Friday, January 23, 2009

Mobile Number Portability – The Unnecessary Hype


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.

7 comments:

vikas said...

I remember reading that there is a substantial downtime of may be up to 6 days (not sure of the duration) during the switching period.

If true, this may also damp the enthusiasm of a lot of people.

On the whole I agree that people are unlikely to switch in hordes. Initial surveys (HT, Delhi) indicate a potential switch of up to 34%. This will all evaporate considering the hurdles of cost, time and effort that are going to be there.

Prashant Dogra said...

satt vachan, satt vachan

i guess many times the industry , or even the regulator, is driven by considerations which are not necessarily on economic or technological rationale

by the way, how can an ex-consultant not subscribe to & further enhance the hype.

i thought i was the only ex-consultant of that mindset :-))

jokes apart, i stil remember your comment when i told you the exorbitant numbers people were saying about Mobile Internet & IM users.

as usual, your opinion is bang on

Mohit Agrawal said...

Thanks Prashant. I am not contributing to the hype as I am ex-consultant (and not a consultant)

I completely agree with you that the regulatory decisions are not necessarily driven by economic/technological consideration or even consumer interest

Mohit Agrawal said...

I recieved a lot of comments from various readers on MNP on my email. For the benefit of other readers, I am reproducing the comments below -

Rajeev Ranjan:
The mass scale migration is not justified. As customers who were not satisfied had already migrated or bought another connection. Yeah few customers for whom number identity is very important will migrate once MNP will be launched. The percentage of such customers is not very high though it would be worth mentioning that these customers are high paying customers

Rohit Lall :
Great blog post that you have put up... I would agree with you on the fear that most operators will have with respect to customer churn (could be basis better service promises, better tarriff plans, etc..).. However, if you look at the US example for instance, the actual churn that happened post the MNP introduction was significantly lower than what the operators there were expecting... In my opinion, its only the initial few months at best where a percent of all mobile subscribers are likely to switch to an alternate provider because of a perceived benefit of doing so post which things are bound to stabilise.. MNP introduction should only result in the competition levels within the cellular service providers intensifying, with the potential impact only being better service levels to subscribers!

Freddy Lundmark :

In Sweden we have hade MNP since 2000 and here it has not become a killer application. We have not seen any mass portings. From a customer perspective it's very good to be able to take your number with you and from an operator view it's a driver towards mer satisfied customer but onlu on tha margin
I don't see any reason to fear this at all!

Hitesh Singh :
The hyped MNP will give one more option to the subscriber to avoid being a trapped customer but the real challenges before the operators will be more to increase the usage/decrement of the subscribers (as most of the high & medium ARPU are subscribers of multi-MNOs and hence not likely to move to other operators) rather than acquiring the subscribers through MNP way which may not be very much financialy viable/lucrative.

Rizwan Shoukat :
We have been deeply involved in this domain; we do not see hype or anxiety - as a matter of fact coustomers, regulators and good quality operators welcome MNP/LNP.

Simon Davies :
I do not consider the hype to be justified at all. In my opinion, NP merely helps subscribers who were going to port anyway - it is not in itself a reason to port.
Networks who have a base of largely satisfied suscribers should have little to fear, those networks who have many dis-satisfied subscribers should be the ones who have most to worry about and even these will benefit from the lethargy of most subscribers.
Additionally, it is often the subscribers who are the least interesting for the networks who actually leave such as those who have bad debts - they leave so that they start with a clean sheet at the new operator. In these cases, the network could actually be pleased to lose their custom since they could be more trouble (read expensive) than they are worth.

Amit Dixit :
Even if this is the scenario. Operators should look the other side of gaining new subscribers. This anxiety is nothing but revealing the service quality among all Indian operators.

Suresh Kumar :
Mobile Operators are in a race to retain customer and offer its customers best services to save them from porting. It is like a blessing in disguise for the customers, as they would get better service irrespective of the carrier, albeit with the same number. The increased competition in the mobile space will trigger a completely new dimension of relationship and commerce.

Keep in mind that number porting only applies to moving your phone number from one carrier to another. All the other restrictions on cell phone service still apply; if you try to switch carriers before you current calling plan commitment runs out, there is a chance of an early-termination fee. Many wireless providers have already boosted up their early cancellation fees, which may be a tactic to curb WNP

While WNP will remove a significant barrier to changing wireless service providers, consumers should bear in mind that handsets might not function on different wireless carriers networks due to different network technologies. There may be an initial cost of buying new equipment.

