An effective commitment beats a no-commitment deal
For years, telecom deals have been built on the idea of a Minimum Annual Commitment. But in an era of recession and shifting voice traffic, CIOs and telecom managers are increasingly wary of MACs.
They’ve discovered that the closer the MAC is to the actual amount of spend, the less negotiating leverage the company has going forward. Many of them are searching for – or demanding – the Holy Grail of the No-Commitment Deal. But there’s always a price to be paid.
Frequently buried in the fine print of a deal that has no single, over-arching dollar-based annual commitment is a commitment of some kind on every individual circuit, which is almost always worse. These commitments can take the form of a requirement that each of the circuits in inventory at any time be left in place for, say, 24 months. If this provision is applied to your growth platform – the IP service that over time is replacing your legacy data service, and maybe even your voice services too – then you’ve placed yourself on a treadmill, signing up for a a commitment that effectively never expires.
The most advantageous commitment today is a single non-qualified and well-cushioned term commitment that does not restart every year within the contract but is retired over the course of the multiyear contract.