Extreme makeover, wireless edition

Corporate reorganizations are becoming almost commonplace in this difficult economic climate. Even the largest, most storied institutions are finding themselves parties to mergers, acquisitions, divestitures and downsizings they probably didn't envision as recently as three months ago, much less when they negotiated their last round of wireless service and equipment deals.

And while a reorganizing company's contractual commitments for wireless service are little more than a drop in the proverbial bucket when compared with its other challenges, those contracts still must be managed to ensure that the new entity will have the services and devices it needs at the lowest possible cost.

For telecom and IT managers of companies in the throes of a reorganization, unraveling and re-organizing relationships with wireless providers to fit a company's new circumstances can not only be a source of unplanned costs and headaches, it can also prove to be a logistical nightmare.

In this article, we offer pointers to help make the process run more smoothly, eliminate waste and inefficiencies, and turn the exercise into an opportunity to reduce the enterprise's wireless costs relative to those of its predecessor(s)-in-interest.

The spin-off zone

Different forms of corporate reorganizations raise different sets of issues. For example, when a company spins off business units in an effort to streamline its core business, the spun-off entities may be able to buy out the original company's contracts initially, but over time will need to negotiate their own service provider contracts.

The spun-off entities will be concerned about continuity of service and maintenance of discounts, custom pricing, and beneficial terms and conditions. The original customer of record will want to avoid early termination fees (ETF), while trying to hold onto the discounts and reduced rates that its original size warranted, and perhaps ultimately consolidating service arrangements and providers. Similar issues, with a slightly different twist, arise in connection with reductions in force.

Mergers and acquisitions raise additional, more complex issues, including establishing or maintaining the technical compatibility of devices and services across the new enterprise; re-negotiating financial, legal and operational terms to address specific requirements of the new entity and take advantage of post-reorganization economies of scale. Plus, there's reconciling potentially conflicting policies of the legacy organizations on issues such as corporate vs. individual liability, cost control and reimbursement, device management, and centralized vs. distributed, billing, ordering and management.

The termination determination

Unless an enterprise has one of the rare contracts that allows termination of corporate-liable lines for convenience without paying ETFs, chances are that any downsizing will result in liability for ETFs for discontinued corporate-liable lines.

The major wireless carriers have tightened up their early termination policies in the past couple of years, and it is more difficult than ever to negotiate much more in the way of relief from ETFs than a 10% annual waiver pool. Under present economic conditions, however, it is perfectly reasonable for an enterprise customer to insist on augmenting the waiver pool with the right to terminate additional lines as necessary in connection with a corporate downsizing, divestiture, or business downturn. Preferred customers have that right, on top of their waiver pool.

If the carriers push back, consider asking for the same rights, but cap the number of lines for which ETFs are waived, perhaps at 50%. Alternative approaches would have the carrier waive ETFs for any corporate-liable users who activate service with the same carrier under a new enterprise agreement, as well as for any corporate-liable users who opt to keep their numbers and convert their lines to individual liability status.

Once an enterprise has dealt with the one-time costs of downsizing, its focus should shift to ensuring that the costs of its downsized services are, and continue to be, optimized. In these uncertain times, the frequency and scope of change in employees' wireless usage patterns is greater than ever. Add to that the lag time between personnel changes and carrier implementation of disconnect or change orders, and the enterprise's need to ensure that its wireless services are optimized has never been a higher priority.

To maximize the benefits of an optimization exercise, an enterprise should ensure that the rate plans and feature pricing included in its wireless contracts are the most appropriate types of plans, given its business patterns, and are priced competitively. This is not as hard to achieve as one may think. Wireless contracts, while difficult to exit from in their entirety, typically include a large inherent degree of flexibility. Once a line has fulfilled its term commitment, the user is essentially free to go. Hard commitments are rare in an industry that is based on discount tiers and attainment-based pricing, and for many enterprise customers the discount level is largely determined by individually liable lines and spend.

Add ETF flexibility to the mix, and a customer has considerable latitude to move corporate liable services (which represent the primary, visible wireless spend in customers' budgets) away from a carrier. In this economic and technological climate, the inertia historically caused by coverage, technology and service concerns is less of a barrier than ever to moving between carriers. Hence there has rarely been a better time to sit down with each of your carriers, regardless of where you are in your contract term, and tell them that their business will shrink if they do not meet your demands.

To maximize savings, a customer must ensure that its end users are on the most appropriate rate plans, but how does it do this? Managing wireless services is becoming increasingly complicated as enterprises embrace data and text messaging services to a greater degree and the carriers offer bundled packages of voice, data and texting. Pricing continues to be a moving target. And each organization is unique; therefore, an approach that works for one customer is unlikely to yield optimal savings for another. Each organization must determine the mix of plans that best suits its needs -- pools, standalone, bundled, flat-rate, data, text, and any combination of these, ideally tailored to individual business units or cost centers.

