The Factors Affecting Mobile Number Portability

Published Date: 02 Nov 2017

The problem this research addresses is the lack of real understanding for the factors affecting the MNP and its driven attributes in the Telecom market. In such competitive market place, facing exponential growth, price wars, and the big challenge of the mobile carriers is how to retain their existing customers, the basis of their profitability. Thus it is fundamental to understand the success factors affecting the MNP in the Telecom market. The purpose of this judgmental study is to help the mobile carriers in understanding the factors affecting the switching behavior of their customers, the base of their profitability.

The researcher used Gerpott et al. (2004) model being one of the few to incorporate the MNP effects in the United States, However some of the dimensions in this model were unsuitable for the market, thus the model deemed inappropriate. In that respect the researcher developed his proposed theoretical dimensions for detecting the factors affecting the customers switching behavior in the Telecom market.

It was evident from many researchers conducted in this area, that there is a relation between efficiency, speed, marketing campaigns, market maturity, mobile phone subsidies, contractual obligations, and customer usage level with intensity of competition in the market being the most influential. It was also deduced that despite customer losing some value added services by the previous service provider, all contacts saved in their SIM cards, portability increases competition in the mobile industry in addition to benefiting the mobile consumers for the reduction of switching costs.

Table of Contents

Abstract i

Table of Contents ii

List of Figures iv

List of Tables v

List of Abbreviations vi

1.Chapter 1 Introduction 1

1.1.Overview 1

1.2.Problem Statement 1

1.3.Importance of Study 1

1.4.Research Questions 2

2.Chapter 2 History of Mobile Number Portability 3

2.1.Background 3

2.2.Factors affecting Mobile Number Portability 5

2.2.1.Call quality Factor 5

Refers to how users rate the overall quality of a call based on listening quality and their ability to converse during a call. This includes any echo-or-delay related difficulties that may affect the conversation. 5

2.2.1.1.Coverage 5

2.2.1.2.Value added services 5

2.2.1.3.Customer support 5

2.2.2.Switching barriers factor 5

2.2.2.1.Switching cost 5

2.2.2.2.Opportunity cost 6

2.2.2.3.Loyalty program 6

2.2.3.Price factor 6

2.2.3.1.Pricing scheme 6

2.2.3.2.Additional service fee 6

2.3.Theoretical Concepts on Mobile Telecommunications Market 6

2.4.Switching Cost 6

2.5.Subscriber Lock-In 8

2.6.Competition 9

2.7.World Wide Cases 10

2.8.Failure in the Mobile Telecommunication Industry 10

2.9.Figures 11

2.10.Background 11

2.11.Major causes 12

3.Chapter 3 Mobile Number Portability Pain & Gain 13

3.1.Businesses Fail 13

3.2.Competitive Advantage 13

3.3.Impact of Mobile Number Portability Competition 14

3.4.Mobile Number Portability Strategies 16

3.5.Mobile Number Portability Usage Factors 17

3.5.1.Customer base 17

3.5.2.The intensity of competition in the local communications market 17

3.5.3.Market maturity 17

3.5.4.Marketing campaigns 18

3.5.5.Speed of porting 18

3.6.Benefits to Those Who Change Operators 18

3.7.Benefits to Those Who Change Operators only with MNP 18

3.8.Benefits to All Subscribers 19

3.9.Benefits to Callers to People Who Have Ported Numbers 19

3.10.Global Experiences in MNP 19

3.11.Mobile Number Portability Advantages 19

3.12.Differentiators for Service Providers 20

4.Chapter 4 Conclusion & Recommendations 21

4.1.Conclusion 22

4.2.Recommendations 23

References 24

List of Figures

Figure 3.1: Proposed framework of the relationship switching behavior.....................................................15

List of Tables

Table 2.1: Introduction of MNP in Selected Countries …………………………………………......………3

List of Abbreviations

(MNP): Mobile Number Portability

(FCC): Federal Communications Commission

(NTRA): National Telecommunications Regulatory Authority

(1G): First Generation

(2G): Second Generation

(3G): Third Generation

(Q1): First Quarter

(Q2): Second Quarter

(Q3): Third Quarter

(Q4): Fourth Quarter

(VAS): Value Added Services

(INTSW): Intending to Switch

Chapter 1 Introduction

Overview

Emerging countries are now the main growth centers in the telecommunications market. Deregulation and privatization have created new mobile opportunities and the mobile scene became now fully stuffed, with services and providers. Mobile number portability (MNP) requires that mobile telephone customers can keep their telephone number when switching from one mobile carrier to another. In the absence of MNP, customers have to give up their number and must adopt a new one when they switch carriers. As a result, customers face switching costs associated with informing people about changing their number, printing new business cards, missing valuable calls from people that do not have the new number. Based on these considerations, many regulatory authorities have imposed mandatory MNP or are about to require its introduction so as to reduce customers’ switching costs, attempting to make mobile telecommunications more competitive (Reinke, 1998)

Problem Statement

The problem this research addresses is the lack of real understanding for the factors affecting the MNP and its driven attributes in the Telecom market. In such competitive market place, facing exponential growth, price wars, and the big challenge of the mobile carriers is how to retain their existing customers, the basis of their profitability. Thus it is fundamental to understand the success factors affecting the MNP in the Telecom market. The purpose of this judgmental study is to develop a new model that would help the mobile carriers in scientifically understanding the factors affecting their customers, the base of their profitability.