In addition, not all services may be transferable from one carrier to another; and not all the services that a customer has with one service provider will be supported or provided by another Mobile provider.

Due to WNP mandate, all of wireless carriers’ systems are affected. Examples of systems and processes affected are: billing, customer service, order activation, call delivery, roamer registration and support, short messages service center, directory assistance, caller ID, calling name presentation, switches, maintenance and CSC systems, home location registers (HLRs), and visiting location registers (VLRs).

You mention churn and mass scale migration of subscribers, is this justified? In the short term, the churn will increase; however, there are only so many players so once loss is another’s gain. The subscriber base will grow at a healthy rate but the ARPU will reduce


In the initial stages it will be a huge mess due to churn and related issues i.e. when a customer plans to shift, the old service provider (OSP) has to perform a query to identify if there are any billing amounts pending, which they need to recover before the subscriber moves to the new service provider (NSP). Now if the subscriber wants to switch over smoothly, keep your finger crossed.

A mobile company focused on enhancing the mobile experience of the user with excellent customer support will succeed.

Amit Bindra :
In today's scenario with reduced retention and increase in no of operators in each circle Portability is expected to pose a mighty challenge for operators.

In addition, infrastructure/tower sharing is leading to reduced differenciation on that account (signal) and ease of entry/lower capex requirements TSPs will really have to strive on getting a real USP/differentiation and hence prevent churn.

In my view, Customer Service will be a powerful tool to command subscriber loyalty. TSP will have to make an effort to understand and capture the voice of customer better during each engagement at all touch points (call center, COCO, COFO, etc). I also believe that right from the time of welcome call to the subscriber effort has to be made to better understand his/her priorities and hence provide better service with a view of longer retention. This is especially true in the case of post paid/HNI customers.

Erick Rada :
I've been involved in teams doing some research about this topic and what i've seen is that first approach is just as Mohit states but once you go further you realize that it isn't as bad as it seems. Nevertheless, thanks to share your point of view Mohit and I'll be reading your blog and doing some comments.

Tim McQuillin :
I worked in market intelligence for wireless carriers in the US when MNP was introduced there. There was a slight uptick in the industry churn rate soon after it went into effect, but it settled down to previous levels very quickly. Agreed that those carriers with dissatisfied customers will lose them, particularly business customers as this segment has the most invested in their phone numbers.

Jon D. Smith :
If the service is reliable and the cost is competitive, there's little to worry about. There will of course be some churn but, I wouldn't expect it to be that notable...unless one of the issues on the first sentence comeinto play.

YOGESH CHANDAN :
I have worked in data front where in the shift from service provider is very difficult as its once time the network IP pool and set up changes which the organisation doesn't want and are ready to pay slight premium to existing service provider. And if we further look at NP, the retail customer will not be able to shift easily what consumer is expecting In India after the NP is allowed. The network choke and the frequencies being not alloted to the service provider will be the restriction to the operator to enhance his service with network front. After sales service ie. customer relationship there is chance by Service provider to improve and retain his customer getting churn by adopting the custoemr delight kind of option, proactive measures then reactive.

In India technologies adopted is GSM & CDMA playing their main role in their segment market. You will find the CDMA more in retail segment and GSM in all segment. The churn will always be there and definately agree to drop down in ARPU by MOU will increase.

Will the technology help service provider to retain their own customers is a big question..

Chinmay Bajpai :
Mobile Number Portability(MNP) or the Local Number Portability (LNP) is a welcome change which should be implemented in the emerging markets and especially India which has a huge exponentially growing telecom market. This feature has already been successfully implemented in the US markets.

There is no reason for fear and anxiety amongst amongst the operators as they are empowering the customer by allowing them to choose the service provider without any fear of loosing the number. The operators are actually presenting a picture where they are confident of their best in class services and allowing the consumer to choose them as against holding themselves back. The implementation of MNP will therefore lead to the improvement of service levels amongst the operators and the consumer will benefit from it.

Thus, there is no need for hype on this issue and the operators should rather make themselves ready for competition based on good services while empowering the consumer at the same time

Faraz Ahmad Yar Khan :
Hi

I worked in NSN Pakistan and we implemented MNP for Telenor Pakistan. There was fear among the operators but statistics showed that there is not much difference. Its just an added facility which the customer has, and he is satisfied at the back of his mind that i have MNP at my disposal anytime. Very few actually practice it.

