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Thu, Nov 13, 2003 - Page 12 News List

US telecoms shaken by FCC rule change

COMMUNICATIONS New rules that will allow customers to keep their telephone number when they change service providers could change the quality of service


US consumers are rejoicing and telecom firms fretting over new rules on "portability," giving customers the ability to switch wireless carriers while keeping their original phone number.

Rules to take effect Nov. 24 had been originally written only for changes among wireless firms. But the Federal Communications Commission this week expanded its definition, allowing customers to cut off their fixed, or wireline service, and keep the same number for a wireless carrier.

The new measures represent a bombshell for the ailing telecom industry, which is emerging from its worst-ever slump. Carriers are pulling out all the stops to keep existing customers and attract new ones, bracing for massive "churning" of the market.

But for consumers, it means they will have the upper hand by being allowed to switch wireless firms or end wireline service altogether without the inconvenience of changing their phone number.

"Overall, the benefits flow to the consumers," said Rudy Baca, analyst at the Precursor Group, a telecom market research firm.

"This threatens the barely profitable wireless industry in the United States, and it will likely result in a huge churn and cost bite for carriers. This is a significant change, because it takes what has been the inventory that the telephone company had and makes it a consumer right."

The portability decision "accelerates the negatives for the telecom industry," added Baca.

"Even if companies retain their customers, they're substituting a high-revenue customer for a lower-revenue wireless customer with buckets of [free] minutes. They have fixed-cost networks and they're not able to cover these costs."

Yankee Group analyst Roger Entner estimated 10 million to 12 million wireless customers to change carriers in the first year.

"It's largely going to be a game of musical chairs, where there will be relatively small wins and losses," Entner said.

Entner said that in European countries with portability, the impact was minimal because of limited competition. But in Hong Kong, "there were massive price wars, and churn went through the roof. We expect that here too."

Entner said the churning will cost industry US$2 billion to US$3 billion a year. Some regional carriers will probably disappear or merge within a few years, he noted.

For traditional land lines, the impact will be smaller, Entner said, because "very few people will get up in the morning and say I'm going to give up my wireline phone. Typically the trigger event for cutting the cord is moving."

Some analysts say the switching could be greater than the industry is expecting.

A survey by TNS Telecoms found that 27 percent of the 148 million US wireless customers expect to change carriers in the coming year; but if offered a 5 percent price discount, 48 percent said they would consider switching, and 62 percent would switch with a 10 percent discount.

The Management Network Group, a management consulting firm, said the industry should be prepared to handle 30 million requests during the first 12 months.

The impact on individual telecom firms is hard to predict. Some firms like Verizon have both wireline and wireless components. Another major player, Cingular, is a joint venture of regional phone giants BellSouth and SBC. But AT and T recently spun off its wireless unit as a separate company.

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