Importance of Study

The researcher used Gerpott et al. (2004) model being one of the few to incorporate the MNP effects in the Telecom Markets, However some of the dimensions in this model were unsuitable for the Telecom market, thus the model deemed inappropriate. In that respect the researcher developed his proposed theoretical dimensions for detecting the factors affecting the customers switching behavior in the markets .The dependent variable for this research is the customer future intention to switch his mobile carrier. This research is of judgmental nature and lies mainly in the qualitative paradigm. It is concerned with hypothesis testing to measure the phenomena in its application. The outcome of this research is applied as its findings are recommendations for the current mobile carriers.

Research Questions

To what extent does the mobile carrier‘s perceived call quality may affect the customer future intention to switch?

To what extent does the mobile carrier‘s network coverage may affect the customer future intention to switch?

To what extent does the mobile carrier‘s value added services variety may affect the customer future intention to switch?

To what extent does the mobile carrier‘s customer may affect the customer future intention to switch?

To what extent does the mobile carrier‘s switching cost may affect the customer future intention to switch?

To what extent does the mobile carrier‘s oppotunity cost affect the customer future intention to switch?

To what extent does the mobile carrier‘s loyalty program may affect the customer future intention to switch?

To what extent does the mobile carrier‘s pricing scheme may affect the customer future intention to switch?

What are the critical factors affecting the switching decision from one mobile carrier to another?

Chapter 2 History of Mobile Number Portability

Background

Mobile number portability (MNP) requires that mobile telephone customers can keep their telephone number including the prefix when switching from one provider of mobile telecommunications services to another. In the absence of MNP, customers have to give up their number and must adopt a new one when they switch operators. As a result, customers face switching costs associated with informing people about changing their number, printing new business cards, missing valuable calls from people that do not have the new number, etc.

Based on these considerations, many regulatory authorities have imposed mandatory MNP or are about to require its introduction so as to reduce customer’s switching costs, attempting to make mobile telecommunications more competitive (Reinke, 1998).

The world’s first country to introduce MNP was Singapore in 1997, followed by the UK, Hong Kong and the Netherlands in 1999. As of 2003, a number of other countries, especially in Europe, require MNP (see Table 2.1).

Table 2.1: Introduction of MNP in Selected Countries

Year

Countries where MNP is available

1997

Singapore

1999

UK, Hong Kong, Netherlands

2000

Spain, Switzerland

2001

Australia, Sweden, Denmark, Norway

2002

Belgium, Italy, Portugal, Germany

2003

USA, Ireland, France, Finland, Luxembourg

2004

Austria, Greece, Hungary

Mobile number portability (MNP) was first introduced in the U.S. in November 2003 in 100 metropolitan cities and expanded to nationwide in May 2004. The main regulatory objectives of MNP have been the benefits consumers and competition between carriers that would lower the prices. As the present research is interested in whether such objectives have been achieved with MNP, it investigates the effects of MNP on the switching barrier, switching cost and subscribers’ perceptions, and the structural relationship among those factors for the U.S. mobile subscribers. This research is particularly interested in investigating subscribers’ behaviors and perceptions such as motivations of changing or remaining with mobile carriers (operators) with the introduction of MNP. The availability of MNP has been thought to bring substantial benefits to subscribers: lower price, greater choice, higher quality and a greater range of services. In particular, it would allow subscribers to take full advantage of the choices that will become available in a more competitive telecommunication market. They will also be able to choose the provider that best meets their needs without incurring switching costs by changing their phone numbers. With a full hyped hope, it was expected that 30 million subscribers to switch within the first year of MNP introduction. In the first year after the MNP, however, only 7.8 million Americans switched from one carrier to another according to data released by the Federal Communications Commission (FCC, 2005). Furthermore, small mobile carriers have not added subscribers, whereas the top five national carriers have all added subscribers with MNP (Wireless News, 2005). Many researchers and regulators raise a question whether switching barrier is effectively lifted and thus competition is increased with MNP. Up to now, MNP appears to have hardly any impact on the churn and competition in the mobile market.

Despite its doubted validity, MNP is the result of the FCC’s long continuous effort. Number portability dates back to 1995 when the FCC enforced it in local telephone service. The FCC later enforced local number portability between wire line service providers, which have been occurring since 1998. Now the FCC enforces MNP so as to assure its effective implementation, which will also make it more convenient for end-users to switch carriers if their services do not meet subscriber expectation. The initial intended effects were lower prices, higher competition, better service and more favorable terms for subscribers as carriers try to compete for the wave of subscribers expected to switch carriers (Max, 2003; Gross et al., 2003). While some researchers (Arden, 2004) are questioning the intended effects, an emergent and the most fundamental question with MNP is whether subscribers are able to switch carriers without significant switching barriers. In this light, this research focuses on the subscribers’ response to MNP. Although there have been many studies investigating the effect of number portability on competition at the industry level, little attention has been made on the individual level such as subscribers’ behaviors and perceptions. Since the primary goal of MNP lies in consumer benefit, a fundamental and priori question needs to address the consumers’ actual responses. The phenomenon of rising switching costs (Buehler and Haucap, 2004) implies the market failure that the FCC attempts to rectify through MNP. Considering the magnitude of MNP, only a few studies have investigated the effect of MNP leaving a further question mark against the adoptability of MNP in the future. Most studies on MNP investigate the limited aspect of MNP part of due to the complicated nature of MNP and its unpredictable effect on market and society. The present study aims to fill this gap by analyzing the consequences of MNP at the subscriber level. The crux of the research question of this study is if this MNP regulation has achieved its intended consequences particularly in switching cost and subscriber benefits? This research conducts a series of statistical analyses to understand the subscribers’ switching behaviors. The results of this study contribute to the body of work surrounding subscribers in mobile markets and the regulation imposed to induce and increase competition.

