Mobile Number Portability  the Unnecessary Hype

By Mohit Agrawal

Mobile Number Portability (MNP) has been introduced in many developed countries and is now being contemplated in many developing countries. Number portability enables a subscriber to switch between services, locations, or operators while retaining the original telephone number. There are three basic types of number portability: service, location and operator portability. In most of the countries, location portability and service portability are not enforced, and only operator portability is implemented because operator portability is considered essential for fair competition among operators, while location portability and service portability are typically treated as value-added services. When the number portability is only on the mobile platform, it is called mobile number portability (it is a type of operator portability).

The number portability is introduced to remove barrier to switching operators and facilitate competition. In most of the countries, it has been introduced only after the mobile penetration crossed 25%. France, Finland, Greece and US were the first few nations in the world to introduce it in 2003. Established operators dread the introduction of MNP as they feel that suddenly their customer base becomes vulnerable to new operators as the biggest barrier to switching by subscribers is number. In most of the cases a lot of hype is created around MNP and almost all pre-MNP introduction surveys predict that over 25% subscribers would switch. Despite this, as it is evident from the adjoining image, barring Finland and HK, most countries port less than 10% customers in first 2 yrs. In fact, less than 5% switch in first 12 months of introduction of MNP.

The situation in most of the countries (e.g. India) where MNP is now being introduced is very different. A big portion of the base comprises of prepaid who already have a high churn rate. The number loyalty amongst the prepaid subscribers is much lower and they do switch networks often even in the absence of MNP. In India, over 92% of the base is prepaid and have a churn rate of 3-4% per month (~40-45% annualized). Given this high churn, I doubt that the churn would go higher than this after introduction of MNP. MNP involves establishment of central clearing agency and additional equipment at the operator end. The costs associated with the additional operator set-up and the clearing agency needs to be recovered from the porting subscriber unless the receiving operator decides to subsidize and adds it to its acquisition cost. The receiving operator is unlikely to subsidize as there is no guarantee that the subscriber will not churn again given that there are no exit costs. In today’s scenario where the ARPU levels are very low, the porting cost can be as high as one month’s ARPU (In India, the subscriber porting cost is expected to be over $4 whereas the monthly ARPU of over 70% subscribers is below $4). Will the subscriber would be ready to forego a month’s ARPU just to retain their number? It is highly unlikely. Moreover, the telecom industry like the financial industry is based on consumer inertia. There are subscribers who do not change their bill plans for years and continue to pay a high bill for years despite better bills being available in the market by the same operator. Seldom have the operators proactively shifted their subscribers to a more suitable bill plans as it would hit their revenues. I expect the inertia will prevent subscribers from making an extra effort in shifting their operator. Subscribers who do not have inertia are already switching their operators in a predominantly prepaid market as evident from the high churn rate.

There are many exit barriers that the operators can create to prevent their base from churning. A few examples of such barriers are: offer advance rental plans with bundled free airtime before introduction of MNP to lock-in the subscribers; enhance network coverage by providing in-building solution; offer personalized customer care; focus on services like mobile money, navigation, email that would make subscriber think twice before leaving the network.

I sincerely feel that the hype created around MNP is unnecessary and it is unlikely that a large number of subscribers are going to switch operators after its introduction. MNP introduction would help the operators in getting their act together and focus on consumers.