The Hindu Business Line : Will number portability port profits out of telcos?

We live in ‘interesting times,’ observes Mr Prashant Singhal, telecom industry leader in Ernst and Young (E&Y), applying a Chinese saying to the ‘number portability’ announcement.

“Interesting times, but good or bad?” you may wonder. “Either interpretation holds up well when applied to the recent policy statement on number portability by the Department of Telecom,” answers Mr Singhal, in an e-mail inter acion with Business Line.

“This exciting development in the telecom sector is bound to open new vistas for growth. It can be seen as a pragmatic policy move consistent with the movement in technology. But it might end up being a drain on the telcos’ profit sheets.”

Excerpts from the interview.

So what is mobile number portability (MNP)?

As the name suggests, MNP allows mobile subscribers to shift to another service provider while retaining their existing phone number. It will initially be trialed in India’s four largest cities.

Will it be a bonanza for India’s over 200 million mobile subscribers?

There are a number of possibilities.

First, the move will heighten competition in the telecom industry. This can be expected to improve the quality of service, as providers will need to make a greater effort to prevent customers from switching to their competitors.

Second - and perhaps more profoundly - the new policy could herald a new beginning for the unified communications environment, cause the veritable death of distance, and play its part in integrating India.

In consumers’ interest, therefore?

There’s reason to think that the new move will strongly serve consumer interests by delivering benefits such as lower tariffs and improved business and professional productivity.

It will also enable ease in dialling and improve call quality by reducing traffic congestion. This would have a multiplier effect and serve as a catalyst in spurring the growth and development of the telecom industry. That’s the good news. But there are potential downsides – issues that will need to be addressed before we leap headlong into drawing conclusions from this announcement.

What are these niggling issues?

There is the porting charge that is applied when a customer switches to another operator, which might be a deterrent for cost-conscious customer. Switching between CDMA and GSM-based technologies might also result in the operational challenges of changing handsets. Service providers, for their part, might incur additional porting as well as non-porting costs.

These might include management and logistics set up expenses, the burden of upgrading switches and infrastructure, as well as marketing costs related to advertising, promotions, customer service and value added services.

Are there going to be winners and losers, in the process?

While number portability may prove advantageous for some operators (such as those with lower market share), it may present some liabilities to operators, if risks involving operational, regulatory, revenue management, and inter-carrier costs are not appropriately managed.

Do the players have to, therefore, redraw their strategies?

Yes. With the advent of the MNP regime, telecom players will need to focus aggressively on customer retention and ensure that customers are bound to contracts, which could enable minimum customer commitments, relating both to revenues and time period. Also, telcos(telecom companies) would need to make sure that the distribution channels are geared to handle porting requests and that the time lag between the porting request and actual transfer is minimal.

How long can the transfer, or port, take?

In certain developed markets, it could be as long as two weeks. Clearly, the operators will need to draw their business plans on a cost-benefit analysis and accordingly plan a roll out map for MNP.

Any takeaways from experiences elsewhere?

Experience from mature markets suggests that MNP is unlikely to be a resounding success in the short term.

Why so?

Brakes on success include the porting fee charged by operators in some countries and the ‘time taken to port’ a subscriber successfully. For instance, in the first year of introduction in UK in 1999, only 1.5 per cent mobile users ported their numbers, while 90,000 of the 11 million subscribers did so in Australia.

In sum, therefore?

To ensure the successful implementation of this system, various stakeholders of the industry, including the regulator, industry players and the telecom industry associations will need cohesive technical cooperation and adherence to a comprehensive framework of rules and obligations.

Let us see whether MNP results in strong returns for operators, or turns out to be just another announcement that creates little impact, drains a few million dollars and causes portability of profits away from the telcos.

Bio: Mr Singhal, a B.Com from Sri Ram College of Commerce and a chartered accountant (ranked 33rd and 6th in the All India CA Intermediate and Final examinations respectively), heads E&Y’s telecommunications practice. He has an extensive experience of over 14 years in assurance and advisory business services, such as GAAP reviews, assurance, due diligence reviews and process risk consulting. Mr Singhal also heads E&Y’s first satellite centre in Delhi, working in close coordination with the firm’s global telecom centre in Paris. He has also worked overseas for two years, with a focus on the telecom, dividing his time between UK and Switzerland.

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