Factors affecting Mobile Number Portability

Call quality Factor

Refers to how users rate the overall quality of a call based on listening quality and their ability to converse during a call. This includes any echo-or-delay related difficulties that may affect the conversation.

Coverage

Refers to how users rate the quality of the network connection used to carry the voice signal. This is a measure of network service quality as opposed to the specific call quality.

Value added services

Refers to how users rate the variety of VAS such as voice mail, e-mail, and fax mail.

Customer support

Refers to how users rate the range of services provided to assist customers in making cost effective and correct use of a product. It includes assistance in planning, installation, training, trouble shooting, maintenance, upgrading, and disposal of the product.

Switching barriers factor

Switching cost

Refers to how users rate the fee in which customers pays for the current carrier in order to port out, and the fee in which the customers pays for his new carrier in order to port in.

Opportunity cost

Refers to how users rate the time where the customers mobile will be switched off during the switching process

Loyalty program

Refers to how users rate the structured marketing efforts that reward, and therefore encourage, loyal buying behavior; behavior which is potentially of benefit to the firm.

Price factor

Pricing scheme

Refers to how users rate the variety of pricing scheme such as the attractiveness of promotions.

Additional service fee

Refers to how users rate the reasonability of the VAS prices.

Theoretical Concepts on Mobile Telecommunications Market

Switching costs affect competition. When a consumer faces switching costs, the rational consumer will not switch to the supplier offering the lowest price if the switching costs in terms of monetary cost, effort, time, uncertainty, and other reasons, outweigh the price differential between the two suppliers. If this happens, the consumer is said to be locked-in to the supplier. If a supplier manages to lock-in consumers, the supplier can raise prices to a certain point without fear of losing customers because the additional effects of lock-in prevent the consumer from switching.

Switching Cost

Switching cost means the cost incurred when switching, including time, money and psychological cost (Dick and Basu, 1994), and is defined as perceived risk, insofar as there are potential losses perceived by subscribers when switching carriers, such as losses of a financial, performance-related, social, psychological, and safety-related nature (Murray, 1991). Switching costs exist whenever consumers face changeover costs in a market when switching from a purchased product to one of its substitutes. Substantial research addresses the economic theories and practical implications of switching costs with respect to various market structures. This research introduces the basic theory regarding switching costs and extends it specifically to telecommunication markets. Initially, the theory introduces a market in which the consumer has not yet purchased a good or service. According to Chang (1998), the initial costs are assumed to be the same across all carriers, when the subscriber makes a purchase decision. These first period sales create the second period, or aftermarket, switching costs. Switching cost can be explained in three categories (Kemplerer, 1987); learning costs occur if knowledge between brands is not transferable, transaction costs occur when changing providers, and contractual costs, or purely pecuniary costs, occur when a firm develops particular schemes, such as loyalty benefits or withdrawal penalties, to encourage retention of existing subscribers. While the learning costs and transaction costs represent the social cost of brand switching, the contractual cost occurs with a firm’s strategy, which punishes subscribers who switch by creating intentional barriers (Kemplerer, 1987).

A market failure often results from the high consumer switching costs that creates barriers to competition by keeping subscribers locked into particular market (Krup, 2005). Economic researches find that subscribers strongly bound to a particular provider, which effectively grants monopoly power to that provider. This lack of competition in the IT market allows the sellers complete control over the choice, quality, and price of goods in the market, typically resulting in decreased output with increased prices, limiting consumer choice and lowering the value of products significantly (Shin, 2005). Although most industries are banned from pursuing monopoly, such situations are arising as a result of market failures, such as high switching costs (Farrell and Shapiro, 1988).

Many industries refute the claim that monopoly situations arise through switching costs by arguing that competition in the first period precludes any evidence of monopoly power in the aftermarket. This question has been the focal point in several court cases, exemplified in the early 1990s by Kodak vs. United States. Having charged with illegal monopolization, Kodak counter- argued that there was no allegation that it had market power in the equipment markets. Kodak claimed that equipment consumers had many alternatives available to them and made purchase decisions based on the total cost of ownership, and thus any attempt by Kodak to extract higher profits from maintenance customers would result in equipment customers taking their business elsewhere. Thus, because it could not have service market power, Kodak argued that as a matter of law it could not be found guilty of tying or monopolizing service markets. The Supreme Court, consistent with a trend to limit per se or absolute violations of antitrust law, rejected this claim on a reason that Kodak’s arguments were purely theoretical and deciding whether the market actually functions as such should be determined on a case by case basis.

