Combined wireline and wireless MACs: Good idea or a subtle trap?

A general principle of effective telecom procurement has always been that the broader the basket of services, the better the offers -- up to a point. That point is reached when you go beyond the boundaries of what a discrete set of bidders can bid on by virtue of their footprint or skill sets.

As a practical matter, we've seen two such boundaries for some time. One is the split between domestic and global services, because the lineup of bidders is likely to be different for each. The other is between wireline and wireless, because the product houses within the big carriers (other than Sprint) have non-parallel service platforms and discount structures between their fixed and mobile services, and simply haven't wanted to combine the two under a single agreement.

We're always on the lookout for shifts in this area, and we may be on the verge now. AT&T has been talking to some of its big customers about pulling together wireline and wireless services for one mega-commitment, with various promised or perceived concessions on the resulting deal.

We haven't really seen this activity at Verizon, perhaps because it shares ownership of Verizon Wireless with Vodafone, but we still wouldn't be surprised if we see Verizon broaching the idea of combined commitments to select customers sometime soon. And we also wouldn't be surprised if you and your IT-related colleagues get press and market research reports asserting that you can get bigger wireless discounts and a better wireline deal through combined MACs. We recently saw one such market research report purporting to define the amount of additional corporate discount percentage points you can achieve on wireless plans by rolling up enterprise wireline voice and data spend into the same deal.

It all sounds promising, but in the real world there a few things to watch out for. In our experience, you have to look closely at combined MAC offers to see whether they're really better or if it's a mirage. The initial presentation of a combined offer may be a very high-level description that has the air of "It's combined, isn't that great? It must therefore be better, right?" Basically you have to move carriers from offering a combined deal for its own sake to doing a combined deal that is in fact a better deal. It may take several rounds of discussion and bidding to do so. If there ever were a type of deal that shouldn't stop at Round 1, this is it.

In particular, you have to make sure that the key details of the "better" combined offer are not the ones you would have received otherwise, and that the "worse" separate offer is not a stalking horse that you never would have seen (or signed) in the first place.

Market-based rate benchmarking clearly comes into play here. We've seen situations where a carrier has proposed different rates on a key wireline rate element (such as high-volume voice toll price point or a typical data port speed) based on combined vs. separate commitments, but the price point under the separate commitment deal is so far out of market that we doubt we would have seen it at all in the absence of a supposed choice between separate and combined deals. That's no better than a phony "sale" at a retail store where the list price is at a level that no one actually pays for the product.

Next, examine the combined MAC itself. The first instinct of carriers seems to be that if your wireline commitment is $X million, and your wireless commitment (if expressed as a spend rather than number of devices) is $Y million, the correct combined MAC is $X+Y million.

But think about that for a minute. Combining commitments without a "haircut" doesn't lower your risk of either a technological or business shift that forces a sudden reduction in the spend of one of the component services, risking shortfall. Indeed, it raises that risk.

The carrier may respond that the combined deal also increases the number of services available to replace the spend through growth, but can you really guarantee in today's environment a set level of growth in any of your key services if one falls off? That's basically what you're guaranteeing under these scenarios. Obviously, the combined-commitment concept should be explicitly used to increase your cushion, and any combined commitment should be for less than the sum of the separate commitments.

Even worse, we've seen initial proposals that appear to total up actual wireline and wireless spend (rather than separate MACs) into a mega-MAC, or do so with a very churlish discount, providing almost no cushion. That completely defeats the purpose of combined commitments. We're actually not sure whether this is a result of the carrier trying to snow the customer, or whether it simply reflects another reality of combined MACs -- the carriers are just getting going on this concept and their initial documents on it can look like they were put together on the back of a napkin. Look for inconsistent language in labeling offerings, basic math errors and the like. When you see those, tell the carrier it will have to polish its work before you can consider it seriously.

Finally, consider whether the carrier is playing a game of misdirection here -- simply stringing you along on the annual-commitment concept by making it sound more comprehensive when there's actually a more important trend to consider: term commitments. A single term commitment that can be retired 1 1/2 to 2 years into a three-year contract may be much better (for your leverage and competitive position, and therefore your pricing over the medium run) than any annual commitment, no matter how broad.

I'm not knocking the possibilities here. In fact, it's almost inevitable that the combined MAC trend will grow, because from industry standpoint wireless is currently standing tall on margins, profits and growth, and the carriers should be motivated to find great deals for their best customers by cross-checking everything you spend. Plus, the reality is that end-users often take wireline voice and data for granted but demand a lot of value-add on wireless, and you should be able to play your big carriers' assertions on competitive differentiators for a great total deal. Finally, we also know that in certain regions of the world, such as parts of Asia-Pacific, such combined deals have already taken hold.

The guinea pig principle is very much at play here. It's early in the process for combined wireline/wireless MACs. Make sure that the benefits are tangible, not just implied, before you become one of the early adopters of this contracting trend.