Wireless Fought the Law (And the Law Won)

What a difference a court decision makes. Not long ago, Verizon Wireless was fighting desperately to keep the FCC’s wireless local number portability mandate from taking effect on Nov. 24. Now it is fighting just as hard not only to make sure LNP is implemented as scheduled, but also to ensure all carriers are playing by the same rules.

A Verizon Wireless federal court petition urges the FCC to implement wireless LNP on time and to reject a petition from several other wireless carriers seeking to limit their obligations under the mandate. Specifically, Alltel, Sprint, Cingular, AT&T Wireless and Nextel argue they have the right to settle all claims with a customer--including disputed charged--before being required to port. Verizon Wireless countered that allowing such a delay would “erect new barriers” to competition.

Previously, Verizon Wireless, along with the Cellular Telecommunications & Internet Association, had filed suit in federal court to block the mandate, arguing the FCC lacked the legal authority to impose it. According to the plaintiffs, the Telecommunications Act limits the FCC’s ability to impose such a mandate to circumstances where it would be required for competition. With six national wireless carriers, a slew of regional players and industry-wide churn rates of 30%, the sector is plenty competitive already, or so the argument went. Moreover, it would cost $1 billion to implement LNP, and then $500 million annually to keep systems and databases up to date, an unreasonable burden given the circumstances, said CTIA.

The D.C. Circuit court of appeals rejected the argument. Perhaps that was because it understood deployment costs are a non-issue, and that the real concern among wireless carriers centers on churn costs. Several of the national carriers have collected an LNP surcharge from customers from months and will continue to do so, which will defray the deployment costs, say analysts. (Verizon Wireless has not done so and says it won’t; however, CEO Dennis Strigl said in June that the carrier would deploy some sort of cost recovery plan after determining its ongoing costs.)

The real concern driving the continued fight to keep wireless LNP on the shelf stems from churn. A study released in July by The Management Network Group said that 6% of wireless phone users--about 9 million--would switch carriers within the first 24 hours after FCC-mandated local number portability takes effect. Jeff Maszal, the TMNG principal who led the research project, believes the current 30% industry-wide churn rate could surge to 50% after LNP takes effect. “It's not going to be a question of if they'll churn, but when,” he said.

Considering the cost of acquiring a customer ranges from $150 to $300, it is easy to see the enormous problem that increased churn stemming from LNP poses for wireless carriers. Currently, it takes 12 to 14 months to recover those costs; after portability takes effect, it's conceivable that many subscriber additions will leave for yet another carrier before payback can be attained.

Of course, wireless carriers could raise their prices to gain quicker payback, but given the hyper-competitive nature of the current market, that’s not a viable option. Instead, they will be forced to improve their service quality and the manner in which they interact with customers in the hope of keeping more of them in the fold.