Kodak’s claim is addressed by Borenstein et al. (2000) who examine if economic power over subscribers in the aftermarket can be profitably exploited even if competition exists in the first period. Assuming consumers to be fully informed with perfect foresight of the market, their work supports the Supreme Court’s assumption that a company with a dominant position in an aftermarket could profitably exploit its position despite first period competition (Borenstein et al., 2000). Market are unpredictable, long-term forecasts, especially within innovative markets, are rarely accurate and complete information is very expensive. In reality these situations provide the manufacturer with even greater opportunities to exploit economic power over service subscribers than their research illustrates. Various repetitive variations concerning the concepts of switching costs emerge, especially with respect to technology markets. In an effort to clearly conceptualize the concept, this research investigates the switching costs to see whether companies can still harm consumers by monopolizing an aftermarket (Shapiro, 1995). Aftermarket monopolization becomes lucrative since the cost of switching carriers is a kind of stabilizer to keep the subscribers locked into their original first period purchase decision.

Subscriber Lock-In

Firms keep developing various strategies to gain control over access to subscribers, in an attempt to achieve customer lock-in (usually referred to using the euphemism loyalty) (Clarke, 2004). This kind of subscriber capture can take many forms, including: contractual commitments, bundling of services, product-specific learning costs, search costs, and loyalty programs. However, each of these industry tactics represents various embodiments of switching costs and aftermarket monopolization. The higher the cost of switching providers within a particular market, the more the subscriber is captured, or locked into, the original purchase decision. In this situation, the provider may be able to increase the service price without a significant loss of subscribers, providing the service price increase does not exceed cost of switching providers.

This approach forces subscribers to balance switching costs with the benefit of saving money in a competitor’s aftermarket (Borenstein, 2000). Switching costs thus generates consumer lock-in, allowing firms to earn above-competitive, monopoly profits. This form of subscriber capture is especially effective when coupled with marketing phenomenon such as brand loyalty, where consumers are strongly motivated to make consistent repeat purchase decisions of a particular product or service. In any market, a provider competes for both existing and potential consumers. While markets with high switching costs serve to retain existing subscribers, industry claims suggest that potential subscribers provide the competitive discipline to resist overpriced products and services. This supports the oft claimed phenomenon of reputation effects. If it becomes known that providers will charge excess prices in the aftermarket, consumers may avoid such costs by purchasing from a different provider in the first period. This theoretical argument has again been utilized in antitrust cases, for instance, when Prime Computers argued that second period subscriber services are essential to a firm’s competitiveness.

While the tactics employed by various industries to seduce potential and retain existing subscribers will vary extensively across markets, it has become an economic axiom that lower switching costs force competition for initial subscribers and liberate second period subscribers from a particular aftermarket.

Competition

The effects of switching costs to a certain market can be summarized in two aspects (Kemplerer, 1987). Firstly, switching costs reduce competition between firms by lowering elasticity of consumer demand. With inelastic demand, sub-markets of inert consumers bundling around particular firms that develop monopoly power over the consumer (Kemplerer, 1987). Switching costs are anti-competitive because the costs can prevent price decreases and create barriers to seamless exit and entry into the market.

Secondly, firms seek to extend this power over market share by targeting subscribers before they have attached themselves to one firm. Kemplerer (1987) argues that switching costs create such fierce competition for market share that first period prices can actually be below firm’s costs, a concept known as loss leader. This concept contradicts traditional economics as first period profits could then not recover costs. Loss leaders also affect industrial output. With high switching costs, firms produce excess amounts of standardized products in the first period to ensure ability to price close to or below costs and have no incentive to produce in the second period when market share has been established and subscribers are captured.

This skewed output is harmful in any market, but especially inefficient in a technology-driven market, as this does not support innovation, but rather standardized products that can be mass produced and sold close to costs. In sum, high switching costs create an allocation inefficiency suggesting industry output, consumer welfare, and competitive entry would be optimized in both periods if switching costs were eradicated.

World Wide Cases

Prior to 1980, companies wished to buy a producer of chocolate or pasta; after 1980 they wanted to buy kitkat or buotoni. This distinction is very important; in the first case, firms want to buy production capabilities, in the second they wanted to buy a place in the mind and in the heart of the consumer (Chernatony & Malcolm, Mcdonald 1989).

One of the endures mysteries of business is why established market leaders are so frequently elbowed aside by aggressive upstarts, and why , in general , big corporations die so young. Large companies should derive enormous survival advantages from the richness of their resources, the rich of their economic and political influence, the breadth of their experience, and the depth of their information about customers and employees.

But the average fortune 500 companies have a time span of forty years. When companies fail to adapt to changing environment, they die. As the true mission of a business is to create value rather than a profit. One of the reasons that many businesses fail is that all of their analysis and learning revolve around profit, so they become aware of their problems only when profit declines and miss their underlying breakdown in their value creation system. In other words managers who focus on short term profit are probably responsible for the death of many corporations. (Reichheld, 1996)

Failure in the Mobile Telecommunication Industry

Mobile phone giant Vodafone announce on March 2006 the $15.4 billion sale of its troubled Japan unit to the local internet and telecommunications company "Softbank". Vodafone said it is selling its Japan operation because of "reduced prospectsfor superior long-term results and a good offer from Softbank," Arun Sarin, CEO of the UK-based carrier, said in a statement. Industry analyists described Vodafone business in Japan as a "complete disaster", while a senior Tokyo-based fund manager commented: "confused management and wrong-headed decisionshad made what could have been a brilliant move a heavy drag on the ambitious of the group".

