Number portability: The craven FCC caves in

Pop along to the Federal Communication Commission’s website,

and buried in the "Headlines" you’ll find something saying

"Verizon Wireless’ Petition for Partial Forbearance from the Commercial

Mobile Radio Services Number Portability Obligation and Telephone Number

Portability." Click on one of the links (it’s available in text,

pdf

or Word

format, but not in basic HTML) and you’ll find yourself in a 27-page

thicket of legalese. It’s not a petition at all, it’s the FCC’s response

to the petition, and it makes for incredibly depressing reading.

In a nutshell, the FCC has given Verizon (and every other wireless

company) an extra year before they need to introduce number portability

– the ability to change your cellphone provider without changing your

phone number. The decision is in no way atypical. A quick timeline might

be in order here:

• July 1996: The FCC tells the operators that they need to have local

  number portability (LNP) by June 30, 1999 – three years away.

• September 1998: The FCC grants a nine-month extension, to March

  31, 2000.

• February 1999: The FCC grants another extension, this time all

  the way out to November 24, 2002.

• July 2002: The FCC grants yet another extension, to November 2003.

So we’re now six years away from the original order, more than three

years past the original deadline for compliance, and we’re still 16

months away from the earliest that this is going to happen, assuming

that the FCC doesn’t come up with reasons to push it back yet further.

It must be really tough, this LNP, eh? Six years of work and the wireless

operators still can’t make it happen! Of course, that’s not the case

at all. The wireless operators could do it in a month or two if they

needed – in fact, they shamelessly admit that they haven’t even started

getting to work on this yet. Basically, all they’ve been doing for the

past six years is paying lobbyists to push the deadlines out, rather

than making the relatively modest technology and staff-training upgrades

needed to implement LNP. (Number portability has existed for wireline

telephony for years now, and Verizon has no problem implementing it

in that context.)

Verizon et al complain that LNP is far too expensive, although

even their own estimates only work out at 20 cents or so a month on

the average cellphone bill. Sprint, for example, estimates that LNP

would cost $26 million, compared to total capital expenditures last

year of $3.327 billion. Coincidentally, my monthly Sprint PCS phone

bill is roughly $33.27, so adding on LNP would bring that up to $33.53,

assuming that Sprint is being completely honest here and not exaggerating

the costs at all. That I can afford.

For LNP doesn’t just bring costs, it brings savings, too. One third

of America’s cellphone customers will "churn" in 2002 – will

switch from one provider to another. When they do so, and change their

phone numbers in the process, they not only need to send out those mass

emails we’re all so used to getting, but also need to get websites edited,

business cards and letterheads reprinted, and inevitably never receive

an unknown number of phone calls from people who didn’t get the message.

The cost of all of that is certainly more than the extra buck or two

that customers may or may not need to pay in annual phone charges.

(Astonishingly enough, the cellphone companies actually use the one-in-three

figure in an attempt to buttress their own argument. The fact that churning

is so common, they say, is proof positive that people don’t mind changing

their phone numbers, so there’s no point in spending money to let them

keep them. What they mean, of course, is that given the choice between

a customer spending $200 on new business cards and themselves spending

$2 on LNP, they’d choose the former any day.)

What the phone companies won’t tell you is that far from increasing

your phone bill, LNP is more than likely to decrease it. The cost of

switching providers at the moment is artificially high, due to the expense

and hassle involved in changing your phone number. If that goes down,

mobile companies will have a huge incentive to start poaching disaffected

cellphone users who can’t stand their present provider but who are presently

daunted by the obstacles to switching. A consulting company called Instat

estimates

that churn would increase by 25% to 50% in the year after LNP was introduced

– more than 20 million people who are presently unhappy but who feel

locked in to a bad relationship.

A good cellphone company would consider those 20 million customers

as an enormous opportunity: now that the wireless market is maturing,

they represent a tsunami of potential new subscribers. But evidently

none of the major national cellphone companies are nearly that confident:

they all feel that they have more to lose from LNP than they have to

gain. They’re probably right: whatever they might gain in new subscribers

they’d probably need to lose in terms of all the discounts and whatnot

needed to attract those new subscribers in the first place. But that

just goes to prove that cellphone bills will go down and not up – quite

the opposite of what the telcos claim in their petition.

A word about regulation, too, for the all-regulation-is-bad types out

there: LNP is almost an axiomatic case of a market inefficiency which

requires regulation. If all providers have LNP, then the market becomes

more liquid, consumers benefit, and the better cellphone companies find

it easier to outperform the less good ones. In other words, you have

something much closer to a classic free market. But left to its own

devices, the market will never get there: if any company institutes

LNP unilaterally, then it can be poached from, while remaining unable

to poach from its rivals. There’s a downside without any upside. In

order for everybody to benefit, a regulator has to mandate that all

companies implement LNP at the same time.

The FCC understands this, but is proving amazingly spineless in making

it happen. LNP might exist in November 2003, or it might not: no one

knows. The commission has managed to justify its latest decision by

saying that the wireless operators are already overtaxed by something

called pooling, and that it’s probably unfair to make them implement

pooling and LNP at the same time. It’s the sort of thing which makes

experts in the field guffaw. The whole point about having LNP and pooling

kick in on the same date was that they’re essentially two sides of the

same coin: they’re based on exactly the same technology. If you’ve got

LNP, you’ve got pooling.

And in fact most of the ruling does read like a brief for the consumer.

The FCC knows what the right thing to do is, and lays out the arguments

for LNP in compelling detail. It then, unfortunately, caves in at the

end. Once again, the lobbyists have won and the general public has lost

out. Some day, perhaps, you’ll be able to switch your land line number

to your new cellphone, and do away with your home phone entirely. (Imagine:

cellphones with 212 area codes!) It was meant to happen this November;

it’s worth hoping that it will now happen at the end of 2003. But I’m

not holding my breath.