the same—typically a reduction in the amount of discount applied to the wireless services. This reduction applies only on a going forward basis so there isn’t any retroactive penalty. The differential in the amount of the discounts is typically only one or two percentage points from one tier of revenue or units to the next.

While there is a certain level of excitement in the marketplace around an integrated contract and commitment level, the benefits to companies that take the plunge may or may not be adequate. Before you accept an agreement that may, at best case, have one set of general terms and conditions, take a close look at what you’re getting out of the arrangement. If you are barely making your current fixed commitment (or have a current shortfall on your commitment), you’re probably a candidate for early adoption of the integrated agreement. If you’re like most companies experiencing growth in mobile services balanced by a reduction in fixed expenditures, this arrangement may afford you much-needed flexibility and risk reduction.

However, if you’re in the range of commitment level that most consultancies recommend for risk minimization (55%-70%) on the fixed side, make sure you fully leverage your migration to a hard dollar revenue commitment on the mobile piece of your business. Full leverage should include the ability to impact fixed pricing by agreeing to a new revenue commitment for mobile services and vice versa.

Unfortunately, experience has shown that the carriers are not necessarily affording better pricing on mobile services to clients who agree to hard dollar commitments. There is also little cross-elasticity between the pricing organizations for fixed and mobile services. Too many provider business units are still operating as separate entities and so the pricing decisions on the two lines of business are made separately regardless of what is being offered to the other business segment.

Like most enterprise clients, Tangoe looks forward to the day there is linkage between the two pricing groups. When that day comes, it is presumed that having uncommitted wireless revenue (in other words a traditional commitment where a shortfall results only in a decrease of discount) will translate to leverage that will enable you to recognize better pricing, terms, and conditions in return for taking on a hard dollar commitment. So we would encourage enterprise clients to hold off on an integrated commitment (unless there is a concern about imminent shortfall) and ask the carrier what’s in it for you before making the switch!

Look for an update on the current status of the market relative to combining IXC and LEC contracts and commitment levels coming soon.