Figures

In 2006, Vodafone’s market share was 17%, precede by a decline from 17.8% in 2005 and from 18.3% in 2004, while NTT DoCoMo controls 55.9% of the mobile market.

As of January 2006, because of its missteps Vodafone Japan had 14.7 million subscribers with only 2.2 million 3G subscribers (5.4% of 3G market and 17% of the whole mobile market), while NTT DoCoMo captured 51 million subscribers and KDDI attracted 26.7 million subscribers.

Background

In 2001, Vodafone took a controlling stake in Japan Telecom and its mobile subsidary J-Phone, later re-branded under the Vodafone umbrella.

Starting its operations, the UK- basd operator was lagged behind Japan’s two existing operators, NTT DoCoMo and KDDI, but yet insisted on sustaining its growth market share.

However since the launch of the 3G technology in 2001 by NTT DoCoMo followed by KDDI, Vodafone has consistently failed to make stridesagainists its main competition in the country.

Vodafone made a relatively slow start in investing in building its 3G infastructure, launching its "Vodafone Live!" service in 2003 which was subjected to critisism over its quality as well its.

From 2003 until 2006; Vodafone has been struggling to reverse a decline in subscribers caused in part by its botched rollout of third-generation (3G) services. Vodafone has been unable to satisfy customers, as Japanese users tend to have preferences not seen in another markets. Handsets had user interfaces that differed too much from the Japanese interface. This failure led to loosing many customers that Vodafone KK operations where no longer profitable, leading the group to finalize the sale of its unit in Japan to Softbank.

Major causes

Among the most prominent factors behind the collapse of the giant Vodafone was the poor reliability on the service quality, while its 3G services experienced major outages.

Vodafone K.K. launched its 3G service in accordance with its license obligations at the end of 2002, while NTT DoCoMo was able to go to the market first (in October 2001). NTT DoCoMo was able to launch its FOMA (commercial name of its 3G service) in October 2001, and it took around two years to get its network and terminal performance right and to its best expansive shape, thus succeeded to satisfy its customer base.

KDDI launched its 3G service by the end of 2002 and in 2003 there were 8 million 3G mobile service subscribers, KDDI is considered a 3G success story. The carrier has invested a lot in the new technology and its business model, thus it emerged in the market with highest download speeds, offerings that attracted the younger generation and the most "funky" building. KDDI has converted

almost all subscribers to 3G services, and started to offer 3.5G services (with 2.4 Mbps data download speed: almost 10 times faster than competitors NTT DoCoMo and Vodafone).

When Vodafone Japan completed the transition of its 2G network to 3G and sustained the market pace, unfortunately the network witnessed poor voice quality, frequent voice calls drops and missing text messages. Such decline in the service quality forced the 2G subscribers to churn and switch to its rivals in the market. The confidence in the operator drastically dropped among the Japanese population as in the first five months following "Vodafone Live!" launch, Vodafone lost nearly 200,000 subscribers. Analysts commented: "In Japan, where mobile phones are used heavily to access email and internet services as well as for voice calls, these problems were catastrophic for the company’s reputation".

Secondly, the poor selection of 3G handsets was one of Vodafone’s biggest short fails in the Japanese market, which dramatically discouraged customers from staying with Vodafone. The company’s handsets failed to win over Japan’s notoriously finicky consumers and it found itself up against the latest mobile technologies. That latter problem was a result of Vodafone’s decision to roll out a selection of handsets uniformly across its entire global customer base, ignoring the fact that rival Japanese providers KDDI and NTT DoCoMo were using much more technically advanced devices tailored to the Japanese market. The marketing blitz in Japan had the first test of selling foreign made handsets like Motorola and Nokia in a country where homemade phones have nearly monopolized the market.

Vodafone falls short largely because it has tried to introduce a uniform suite of handsets and services worldwide rather that customizing them for Japan, ending up to a loss of so many customers that remained an embarrassing blot on Vodafone’s record. Example of Customer Experience: Yoko Yakushiji’s biggest complaint was her Vodafone cell phone was not just the lack of functions, the expensive bills or the poor signal. What annoyed her most was feeling like a social outcast, cut off from the instantaneous electronic world of Japan’s tech-savvy youth.

Chapter 3 Mobile Number Portability Pain & Gain

Businesses Fail

One of the reasons that many businesses fail is that all of their analysis and learning revolve around profit, so they become aware of their problems only when profit declines and miss their underlying breakdown in their value creation system. In other words managers who focus on short term profit are probably responsible for the death of many corporations (Reichheld, 1996)

Competitive Advantage

The problem this research addresses is the lack of understanding for the factors affecting MNP to achieve the intended goals and how to achieve competitive advantage with MNP. In such competitive market place, facing exponential growth, the big challenge of the mobile service carriers is how to retain their existing customers. Thus it is fundamental to understand the real drivers for switching, and the required course of actions from the mobile service carriers in order to be able to sustain their long-term profitability.

