Cell Transfers

The U.S. Court of Appeals for the District of Columbia has upheld an FCC rule mandating cell-phone number portability between carriers. The theory here is that absent such portability, users will be "locked in" to one carrier, stifling competition. I suppose for some imaginable user utility function, you can squeeze that result out of a model. But you've got to wonder whether the FCC checked to see whether that model fit the reality:

According to the Cellular Telecommunications and Internet Association, wireless subscription prices have fallen 30 percent in the last five years, and 30 percent of the 146 million wireless users in the country switch carriers annually; some estimates put the cost of complying with the FCC's rule at $1 billion and up.

I have no idea how the compliance costs will scale, but it seems at least plausible to think that smaller carriers will be at a disadvantage here, which would certainly be an "anti-competitive" result. Even absent that consideration, though, the theory at work here is worrisome. Transaction costs are often assumed away in economic models of perfect competition; the FCC seems to have taken that to mean that the existence of transaction costs, which are always present in real world markets, constitutes a priori market failure. So now cell carriers—which, in effect, means cell users—must all bear the real costs of an option that only a fraction of users will actually exercise.

There's a new Cato book covering issues in this ballpark, by the way: What's Yours is Mine. It's worth checking out if you're interested in this sort of thing.

Comments

[Eric]

This is long overdue. Nearly every other country in the world instituted number portability a long time ago. The costs of switching a phone number from one service provider to another are minimal. Smaller carriers only get hurt to the extent that their customers are dissatisfied with the level of service that they're receiving.

Most importantly, this move increases the incentive for all carriers to improve the quality of their offerings, as they're no longer able to keep customers tied down on the basis of the hassles involved in switching phone numbers.

[joe]

All states had to pass laws after the Telecom Act of 1996 which granted waivers to the builders of cell phone towers from regulations such as local zoning codes, on the grounds that cell phone service is a public utility. Just like landline service, for which portability is, I believe, mandated.

[Marie]

Who "owns" the number sequences now, and to what extent? I doubt this is a pure Lockean land grab deal, where you assert ownership of a number simply by using it.

More likely carriers must rent or purchase blocks of numbers from a governmental entity. The terms of that contract may very well not entitle the carrier-owner to number retention under all circumstances, making the new policy no less just than the overall number assignment system that preceds it.

[Dean]

When presented with the choice of living in a country where cell phone number portability is the norm vs. not being able to, I would choose cell phone number portability every time. Thus, I'm going to have to say that the decision by the FCC is a good idea because it improves my life.

[Julian]

Hmm, Marie is probably (as usual) correct. What disturbed me was really the background theory: that transaction costs per se indicate a market failure in need of rectification. If the numbers cited are even close to correct (30 percent does seem awfully high, which makes me a bit doubtful) then it doesn't look like the portability issue is having these dire anticompetitive effects.

[Anonymous]

It's not the lack of number portibility which markedly increases the costs of switching providers, it's that my $150 sprint PCS phone won't work with anyone else's network.

Luckilly for us, competitors realized this and now generally offer a "free phone when you sign up for a plan with XXXXXXX".

As for having to get a new number when you switch providers, who cares? Everyone just programs numbers/names into their cells anyway. It's not like you have to memorize a gigantic 10 digit numbers anymore.

Whatever cost is associated with this keystroke time, nobody has thought it necessary to outright compensate consumers. Although, really, when I switch from Sprint to Ameritech, I do so because I expect the benefits of doing so to outweigh the costs. That includes the cost of learning a new phone number.

[s.m. koppelman]

Mr. Sanchez! Time to expand your morning coffee-time reading beyond Cato Institute and CEI reports. It's the US that's in the anomalous position of not having number portability already in place, years of US carriers' bellyaching that it will bankrupt them notwithstanding. Maybe as a writer at a magazine that doesn't demand much travel from its staff, changing cell numbers isn't that big a deal for you. If, though, like a growing number of people around the world you use a cell as your only personal phone or as your primary business number, you're a prisoner of that cell number, with your business cards and ads and your clients' Rolodexes, Palms and refrigerators plastered with it.

Go talk to a few people who are in business for themselves and spend a lot of time outside an office--real estate agents, personal trainers, livery cab drivers, sole-proprietor plumbers, gardeners, decorators and the like. Trust me: they want cell number portability, and they want it now.

Given the quality of service and coverage offered by many of the major cell carriers, 30% turnover every year isn't bad at all. I just moved to a new apartment after about a year of living somewhere--a five-minute walk from my city's downtown--where I couldn't make calls from my own apartment. Why didn't I change carriers?

Hint: it wasn't price.

[Eric]

>

That's because, like all other carriers, they put a "lock" of sorts on the phone that keeps it from being programmed to work on another network. Technically speaking, there's nothing to prevent a phone used on Sprint's network from running on other CDMA-1900 networks, such as those of Verizon, Qwest, and Alltel. Likewise, a GSM phone on AT&T's network should be able to work on T-Mobile and Cingular's networks, and vice versa.

Tying down phones to individual networks is just one more anti-competitive practice that you don't see much of in other parts of the world. In Europe and much of Asia, every phone has a removable smart card (i.e. SIM card) that's used for authentication purposes, identifying you when your phone communicates with a network. All you have to do to go from one carrier to another is to switch cards.

[Xrlq]

As for having to get a new number when you switch providers, who cares?"

I do. I've been with Sprint for four years and have replaced my phones twice, but only considered jumping to the competition when I was moving to a new area code and had/wanted to change my phone number anyway. Now I'll watch the competition a lot more closely.

[triticale]

The ability of GSM phones to work on different company networks is inherent in the GSM standard. All it requires is inserting a new SIM (Subscriber Identity Module). In Italy (and quite possibly other GSM countries) the business model separates the phone (bought at phone boutiques) from the service.

Altho I am working in the RF department at a GSM provider, and not in the switch department, I still have some familiarity with what number portability will entail. The most interesting issue is that it will take around 24 hours for the update to propagate; phone number identity is handled by a system equivalent to Internet Domain Name Servers, and each network's server needs to load the update.

[Brock LaHart]

As the marketing manager at a Verizonwireless Dealer in Ann Arbor, Michigan, I welcome the coming of number portability! Customers want good service and they(the customers) express that "good service" includes good reception and service reps that give them good sound advice and directions based on their needs and not what the cell phone dealer wants out of the transaction. I welcome the anticipated flood of customers to Verizon!