Subject: [NEXTEL-1] As Number Portability Nears

From: [email-masked]
Date: Wed, 06 Aug 2003 00:16:31 -0400

As Number Portability Nears
By Kenneth M. Leon
August 4, 2003

In the last few weeks, Murfreesboro, Tenn., has been in the midst of a
hiring frenzy. What's going on? Verizon Wireless has been filling 450
coveted positions while establishing a new state-of-the-art customer call
center to handle number-portability transactions later this year. Verizon
Wireless (a joint venture of Verizon (VZ) and Vodafone (VOD)) and its peers
are responding to Federal Communications Commission (FCC) regulations
allowing customers to keep their mobile-phone numbers if they choose to
change carriers.

These are exciting, but confusing times for wireless services. Consumers are
beginning to hear a groundswell of offers aimed at retaining them or
enticing them to switch using wireless local number portability (WLNP),
which the industry plans to introduce on Nov. 23. Verizon Wireless says it
won't impose a termination or deactivation charge to customers who want to
take their numbers with them. Other wireless carriers, though, may charge
the additional fees if customers flee.

The mandated WLNP will cause wireless-service providers to reevaluate how
they can differentiate their products from competitors. We at S&P believe
they may be come up with some surprising price initiatives and other
maneuvers to retain customers and protect their revenue base. We expect the
marketing battle to start right before the December holiday period and lead
into the first half of 2004.

Worth Watching

At this time, it's still difficult to sort out the winners and losers. We
think as local-number portability rolls out later this year, it's likely to
increase competition, customer churn, and market-share changes. This may
give investors a reason to take profits in wireless-services stocks, which
have shot up this year on accelerating subscriber additions, revenue growth
and cash flow.

Year-to-date through July 25, the S&P Wireless Telecommunications Index was
up 50%, vs. a 13.7% rise in the S&P Super 1500 Composite Index. Stable
pricing, higher margins with managed marketing costs, lower bad-debt
expenses, and improved balance sheets amid restrained capital spending have
helped boost results of many wireless companies.

It's worth watching the events leading up to WLNP's rollout this fall.
Kicking around the industry and the FCC's corridors since 1998 and planned
to come out late last year, WLNP is designed to promote wireless-to-wireless
and wireless-to-wireline competition for the consumer's best interests. If
all goes according to theory, a customer will be able to use WLNP to get the
best service at the best price (see BW Online, 7/15/03, "Portability:
Survival Tips for Cell-Phone Outfits").

Like Magic?

Small to mid-size businesses may be especially eager to take advantage of
WLNP, because of the economies of scale and cost savings that may arise from
the wireless-service provider that wants to retain them or the competitors
that want these prized customers to switch to their networks.

It's hoped that the network complexities of making WLNP work seamlessly will
be invisible to customers. Some of the challenges for the wireless providers
involve retooling their network architectures, rethinking the role of
network intelligence through software, and changing protocols that allow
traffic to be routed and recorded at specified rates for billing purposes.
Equipment vendors have been working with carriers to address most of these
issues.

According to the Cellular Telecommunications & Internet Assn. (CTIA), even
if providers have upgraded their networks, they'll still require at least 90
days to implement the new rules and policies that have been awaiting FCC
resolution. The CTIA believes that window is necessary to load and test
software and systems, install circuits, obtain numbering resources, and
train customer-service personnel.

911 Problems?

When a consumer selects another wireless carrier, a "mixed service" period
occurs where the customer would essentially have two carriers using the same
mobile number for a period of time. The order process between wireless- and
wireline-service providers is still being negotiated.

WLNP still has some regulatory snarls. In a prior order, the FCC ruled that
the largest 100 metropolitan markets would be required to meet WLNP
guidelines, and it's still unclear whether the suburban to rural markets
beyond to the top 100 metro areas would need to comply, which may upset
consumers and small business in those markets.

The technology side has some concerns that WLNP could degrade the
availability of 911 emergency service. Issues have come up involving the
routing of a wireless phone activated for service prior to the completion of
the WLNP change activation, so the emergency call may be routed to the
previous service provider. For consumers, the pace of the incumbent local
exchange carrier's (ILEC) efforts to complete a changeover may affect the
availability of critical 911 services.

Bad Omen

Another question is whether service providers will cooperate with each other
on network issues related to WLNP. The FCC still doesn't have specific
guidelines for how providers should follow procedures on switching customers
to competing wireless providers. Certainly, the poor experience of the last
decade between the ILECs and the emerging competitive local exchange
carriers (CLECs) related to network access doesn't bode well for WLNP
implementation.

The CTIA and its members have developed a Service Level Porting Agreement
(SLA) based largely on the terms and conditions wireless carriers have used
for years. SLA may be able to allow number portability between wireless
providers and wireless-to-wireline providers in an organized manner.

Still, the CTIA is concerned that the ILECs may erect obstacles to
portability by carrying out lengthy negotiations and delayed dispute
resolution. Certain regional Bell operation companies, such as BellSouth
(NYSE: BLS)  (BLS) and SBC (SBC), argued that the SLA term for number
portability is an interconnection agreement that must be filed and approved
by the relevant state public utility commissions.

Delaying Tactics

Of course, the CTIA takes issue with these claims, and the dispute may
threaten the FCC's authority over the relationships between ILECs and
wireless providers. We believe this may lead to further delays, and the
issue might go to Congress or the U.S. federal courts. If an ILEC is likely
to lose wireless customers to a competitor, it may stall for time. After
all, regulatory filings, petitions and rebuttals have been a common telecom
industry practice.

The CTIA believes that engaging in interconnection negotiations that are
later subject to state review may serve only two purposes: to significantly
delay the availability of number portability and to permit incumbent
monopolists to raise their rivals' costs and inhibit competition. We agree
with the CTIA that the consumer may be harmed by resistant ILECs, and the
ultimate arbiter of any disputes about WLNP should be the FCC.

Consumers, too, may find some hidden challenges with number portability. Put
simply, switching a wireless number to another carrier will require
service-level agreements among the carriers that include the individual
rates or charges coming from specific rate centers located around the
network. That means the salesperson or service rep has to know what rate
center the customer is in. Given wireless carriers' reliance on retail
distribution channels (such as RadioShack), a salesperson at a large
wireless retail center may not be able to identify the two relevant rate
centers to switch the wireless number.

Wild Ride

A customer also may not be able to switch unless the underlying carriers
have established some agreement for doing so. From past experiences in the
retail wireless center, we at S&P believe it's a leap of faith to assume the
salesperson will know how to execute all these changes related to WLNP.

S&P believes WLNP will be a wild ride for the wireless industry that's
likely to benefit the consumer with more choices -- and perhaps more
aggravation. Investors' heads, too, may be spinning for a while before it's
clear which companies are benefiting from the new world of number
portability.

http://www.businessweek.com/investor/content/aug2003/pi2003081_3757_pi044.htm

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