Phone number portability: the key to telecom competition?

Today a hearing will take place in DC District Court on the road to November 24, 2003. That November date is the standing deadline for phone companies to allow customers to keep their phone numbers when they change providers. To date, cellular phone companies have blocked this move, succeeding three times in getting the portability deadline delayed. But given the utter hash that the FCC has made of local fixed-line telecom regulation, number portability may be the only short-run opportunity to introduce some competition for fixed-line telecom service.

I think of this conflict as having its foundations in ill-defined property rights. In the bad old days, Ma Bell owned the entire value chain, from wires to switches to the wires in your house to the clunky black rotary phone. The ownership of the actual numbers was pretty irrelevant, because numbers referred to fixed physical locations, and there was only one phone company anyway, so who cares? But technological change, unleashed by regulatory changes and the AT&T breakup, made fixed-line telephony contestable and increasingly competitive, bringing unforeseen products and services to consumers at reasonable prices.

Legal rules have to innovate too, to keep this dynamic flowing. Common law, with its ability to evolve, does a better job of this than statute-based law. This is one reason why we’ve gotten bogged down in number portability at the FCC, and why cellular companies have succeeded thrice in blocking changes to the regulatory statutes that would allow number portability.

Phone numbers, which used to have little value to consumers because of their connection with a physically fixed location, now have substantial value to consumers because number portability gives consumers increased power and choice in a market where services are mobile and are most easily consolidated through one phone number. Thus it’s now worth defining property rights over phone numbers, whereas before it wasn’t worth considering or formalizing.

Furthermore, the property rights in the number should rest with the customer. For now, the only viable competition for fixed-line telephony is mobile telephony, given how the FCC passed the buck on creating consistent, transparent, market-based local telephone regulation earlier this year. In that environment of regulatory uncertainty at the states, and with the incumbents still holding substantial market power in local fixed-line telephony, customer ownership of phone numbers is a property rights regime that provides a ballast against incumbent market power in local fixed-line telephony.

Cellular companies have opposed number portability. Their argument: the technology to enable number portability is very costly. Furthermore, they argue, they spend a lot to acquire customers, so number portability will drastically cut into their margins and will increase “customer churn” in the industry. My suggestion to cellular companies: rethink your advertising and marketing budgets. Do you really have to plaster the place with ads, and offer myriad specials, to attract customers? As in other countries whose cellular sectors thrive with number portability (such as the UK), use this as an opportunity to rethink your business model. Indeed, the cellular companies may actually find that number portability increases their market share by making it easier to eliminate your land line entirely! In such an environment, the focus of competition would likely become service quality, at which local telcos are notoriously bad (particularly in the upper Midwest, Ameritech-land!).

Under the current statutory regulations and ambiguous property rights, phone numbers are a tool for rent seeking and lock-in, because of the ability of cellular companies to exploit the property rights ambiguity and the political process to keep number portability at bay. Number portability, by explicitly defining property rights in numbers for consumers, is a long-overdue way for the FCC to remove a static statutory barrier to further competition in telecommunications.

Recent news articles on number portability have appeared in Yahoo! News, the Washington Post, MSNBC, and Media Daily News.