Wireless Number Portability: Musical Chairs with a Twist, Says Analysys"

Today's introduction of number portability in the USA will increase churn as consumers seek to take their business, along with their phone numbers, in search of a better deal. However, the result will not be as uniformly gloomy as many in the industry have predicted. Many commentators seem to view the resulting churn as a zero sum game - consumers will switch between operators in equal numbers and all operators will be worse off as a result of subsidizing these switches. The reality could be more like a game of musical chairs with a twist - all subscribers will be able to get up and switch operators, but when they sit down again, some of the operators' chairs may be empty.

There is already significant churn in the industry, as consumers switch operators in search of better service and/or prices. However, the valuable customers who spend the most are the least likely to switch operators for the simple reason that they cannot afford to change their phone numbers. These are likely to be customers who use their phones for business, and the cost of switching phone numbers, along with the risk of missing important calls, will make switching operators a last resort for many such customers. Number portability will remove the constraints from these customers, and well-placed operators will benefit by increasing their average revenue per user.

Number portability will also allow operators to sell new services to customers, in particular mobile data services, which are at an early stage of adoption. Over the past few years, all of the major operators have invested heavily in providing new mobile data services that feature some form of Internet access and email capability. More recently, operators have begun to offer new handsets with built-in cameras that allow users to share pictures across the network. But the take-up rate for these services has been fairly limited. According to a recent report by IDC, only 6 million camera phones have been sold in the US to date, representing less than 4% of subscribers.

The first simple step towards boosting mobile data usage is to ensure that more customers have the handsets that can access these services. Under current conditions, however, customers have relatively little incentive to upgrade their handsets. For instance, operators today provide large discounts on handsets, but only to new subscribers. A quick investigation revealed that it can be up to $150 cheaper to get a new high-end mobile data handset by switching to another operator. For many who might be willing to try these new services if the price is right, the cost of switching phone number will outweigh the saving realized in acquiring the new handset. Again, this could all change under number portability.

Operators will thus have an attractive opportunity following the introduction of number portability to increase the quantity and quality of their customer base, and to sell new mobile data services to this customer base. This will entail marketing their services in order to attract new customers, and continued subsidizing of handsets for new customers. While convincing other operators' customers to switch, operators must also be careful not to neglect their existing customer base, in particular the most valuable customers, whose loyalty will no longer be artificially enforced by their need to retain their wireless phone numbers.

Operators must introduce a true loyalty program, similar to a frequent flier program - one that identifies and rewards the best customers with valued prizes that meet their needs, such as new handsets or reduced roaming rates to favored destinations. For instance, with all the information that operators have about their own customers, they should be willing to offer their best ones at least the same handset subsidy as they would a new and unknown subscriber. Not only would this help to retain these customers, but it would also encourage them to try new mobile services.

In conclusion, those operators with the most compelling offerings, in terms of prices and mobile data services, will have a great opportunity with the onset of number portability to not only expand the size of their customer base, by luring customers from other operators, but also to increase the revenue that they receive from their customers, by attracting the most valuable ones. These operators must also protect their flanks by introducing loyalty programs that allow them to retain their most valuable customers and ensure that new customers do not leave at the next possible opportunity."

Posted to the site on 24th November 2003