With third quarter in the books, wireless braces for number portability

Consider it the calm before the storm: With the FCC’s hotly-contested wireless number portability (WNP) mandate set to officially take effect on Nov. 24, the wireless industry is enjoying its last few weeks of relative tranquility by reporting third-quarter returns—and holding its collective breath for all hell to break loose.  

Most impressive among the early reporting carriers was Nextel Communications, which reported net income of $346 million. Although that figure was down from the $383 million posted in the year ago quarter, primarily due to debt retirement charges, revenue rose 27% to $2.9 billion. Moreover, the company added 646,000 subscribers, recording average revenue per user (ARPU) of $71 and a quarterly customer churn rate of 1.4%, the lowest of any carrier.

“Nextel’s accomplishments demonstrate our growing leadership position in the wireless industry,” CEO Tim Donahue said during the carrier’s quarterly earnings call. “I have never been more pleased with the company’s results or more confident about our future and the momentum that we continue to see in the wireless sector.”

Also raising eyebrows was Cingular Wireless, which posted net subscriber additions of 745,000--the carrier’s strongest net add quarter in more than two years and up 38% from Q2 net adds of 540,000. In addition, quarterly churn fell from 3.0% a year ago to 2.8%. Cingular reported revenues of $4 billion, a 4.6% hike over Q3 2002 and a 4.4% increase over the most recent quarter. ARPU, however, fell 59¢ from a year ago to $48.25. 

Results, however, were mixed throughout the rest of the carrier segment. AT&T Wireless posted revenues of $4.37 billion in the third quarter, with net subscriber additions coming in at 229,000, down from Q2 adds of 446,000. ARPU also fell 40¢ from the year ago period to $61.20 and churn increased by half a point from Q2 to 2.7%. Likewise, rival Sprint PCS reported revenues of $3.3 billion, a small increase over the $3.2 billion posted a year ago. Sprint PCS’s total subscriber base grew by close to 500,000, but the carrier saw a jump in churn to 2.7%, up from its Q2 figure of 2.4%.

Mixed results also plagued U.S. Cellular, which saw its net subscriber adds drop from 76,000 in Q2 2002 to 66,000 for the current quarter, and its customer churn grow from 1.5% in the second quarter to 1.6%. But the carrier, which has rapidly expanded in the Midwest over the last year, reported a 12% year-over-year increase in service revenues to $628.4 million, and its $97 million in operating income was a 55% increase over Q3 2002. In addition, ARPU increased from $38.95 a year ago to $39.57. 

“We had great cash flow this quarter,” said U.S. Cellular president and CEO Jack Rooney. “We brought our operating margin above 31%.”

But for U.S. Cellular, a company that has long touted its customer service, even a 0.1% churn increase grates. For nationwide carriers like AT&T Wireless and Sprint PCS, though, WNP looms especially large. With number portability less than a month away, customers appear poised to change carriers in droves.

According to a study by analyst firm The Management Network Group (TMNG), 39 million U.S. wireless users, or roughly 27% of the nation’s 146 million total users, plan to change carriers the minute a better offer comes along. Close to nine million of those surveyed said they would move to another operator the day WNP takes effect.

Another TMNG study indicates that 24% of large businesses (defined as companies with more than 500 employees) are ready to switch carriers once WNP becomes available. Also, 33% of businesses that currently subscribe to services from more than one carrier said they are likely to consolidate their corporate wireless accounts to a single provider. These concerns are on top of lingering doubts about carriers’ technological readiness to actually facilitate the portability process.

“I am disappointed in the FCC, and wish they’d been firmer in defining the playing field,” Rooney said. “Still, we’ve spent our $50 million [preparing for WNP], and we’re ready to go. As for the rest of the industry, right now I’ve got my fingers crossed. I’m like the character in the old Christmas story that prays for his two front teeth—I’m praying that all of the players are ready to go, and that they are not going to catch a case of what I call ‘strategic ineptitude.’