Everybody into the pool

Enterprises that choose to cut their wireless costs by merely moving all their standalone plans to pooled (or "shared") plans may save money quickly, but this approach has its drawbacks. Pooled plans have an inherent flaw: They are easier to manage if each participant in the pool pays the same monthly recurring charge, though there is typically a wide range of utilization among participants in the pool. In these cases, low-volume users may complain that they are subsidizing high-volume users, and such sensitivities may be even greater following a downsizing.

Furthermore, pools that have all lines on a single plan have a small "buffer," and often incur substantial overage charges because they utilize more minutes than are in the pool. Thus, on balance, it may make more sense (and produce greater savings) for a company undergoing a downsizing to optimize its pool(s), rather than pursuing a simpler single-rate-plan solution. Pools are complex: There are national pools, regional pools, pools by cost centers or divisions, pools that include voice-only plans, and pools with both voice and data plans. Thus, even pools need to be reviewed and optimized on a regular basis.

It is vitally important for a downsizing enterprise to stay on top of its orders for disconnects, rate plan changes and number ports, not to mention its requests for refunds and credits. With acceleration in the pace of these orders and requests, they will inevitably become implementation mistakes and oversights, and the cost of these errors adds up. The last thing a company in distress needs is to be paying US$50 or more per month for wireless lines it no longer needs. Telecom managers will need reporting tools to stay informed, in control and able to demonstrate to management their impact on the organization's wireless costs. These tasks will be daunting for Fortune 1,000 companies with large numbers of employees and cost centers spread out across the nation or globe.

Whether the enterprise opts to manage these processes for itself or to outsource, someone on the customer's side should be watching the store. A common mistake that enterprise customers make is to assume that a single vendor will be equally qualified to provide a range of services, from invoice presentment and payment to bill auditing, device management, rate plan optimization and vendor management. Not so. The stakes (in terms of foregone savings) are high, and it pays to shop around, identify the best consultant in each field, and negotiate the lowest rates you can with them, rather than trying to make do with a sole source provider.

Breaking up is hard to do

When an enterprise customer divests, the divested business units may or may not wish to maintain the wireless service arrangements they had prior to divestiture. Those that don't may saddle their prior parent company with ETFs; those that do may find that they no longer qualify for the same beneficial rates, terms and conditions they enjoyed when they were part of a larger organization. The balkanized entities will presumably have fewer lines and lower annual spends than the unified entity and will thus lack the leverage of their unified predecessor-in-interest.

A "divested entities" clause in the original agreement allows divested entities to continue to purchase service at the same rates, terms and conditions for a specified period (typically a year) after divestiture, thereby allowing divested entities to defer to a less hectic time the need to negotiate new wireless service agreements. Most carriers require the original customer of record to remain responsible for divested entities' charges, which can create tension between the customer of record and the divested entity and complicate issues surrounding invoice review, billing disputes, application of credits, changes to rate plans, and new orders.

These tensions can be handled by having the original customer of record be legally obligated to pay, but allowing the divested entities to manage their own ordering, rate plan changes, and invoice review and payment, while agreeing to indemnify the customer of record and keep it informed about matters that may require its support -- usually billing disputes.

Divested entities that want to keep their wireless numbers while changing carriers will face an interesting dilemma: While the FCC's rules guarantee a wireless subscriber the right to port its telephone number(s) from one carrier to another, in a divestiture the original subscriber to whom the numbers were assigned (i.e., the customer of record) will not be the same as the divested entity that will be the "recipient" of those numbers after divestiture.

Although we expect most carriers to cooperate with the wishes of the original subscriber and the new subscriber, assuming they agree, the less problematic approach may be for the divested entity to continue purchasing service under its pre-divestiture contract through a divested entities clause or a three-way side letter with the carrier and the original customer of record. After the divestiture dust has settled the divested entity can negotiate an agreement with a new carrier and terminate its existing service arrangements.

An additional complication in a divestiture is the treatment of individually liable lines. Enterprise customers leverage individually liable spend and line counts associated with their contracts to increase their discount levels, but in a divestiture, there would be no way for a divested entity to "take its personal liable lines with it" to a new contract. A divested entity must start the process of building a portfolio of individually liable lines that contribute to its discount level from scratch, exacerbating the challenge of managing wireless cost increases resulting from its new status as a smaller customer.

Other issues are presented when corporate-liable users want to keep their devices after a divestiture. Although the original customer of record may have no use for the devices, there may be proprietary information stored on them that the original customer of record will want to erase before releasing them to the spun-off entity. In addition, most carriers lock their devices, so if a divested entity is planning to take its devices to a different carrier that operates on the same RF interface (GSM or CDMA), it will need to have the prior carrier unlock the devices. Doing so can help reduce transition costs, minimize lost productivity associated with learning new equipment, and provide a strong argument for waiving minimum line terms and ETFs with the new carrier (because it won't be subsidizing new equipment).

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