Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.
Have you enjoyed your wireless phone? Do you like the freedom to make and receive calls anywhere, anytime? A big part of our sense of freedom comes from the great pricing that wireless carriers have been able to offer and have been forced to offer because of the competitive environment. However, the Federal Communications Commission (FCC) doesn’t seem to think there’s enough competition in wireless, and their actions are likely to torpedo the incredible rates we’ve all been enjoying.
Let me back up a little.
Number portability simply means that, if I switch my cell phone service from Cingular to T-Mobile, I get to keep the same phone number. It’s a concept that sounds good, makes sense, and appeals to my tendency not to want to do extra work. There is nothing wrong with the concept as considered independently of any other facts.
Today, we don’t have number portability. That means that, if I change my cell phone provider, the telephone number for my cell phone changes, and I need to tell all my friends and family members and co-workers about the change, and maybe I need to print new business cards.
This is a hassle. But it doesn’t stop millions of people from changing their cell phone carriers every year, usually because they can get a better deal from another company. In other words, these millions of people are “voting with their feet” to tell us that lower prices are more important than keeping their telephone numbers.
The FCC is set to enforce a rule later this year that would require all wireless carriers to support number portability. According to a report from In-Stat MDR, even without number portability, more than 50 million U.S. wireless subscribers will “churn”, or change providers, in 2003, increasing to 60 million in 2004. However, if the FCC enforces the rule, these numbers only increase to approximately 80 million in each of those years.
In short, the regulators are trying to force a rule change to fix a problem that doesn’t exist. Back in the mid-1980s, when long distance was opened to competition, businesses and consumers were chained to AT&T, a true monopoly. Without regulatory rules to ensure that we had true freedom in choosing providers, that monopoly would never have been broken. Similarly, the Telecom Act of 1996 was billed as opening local wireline telephone markets to competition. As part of that, the FCC forced number portability onto the monopoly local telephone companies. That alone wasn’t enough to break the monopoly, as we’ve seen, but there was much more logic behind that move than the current wireless moves. Most consumers have always had the same telephone number. Most businesses have spent lots of money publicizing their telephone numbers. The pain involved in changing your wireline telephone number is significantly higher than for a wireless phone. And local telephone markets have a long way to go to before they are truly competitive and free from the dominant legacy monopoly provider.
But wireless is very different. We, as consumers and businesses, have invested less financially and mentally in our wireless numbers. And more importantly, the cellular markets are already very competitive. Virtually all markets have at least two healthy competitors and most have many more. It is rare for a local market to be dominated by a single provider with the bulk of the market share, and I have not heard a single complaint of a large provider being able to act in a non-competitive way that hurts consumers or business customers. In fact, the opposite is true. We have all tremendously enjoyed the falling prices, increased quality and enhanced feature sets that are characteristic of healthy and competitive markets.
Therefore, it is ludicrous for the FCC to be forcing number portability on the industry in the name of increasing competition.
However, the real problem for the wireless carriers is the double-whammy financial impact of this change.
Churn is already one of the biggest headaches for wireless carriers. On average, carriers already lose 2.5% of their customers every month. This means that, at the end of the year, they have less than three-fourths of the subscribers with whom they started the year. Given the intense competition in the marketplace, carriers have to spend a lot of money to win a new customer – typically $250-$300 per subscriber. So, the cost of replacing each of their customers that has churned away to a competitor is a very heavy burden on companies already having to cut prices to keep and gain customers. Doing the simple math, In-Stat MDR estimates that number portability will result in an additional 22.2 million customers churning in the first year. Assuming it costs the industry $250 for each of these customers – this will cost the industry an additional $5.5 billion.
The second part of this double-whammy is the cost of implementing and operating the systems to support number portability. In-Stat MDR estimates these costs at close to $1 billion in the first year and an additional $500 million each year following.
According to the Cellular Telecommunications and Internet Association (CTIA), there are currently 145 million U.S. wireless subscribers. Spreading these costs ($5.5 billion plus $1 billion) across these subscribers results in an additional cost of $45 per subscriber in the first year of number portability. And since these costs don’t end after the first year, this one issue alone could put an end to our ability to enjoy the falling costs and healthy competition that have made wireless such a viable and freeing alternative.
So, which would you rather have – regulatory-induced number portability to solve a non-existent problem – or lower bills and a healthy and competitive industry?
Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over twenty years in technology industries, performing various roles from writing mission critical software for the nuclear power and defense industries to developing core business strategies in the telecom industry. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through Business Reform’s online services. He can be reached at [email protected].