Impact of Mobile Number Portability Competition

The assumption is supported by the literature provided by Aaker (1991) who discussed the importance of identifying and ranking the important perceptual dimensions through different consumer measurements techniques.

Data confidentiality; there’s no published statistics concerning the MNP in the telecommunications market. As MNP has drawn much attention in recent years, many studies have investigated the impact of MNP on competition and social welfare. Studies on the impact of MNP on competition tend to have a macro perspective using economic analyses. Srinagesh and Mitchell (1999) analyze that MNP has significantly contributed to the effective competition in the U.S. mobile market. Gans et al. (2001) also positively asses that MNP would encourage participants to search for and achieve socially efficient outcomes by giving consumers’ ownership of their phone numbers and a right to port a number.

Other studies highlight the negative aspects of MNP. Reinke (1998) argues that even if number portability can increase the competition in the telecommunication market, the means by which number portability is implemented may either insure or threaten competition and universal service. Similarly, Aoki et al. (1999) also caution that consumers would receive less benefit with MNP in a well-developed telephony markets with high penetration rates.

They find that the overall welfare effect of MNP is ambiguous if the investment or set-up costs of implementing MNP are weighed against the benefits of more intense competition between mobile operators. In related research, Haucap (2003) has focused on the question of how to allocate the property rights in telephone numbers and the costs of implementing number portability. Empirically assessing the impact of MNP across the European Union, Grzybowski (2005) concludes that the introduction of mobile number portability has a negative impact on prices although liberalization of telecom has a positive impact on the demand for mobile services.

There are other groups of studies investigating the customer behaviors toward MNP. Lee et al. (2004) estimate the subscriber preference of considering attribute of choosing a carrier through conjoint analysis technique. It also estimates quantitative user’s value given to switching cost and MNP and concludes MNP is an important cause of decreasing switching cost. Similarly, Gerpott et al. (2001) investigate the structural relationships (using LISREL analyses) of subscriber retention, subscriber satisfaction, and loyalty in German mobile subscribers.

Their findings show that customer support has a significant impact on subscriber loyalty which in turn influences a subscriber's intention to terminate/extend the contractual relationship with his/her mobile carrier. Kim et al. (2004) use Gerpott et al.’s (2004) model and apply it to the Korean mobile market whose findings show the two factors of satisfaction and a switching barrier which constitute subscriber loyalty in mobile service. Their structural equation modeling among customer satisfactions, subscriber loyalty and switching show that switching cost like switching numbers is considered as a formation factor of an important subscriber loyalty, preventing subscribers from churning for other carriers, as a result.

While Kim et al.’s (2004) framework is a good tool to investigate a series of behavioral factors affecting switch mobile service, a question of competition in mobile carriers remains unanswered. For this question, Krupp (2005) assesses the effect of MNP in U.S. in terms of competition in industry and subscriber benefit. Krupp’s study method is purely qualitative collecting data through six interviews from industry, regulatory agencies and selected subscribers. Bjorkroth (2004) focuses on the cost of MNP administration in Finland mobile carrier before and after MNP. Using statistical analyses, Park et al. (2004) estimate the impact of MNP on the competition and social welfare and conclude that the MNP has achieved effective competition in the mobile market, but MNP has not contributed to social welfare. Jeong and Park (2003) examine the difference of subscribers’ switching intentions before and after the introducing MNP in Korea.

Their study finds the factors associated to switching: service quality, brand image and price and service benefits. Based on the factors from Jeong et al.’s study, Yang and Choi (2003) further analyze the structural relationships of the identified factors of brand perceived level, service quality, a charge cut and value-added service. Yang and Choi’s study would have been better with a specific customer retention strategy of telecommunication carriers with MNP.

One common finding among the studies of MNP is that switching cost has been the obstacle for subscribers to change carriers. Despite many studies, the concept of switching barriers still remains at the abstract level leaving it with unclearly defined terms. The present study aims to fill this gap by analyzing the actual subscriber behaviors and perceptions towards MNP. The term of switching barrier needs to be clarified with subscribers’ behaviors. A question of how subscribers see switching barriers with MNP is practically related to actual subscriber benefit and eventually competitions. The previous MNP studies mainly address by-product issues such as churn rate, industrial competition and ARPU (Average Revenue per Unit) without relating switching barriers to the subscribers’ perceptions.

Call quality

Coverage

Value added services

Customer support

Switching behavior

Switching cost

Loyalty program

Opportunity cost

Pricing scheme

Additional service fee

Figure 3.1: Proposed framework of the relationship between factors and customers’ switching behavior

For the operational definitions of subscribers’ behaviors, this study eclectically takes factors regarding subscriber behavior from Gerpott et al. (2001), Kim et al. (2004) and Lee et al. (2004). Gerpott and his colleagues use three variables of customer retention, loyalty and satisfaction. Based on these three variables, Kim et al. (2004) develop 2 factors (service quality and switching cost) comprising 12 variables.

Their variables are not mutually exclusive to each other and somewhat redundant, for example, variable of adaptation cost and move-in cost. Under the service quality factor, variable of subscriber support and services are redundant as well. The whole framework is the subject of the research, all the variables and their relations to each others are tested and verified.

