Wireless Local Number Portability Intensifies Cut-Throat Competition

by Shauna Smith
Senior Analyst, Mobile Wireless

As the November 24th deadline for Wireless Local Number Portability (WLNP) fast approaches, wireless carriers in the U.S. are preparing for the storm. This could be the single most ground shaking event that the U.S. wireless industry has experienced in years. Simply put, WLNP is the process of allowing wireless customers to switch service providers and keep their original phone number. The FCC has mandated that all carriers implement this capability in the country's top 100 markets by November 24. In preparation for this change, carriers are reacting in a variety of ways in order to keep their current customers while also encouraging new subscribers to sign on. However, in the end, customers stand to be the clear winners, but handset manufacturers have significant opportunities as well.

Following concerns that carriers would try to use tactics to discourage customers from switching carriers, the FCC added the clause that customers wanting to switch carriers, and keep their number, must be able to do so in less time than three hours.

Verizon Wireless takes Defensive-- then Offensive Position

Early on, Verizon Wireless, ironically the carrier that stands the most to gain from this law due to its superior network coverage and status as the U.S. largest wireless carrier, was dead set against WLNP. Verizon Wireless even went so far as to pursue legal action and issue a statement saying that the requirement of local number portability is bad public policy by the FCC. However, in June this year, Verizon Wireless seemed to have a complete change of heart and very publicly came out in favor of WLNP. In a keynote presentation, CEO Denny Strigl took the opportunity to make a call to action for the industry to unite and make it easy and convenient for customers to keep their wireless numbers if they choose to switch providers. And, after continued opposition from its major competitors, Verizon Wireless even filed another petition with the FCC in August, urging the commission to implement wireless local number portability as scheduled on November 24.

Despite Verizon's apparent change of heart on the subject, the carrier most likely saw the writing on the wall and figured that it is to its advantage if consumers have the impression that Verizon is in favor of WLNP. Faced with its inevitability, Verizon preferred to be the good guy and appear to be one of the key proponents of the technology. However, the carrier has also not been shy in its beliefs that it will experience the greatest influx of customers looking to make the switch.

Consumers Remain Unaware

Despite the ongoing battle between the FCC and Verizon and the other wireless carriers, most consumers are not yet even aware of WLNP. In fact, a recent survey conducted by the Telemanagement Network Group found that only 42 percent of consumers are aware of WLNP, meaning the other 58 percent don't know what it is or how quickly it is approaching. The failure of wireless carriers to get the message of WLNP out to consumers in the weeks and even months leading up to November 24 is entirely intentional. Only a few carriers stand to gain from its implementation in the near term. Even those companies have been consumed with ways to get new customers and lock them in as well as get existing customers to sign longer term contracts, rendering them unable to switch carriers for at least another year or two. Undoubtedly, if consumers knew about the forthcoming deals, they would all hold off from buying new service or renewing existing contracts.

Carriers Begin to Make Progress Public

Many of the major wireless carriers have recently announced SLAs (Service Level Agreements) amongst each other that define the process they will follow when porting phone numbers. As of October 22, Nextel announced completed SLAs with T-Mobile, Cingular Wireless, and Sprint PCS. AT&T Wireless also announced its first porting agreement with another carrier, T-Mobile, on October 23. Additionally, both Sprint and Verizon Communications have announced that their respective landline and wireless divisions will enable customers to transfer their phone number to or from their landline and wireless accounts.

Devices Emerge as Key Bargaining Chips for Carriers

WLNP approaches at a very interesting time for the wireless market in the U.S. Within the last six months the U. S. has been experiencing significant increases in the availability of products with advanced features such as color screens, cameras, polyphonic sound, and J2ME and BREW downloadable application platforms.

The growth in penetration of handsets with new features is paramount for carriers and handset manufacturers looking to capitalize off of WLNP. Carriers are already competing on rate plans by fractions of a cent per minute, so there is not much room in terms of airtime competition. Instead, handset devices will become a primary differentiating factor. One major reason that customers will want to switch from one carrier to another will be the desire for a new handset, particularly one that has new or unique features. Thus, the carriers and handset manufacturers that offer feature-rich phones at competitive prices will win the game.

Carriers have already begun to increase promotional activity on devices, particularly on those purchased with two-year term contracts. A few months ago Verizon Wireless increased the price difference between a one- or two-year contract for the same phone. Prior to the price increase, the carrier charged customers $30 more for a given handset when signing up for a one- year contract versus a two year contract. However, in mid-September, that difference increased to $50. The change was made very quietly but was implemented across all Verizon Wireless stores throughout the country. The increase in the price break on phones purchased with a two-year contract is an obvious attempt to lock customers in for longer periods of time, no doubt greatly influenced by the looming November 24 deadline.

Verizon Wireless now joins Cingular Wireless, which has long been charging customers an additional $50 on phones activated with a one-year service agreement. AT&T Wireless and Sprint PCS, on the other hand, both advertise phones with single list prices; however, both are promoting different rebate amounts on the same phone depending on the contract term. Most recently, Nextel experimented with the two-year term as a weapon to combat churn. A few weeks ago, the company began offering customers a $25 invoice credit with the purchase and new service activation of certain phones only when they subscribe to a new two-year service agreement. Within the last week, Nextel also began offering a $50 price break incentive (like Verizon Wireless and Cingular) on four specific models activated with two-year wireless service. The remaining models are still promoted with a single price regardless of the contract-term customers sign up for. However, it is likely that Nextel is using these four models to try-out the pricing strategy and will expand this incentive policy to all wireless phones in the near future.

Interestingly, of the top five wireless carriers in the U.S., T-Mobile is now the only operator opting not to use the contract-term as a strategic tool to lower subsidy costs and retain customers. In fact, T-Mobile does not offer two-year contract terms. Instead, phone prices and promotions are always based on a one-year term (with the exception of prepaid phones). For this reason, a larger portion of T-Mobile's customer base will be able to switch carriers with no cancellation fee sooner than a most of its competitors' subscribers. Thus, as number portability becomes even more of a reality, T-Mobile may be forced

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