PORTABILITY MAY BRING SEISMIC SHIFT

The LNP mandate already promised to shift wireless carriers’ fortunes. An FCC ruling on wireline-to-wireless porting will wreak further havoc.

The FCC's last-minute ruling allowing local number portability between wireline and wireless carriers beginning Nov. 24—in addition to the previously planned advent for wireless number portability the same day—could redistribute telecom industry fortunes, alter the industry's corporate landscape and spell the end of telco dominance in residential connectivity. Additionally, no one is certain whether all carriers are technically prepared for the shift.

None of that will be apparent on Nov. 24, as wireless carriers and telcos likely will struggle to understand how to implement the FCC's late ruling. The agency issued its decision just 14 days before WNP, but without further guidelines about administering it. By comparison, wireless carriers have spent the last 18 months preparing the process for exchanging numbers. The ruling will affect the top 100 markets on Nov. 24, but won't become active in other markets until May 2004.

“I don't think there will be a mad rush to switch [from wireline to wireless],” said Steve Waldis, founder and CEO of Synchronoss, an OSS outsourcer. “It won't be like people lining up at midnight waiting for that Harry Potter book to come out.”

“The groundswell won't happen on Nov. 24,” added Bob Egan, founder and principal consultant at Mobile Competency. “Q2 earnings next year will be the first good indicator of how portability is progressing.”

But barring any appeals by telcos this week that could delay wireline-to-wireless portability, carriers in each market will be expected to port numbers, cancel and activate service, and set up new billing records. That's expected to create a more intensified level of the havoc that already was expected with WNP.

Waldis said he expects the largest wireless carriers to be ready “from a blocking and tackling perspective,” adding that porting from wireline to wireless will be a generic and similar process to wireless-to-wireless. But some elements of the process that are automated on the wireless side may have to be conducted manually by wireline carriers, due to the legacy nature of their internal systems. How many delays that creates will depend on the volume of wireline-to-wireless changes requested. The exact level of shifting remains unclear, though a Yankee Group study released last week claimed as many as 15% of all users could port their wireline numbers to wireless.

More important, long-term implications for the industry are coming into focus. “This does have the potential to redefine telecom as we know it,” Egan said. “It will certainly trigger many more minutes of use for wireless. It could be a trigger for more industry consolidation.”

That is a troubling prospect for carriers such as AT&T and Verizon, which not long ago made considerable efforts to separate their wireline and wireless units. Egan speculated that AT&T faces a “tough proposition about realigning its properties,” while Verizon's units must also pursue greater cooperation. MCI, which is without wireless ties, could resuscitate its resale business. Sprint may be best positioned among large carriers because an ongoing restructuring is bringing its former PCS entity under the umbrella corporate brand.

Meanwhile, the Cingular Wireless venture between SBC and BellSouth could be headed for the scrap heap. “Maybe we'll see that blow up now,” Egan said. Smaller wireline carriers without wireless affiliations also could face dim competitive prospects.

The potentially dramatic reorganization of telecom providers is most clear in one already unmistakable trend: Wireline telcos are bleeding access lines. And while much of the RBOCs' losses have been pinned on AT&T and MCI taking advantage of the unbundled network element platform, users increasingly are “cutting the cord” and relying solely on wireless for communication.

There are 10 million fewer wireline access lines now than there were in 2000, according to Dave Meredith, vice president at AMS, who predicts 2 to 3 million people will change carriers within the next two years. However, there are no exact methods for measuring how many people have bid adieu to wireline.

“It certainly seems like the deck is stacked against the wireline companies,” said Kevin Duffy-Deno, director of analytical services at PriMetrica. In fact, the best hope for wireline companies to stay competitive is to aggressively pursue the service bundling strategies that some already have exploited.

Meredith added that wireline carriers also must leverage what continues to be their primary network advantages over wireless — reliability and security.

Still, wireless firms may be able to be effective in plucking the highest-value customers away from wireline companies, leaving telcos with the detritus. “The wireless industry may be ready to change its character from being worried about growth to figuring out who the most profitable customers are,” Duffy-Deno said. “Wireless won't want to go after all wireline customers. It's a sign of how the industry is maturing.”

Another impact may be the further stratification of customers. A company like Verizon Wireless will have to focus on defending its huge customer base from other wireless carriers, working more closely with its wireline sibling and going all out to win new high-quality customers, Egan said. “They'll have to bend over backward to retain those gold and silver customers.”

As the wireless industry seeks to prove itself to high-value customers and wireline players mount their defense, the most obvious winners could turn out to be infrastructure vendors, software companies, systems integrators and consultants.

“Portability is going to require a lot of new investment in billing systems, especially on the wireline side,” Egan said. “Carriers will have to invest in consolidating cost centers, and they will require a lot more training of their people to deal with the implications of portability.”

Still, the evolution toward a more consolidated telecom industry, greater network investment and wireless carrier dominance could be gradual. Several industry watchers lamented the FCC's wireline-to-wireless decision as an end-run that unnecessarily complicates an otherwise significant transition in wireless industry competition. Some criticized the FCC for giving consumers too much to think about all at the same time.

“All of this is happening at the busiest time of year for consumers,” Egan said. “The FCC is a big loser here. They have messed this up with a lot of guidelines that need to be clarified. Consumers will want to wait rather than become a guinea pig navigating the abyss.”