Mobile Number Portability Strategies

MNP strategies based on non-disclosure of information on the services to the customers and defensive or negative tactics to witness at the onset of the service in telephony market are likely Asserts that operators should regard number portability as a new feature to their service portfolios since in most developed markets, where number portability has been introduced, for example the increase was only temporary because subscribers almost change an operator if they are unhappy with an operator’s customer care, service portfolio, or tariff rates and customer have more than one mobile lines. Building a strong brand and close relationships with existing customers will determine the level of Porting.

Mobile Number Portability Usage Factors

Many studies conducted on this issue prove that in countries where the MNP service

is quick and efficient, a large number of customers will use it (Levin, 2006). Service efficiency varies considerably between countries. However, other factors, having to do with market conditions, also affect service usage:

Customer base

MNP usage has been found to be higher among Post paid than among prepaid customers (Levin, 2006). The following are the reasons for that: On average, Postpaid will hold on to their mobile phone for a longer time, and therefore will be more attached to it. This is mainly postpaid customers are business customers, they are there more inclined to utilize MNP services, due to number switching costs.

The intensity of competition in the local communications market

The intensity of competition in the market has been identified as the most influential factor when it comes to MNP usage. This is evident in countries such as Finland and Hong Kong, where the competition is fierce and so is M NP usage. As operators try to attract more customers, prices for mobile services will decrease as competition intensifies (Buehler and Haucap, 2004).

Market maturity

In markets where penetration levels are particularly high, mobile service providers will try to win

over customers using M NP, as they have no other option of recruiting new customers.

Marketing campaigns

Marketing campaigns will be effective mainly in markets where the customers own their own

service contracts. Porting has been found to be higher were marketing campaigns are fierce.

Currently all operators are putting aggressive marketing campaigns to lure people into

their networks. Others are going as far as providing free porting and other are reducing their

charges on internet access and calling rates.

Speed of porting

The speed of porting, which is dependent on the technical porting systems and the willingness of

networks to speed up the porting process, has been known to vary from country to country. In

Kenya , the time to port stands at 2 days compared to 2 hours only in USA, 20 minutes in the

Republic of Ireland, 3 minutes in Australia and seconds in New Zealand. For consumers 2 days time-to-port is too long Shakouri and Tehrani (2009) argue that if the time to port is too long, consumers will put-off using the service. Customers would prefer a shorter porting.

Benefits to Those Who Change Operators

There are customers who would change operators even if it portability is available portability but who would use portability if it were available. These customers therefore are relieved of costs concerned with changing number which include telling correspondents about the change of number, the cost of providing for some form of call assistance where incoming calls to the old number receive a message that the number has changed, the risk of lost calls that could mean lost business, e.g., lost new orders, the costs of having cards and stationery that display the number reprinted; and the costs of having signs that display the number repainted or replaced. However, with email people can easily and cheaply inform all correspondents of a change in number, they no longer need to send letters to do this, many numbers can be found from web sites and these can be changed easily; there is less use of pre-printed stationery as many companies print letters and invoices with letterheads from color printers and the templates can be changed easily; and In mobile, operators can send SM S messages to all the numbers on the SIM card to tell them of the change of number.

Benefits to Those Who Change Operators only with MNP

These are the benefits that a subscriber will receive, from changing operator, in terms of lower

Prices, better quality, more options, they are realized only if there is number portability, otherwise the subscriber will not change operator.

Benefits to All Subscribers

These are the benefits that arise due to Increased Competition as a result of number portability Increased Competition arises because operators think they will lose subscribers from portability will tend to improve their services or lower their prices. Since there may various competitive factors in play, the estimation of these benefits can be tricky and have been often contentious.

Benefits to Callers to People Who Have Ported Numbers

Generally this is the smallest type of benefit. These benefits are avoiding the following costs: Having to update address books; and, Making "wasted" calls to old numbers that have changed, and spending time finding the new number.

Global Experiences in MNP

Globally, Singapore was the first country to implement MNP in 1997, followed by Hong Kong in 1999 and Australia in 2001. In Africa, South Africa took the lead in 2006 followed by Egypt in 2007 while Kenya in April 2011 and of late Ghana in July 2011. Of late, many countries have adopted the MNP model to prevent market doldrums and putting pressure on service providers to furnish more services at a competitive price level. However, it has not been able to produce any significant results in these markets. Around the world, MNP has been a mixed bag of success and failure. It has been there in several parts of world but has not taken off in a big way.

Mobile Number Portability Advantages

The number portability brings benefits as it:

Creates a level playing field across service providers.

Makes it easy for consumers to buy around and choose the best service in terms of cost, and quality without losing their memorable number and without a high switching cost.

Establish a good way for healthy competition across service providers which ultimately create an innovative, high quality and complete system.

Increases the growth potential for most service providers in that are already fully saturated.

Differentiators for Service Providers

The real benefits of number portability for service providers strongly relay on how successful they are in boosting their customer base, utilizing the avenues created by number portability. Attracting and retaining customers require promising incentives and commitment from service providers, as perceived by the customers.

Cost Leadership

Cost leadership is always competitors as first tool of choice to get competitive advantage in the market. However; price is a sensible differentiator that consumers also first choose for comparison, the fact that customers judge the price infront of the value of the services they receive for the money, still holds its ground. Fair price and proper mix of services to reach to the needs of different customer segments which will offset the price concerns, while generating high ARPU for providers.

