Cellular Carriers Offer FCC
New 'Number Portability' Plan

For years, U.S. cellphone carriers have fought efforts to cure one of the nagging complaints of their customers: They can't keep their phone number if they switch to another service provider.

But as a key court date in the dispute approaches Tuesday, some of the nation's cellular companies have adopted a tactic that puts them squarely at odds with their land-line rivals. Now, these wireless carriers say they would comply with Federal Communications Commission rules mandating such "number portability" -- if the FCC also forces landline carriers to let customers switch their traditional phone numbers to cellphones.

The new position, if upheld, pushed by the Cellular Telecommunications & Internet Association, the industry's trade group, could accelerate the trend of people dropping their land-line service and going completely wireless.

Industry observers say the stakes couldn't be higher as the FCC pushes to require cellular-number portability by Nov. 24. Although carriers are reluctant to acknowledge it, portability could cause a dramatic increase in "churn," the rate at which customers ditch their cellular service for a competitor. That would increase costs for the already profit-challenged U.S. cellular industry and could likely spark another round of price wars.

"It's basically the nightmare before Christmas" for wireless carriers, said Roger Entner, an analyst with Yankee Group, a Boston technology consulting firm. He forecasts that increased churn brought on by number portability will cost the industry $3 billion in the fourth quarter this year and the first quarter next year due to increased commissions, phone subsidies and other sales-related expenditures.

He cites the experience of Hong Kong, where cellular-number portability was implemented in 1999. There, monthly churn rose from 2.5%-3.5% of customers to 9%-10% in the quarter it was put in place, and a massive price war ensued. Churn has settled back into its original range, but rises to 5% or 6% every year on the anniversary of portability when many customer contracts expire. Portability is also the rule in other countries, including Australia and the United Kingdom, though churn hasn't increased as much in the U.K. because it can take weeks for numbers to be transferred.

In the U.S., the push by cellular carriers to include land-line carriers in any requirement is a signal that their interests may be increasingly diverging with those of their parent companies. SBC Communications Inc., the big land-line phone company that owns 60% of Cingular Wireless, the country's second-biggest cellular carrier in terms of customers, is opposed to the move. On the other hand, BellSouth Corp., which owns the other 40% of Cingular, says it could implement such a move. Cingular Wireless, meanwhile, has declined to take a public position.

"There is a very real difference of opinion between the wire-line and wireless industries on this," says Michael Altschul, general counsel to the CTIA. "The opportunity to take the wire-line phone and port it to wireless is an opportunity that the wireless industry wants to have happen."

Bryan Tramont, senior legal adviser to FCC Chairman Michael Powell, says the agency intends to rule on the wireless trade group's position before Nov. 24. "Everyone agrees there is some obligation for some wire-line-to-wireless porting," he says. "The question is, how much."

To be sure, the cellular industry is still fighting to prevent portability -- which has already been delayed three times -- from happening at all. At next week's hearing, industry lawyers are scheduled to appear before the U.S. Court of Appeals for the District of Columbia Circuit, where they will argue that the FCC doesn't have the legal authority to force them to transfer numbers.

The cellular industry has long argued that implementing the technology to make portability possible is costly. But industry experts say carriers have already spent a significant portion of the money needed to make the changes. The real reason behind carrier's vehement opposition -- and their new attempt to spread the requirement to traditional carriers -- is the fear of losing customers.

Keeping down customer defections is vital: It generally takes nearly a year for a carrier to earn its money back from the cost of acquiring a customer. The average customer stays with a carrier for roughly three years, translating to two years of operating profit. But if monthly churn rises from its current level of 2.8% to, say, 6%, it means a carrier's profitable period could be reduced to as little as four months before the subscriber moves on and the carrier has to start the process all over.

Currently, land-line subscribers can switch their numbers to cellphones in only very limited instances when their land-line carrier's "rate center" is in the same location as their cellular carrier's.

Consumer groups want as much portability as possible to promote greater choice. "We need wire-line-to-wireless portability, because wireless services are the only real competition we're gong to have against the wire-line monopolies in the near term," says Chris Murray, legislative counsel for Consumers Union.

Write to Jesse Drucker at jesse.drucker@wsj.com

Updated April 10, 2003

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