World market trends have shown that the largest operator in the country always gets the benefit from MNP as people tend to move to other operators and find that the new one is not capable to handle the load of this transition or new services are not really necessary for him. Also the rules relating to MNP of the Telecom Authority or by the government of the country really matter. For example in Pakistan there is a rule that once you exercise the right of MNP then you cannot exercise it again till atleast 3 months. This refrain many people from shifting less they are stuck in a much worse situation.

So in the end i dont think MNP really affects the business of any operator rather it promotes healthy competition and we see tough marketing strategies being developed.

JITENDRA KUMAR :
I have been the part of team which was responsible for testing the application before implementation MNP in New Zealand.

I don't think it will affect the business people, rather than they have much easier to change the mobile operator but plan would be same as before it was.

There is limited numbers Mobile Subscription Number (MSN) for each operator, so it's necessary to implement mobile number portability later or soon.

Hicham Iraqi Houssaini :
We've implemented MNP in Morocco since 2006 but the impact is very small, mainly because 94% of subscribers are prepaid and yearly churn was before MNP around 34%. Now we still are at same level of churn coming mainly from prepaid.

Post-paid subscribers are very conservative.

Anubhav Gautam :
Well as I see MNP and behaviour of indian consumer, it will be a mix response to this value add service . Big brands like Vodafone and Airtel will not worry as their marketing and branding strategy is very strong and since I am from the n/w planning side, I know month on month rural as well as urban areas are seeing a good improvement in network . I agree that with this small operators like Shyam and new upcoming operators like Swan, Loop etc. will face the heat

Alok Sinha :
MNP will MOST definitely lead to large scale migration - but, in the next 100-200 days, the equilibirium will eventually be arrived at.
Additionally, what is interesting is to see that the telecom operators WILL need to connect together to make a common database of the 'm-tribe', who simply switch due to dispute in payment terms - this will be an interesting thing to see. :)

Arivaldo Souza :
MNP was introduced in Brazil in Q3 2008, although it is not present in the whole country (what is expected to happen by March 2009) 2/3 of the subscribers (around 100 million people) can switch operator. According to our regulator around 147,000 subscribers have asked it, but only 98,000 have really switched operator.
I work for the 4th operator in the country, we saw MNP as an opportunity to gain market share, and can say that if we had a slight increase in churn rates, it was more than compensate by attracting new users.

Vardarajan TK :
In my view, in India, MNP will induce the churn of High Value Customers who feel trapped with their incumbent service provider because of their mobile number. Customers at the bottom of the pyramid anyway look at the best tariff option & churn and would not be willing to pay a fee that would have to be charged to enable the service.

What MNP will do is to raise the bar on service levels and with its advent will see the role of innovation and brand salience as being a differentiator Thus it will move away from being just a price sensitive market to a more holistic value driven market

Tim McQuillin said...

I worked in market intelligence for wireless carriers in the US when MNP was introduced there. There was a slight uptick in the industry churn rate soon after it went into effect, but it settled down to previous levels very quickly. Agreed that those carriers with dissatisfied customers will lose them, particularly business customers as this segment has the most invested in their phone numbers.

Amit said...

In today's scenario with reduced retention and increase in no of operators in each circle Portability is expected to pose a mighty challenge for operators.

In addition, infrastructure/tower sharing is leading to reduced differenciation on that account (signal) and ease of entry/lower capex requirements TSPs will really have to strive on getting a real USP/differentiation and hence prevent churn.

In my view, Customer Service will be a powerful tool to command subscriber loyalty. TSP will have to make an effort to understand and capture the voice of customer better during each engagement at all touch points (call center, COCO, COFO, etc). I also believe that right from the time of welcome call to the subscriber effort has to be made to better understand his/her priorities and hence provide better service with a view of longer retention. This is especially true in the case of post paid/HNI customers.

Regards,
Amit
9818 199 863
bindra.a@gmail.com

Amit said...

In addition to my comment earlier, would like to highlight the current Indian TSP / MNO market. We have 4-5 establised players but about 8 additional players - Datacon, Unitech, ByCell and the likes are coming in.

With the above in place Indian Markets are quite different than the european/western markets where mobile is a well established industry.

With established operators, subscribers know the advantages and disadvantages - for instance an Airtel subscriber knows that Vodafone will offer superior services but the signal will pose a problem. Since, in India, new operators are set to enter, the subscribers do not know the pitfall of these new operators and hence churn on account of portability is expected to pose a mighty threat to the existing operators.

Regards,
Amit Bindra
9818 199 863