Technology Leadership

Since the telecoms technology market and consumer needs are reshaping fast, keeping an eye on the industry trends is vital for service providers. The facts that new technologies bring in new levels of solutions to real world problems and that now the customers are more tech savvy with the information available, service provider’s leadership in technology landscape is considerably an important factor to achieve competitive advantage in the market.

Network Coverage

Advancements in transport sector and expansion of businesses across territories have greatly increased the movement of consumers. As a result, mobility has taken center stage in telecommunications and network coverage plays a crucial role in this regard.

Innovative VAS

Today VAS transcends traditional, pure forms of communication to provide mobile-access advantage to services that are outside the scope of telecom industry. Since the world is becoming increasingly dependent on handsets and that there are unexplored territories in VAS, there is a mountainous scope for VAS. Identifying different customer segments and their needs

and offering proper mix of services is essential for customer satisfaction and increased ARPU.

Since VAS makes customers’ life easy, offering unique and valuable VAS is essential to make

customers happy, dependent and long-standing.

Service Continuity

Service continuity is the key for seamless switching. It enables customers to use at least the same set of services that they used with the donor service provider, with the recipient service provider. It is an important basic factor to attract subscribers from other networks.

Customer Care

Prompt action and early problem solving boost confidence and loyalty of customers. Bill shocks and billing anomalies will negate the efforts.

Offers

Monetary and non-monetary offers strengthen the relationship between the customers and the service provider.

Advertising

Advertising helps refreshing the brand in the minds of the customers and disseminates information to new potential customers.

Chapter 4 Conclusion & Recommendations

Conclusion

Understanding both the phenomena of switching costs and subscriber capture, and the dynamics of the recent MNP ruling, provides the necessary theoretical and empirical background to comprehensively evaluate the MNP mandate. In essence, MNP attempts to assuage failures in the telecommunications market by reducing cost of switching phone numbers and allowing the consumer more flexibility in the market (Gerpott et al., 2001). This study investigated the subscribers’ behaviors and perceptions toward switching after the introduction of MNP. The results show that MNP has not significantly contributed to the regulator’s goal of removing switching barriers that have been prevalent in subscribers’ perceptions. Instead, MNP has indirectly enhanced switching barriers through the increased subscriber lock-in strategy and its tactics.

Subscribers of both the switching group and the unswitching group still felt high barriers of switching carriers. It is probably because MNP in the Telecom market has been relatively short period of time compared to the United States and Europe, but this still raises the validity of MNP whether it is being enforced and implemented in an effective way as it was intended and planned. As this study has shown, subscribers are not well aware of their individual needs and are not informed well regarding their purchasing decisions. This finding is partially consistent with the previous studies by Gerpott et al. (2004) who argue that positive gains from portability are actually offset by the carriers’ inertia not to lose subscribers by increasing hidden cost and subscriber lock-in. Although portability is designed to benefit consumers, it becomes possible that the corresponding increase in marginal cost of production reduces consumer surplus and makes entrants and consumers worse off. As Aoki et al. (1999) find, it is also very likely for consumers to receive fewer benefits following a reduction in the cost of switching between carriers. There is a discrepancy between the regulatory assumption held by the FCC and actual industrial phenomena.

Recommendations

Number portability is not always and everywhere socially beneficial, therefore future studies may further research on this discrepancy. With this discrepancy, this study makes a suggestion to regulators. In order to develop socially desirable, legally justifiable, and economically viable policy, it is advisable for regulators not just to enforce number portability, but they should rather seek to reduce consumer ignorance and raise customers' perceptions towards MNP. This argument can be supported by previous research of Wright (2002) and Gand and King (2000) who investigate the effects of consumer ignorance of relevant pricing and suggest that MNP may deteriorate the customers’ price information.

As Gans et al. (2001) argue, regulators are usually constrained in their ability to effectively develop policy and regulation. Regulators are likely to be less informed than the dominant carriers, who have little incentive to reveal information concerning the appropriate choice and timing of portability decisions (Gans et al., 2001). In fact, abolishing switching cost has led to reducing welfare by burdening extra cost on society and consumers. Regulators face difficult practical decisions on MNP when and how to implement it, and how to reap these benefits. Regulators and policy makers should be aware that MNP may increase competition in the mobile market, but the means by which it is implemented would increase or hamper effective competition and therefore be a detriment to consumer welfare. With MNP, there are winners (Verizon and Sprint) on one side and losers (AT&T and Cingular) on the other side. Although it is too early to predict and assert, MNP has a risk of hindering effective competition if the mobile market continues to polarize significant market players and new entrants (small market players) who bring competition to the market. Acknowledging such risk, regulators should come up with detailed and thorough technological, economical and regulatory plans of how to best implement it technologically, when to enforce it, and where to allocate its cost. In addition, after the enforcement of MNP, the assessment of its effect on various levels (market, industry and consumers) should be done periodically and systematically. While regulators may not have perfect information regarding market and social conditions, this does not imply actions to compensate for market failures are useless or counterproductive. Rather, the delicate regulatory balancing act must be viewed with a comprehensive and critical eye to ensure government intervention is in fact attaining its intended effects.