Cellular Switching Is Still a Major Hang-Up
Come November, mobile phone users will be able to take their numbers with them when they switch carriers. But as Erin Cocoran knows, it won’t necessarily be cheap or easy.
Fed up with poor reception in her apartment here, the 30-year-old lawyer relished the thought of booting her current carrier and getting a new one. Then she tallied up the costs and hassles.
“I’m going to have to buy a new phone,” Cocoran said. “I’ll have to manually enter all my numbers into the new phone. And I will have to pay a cancellation fee because I have a two-year contract.”
Consumer advocates rejoiced last month when the U.S. Court of Appeals upheld the Federal Communications Commission’s so-called number portability rule allowing customers to transfer their 10-digit phone numbers when they change wireless carriers. But the rule, which takes effect Nov. 24, might not free customers held hostage by phone numbers to seek out better service in the $77-billion wireless market.
Hefty contract cancellation fees and incompatible equipment will continue to pose significant obstacles to jumping ship.
“There will be surprises for consumers,” said Jane Zweig, chief executive of Shosteck Group, a Wheaton, Md., telecommunications consulting firm.
An estimated 50 million of the nation’s more than 141 million cell phone subscribers switch carriers each year in a migration known in the industry as “churn.” A Harris Interactive poll last year found that an additional 17% would switch for a one-time fee of $50 if they could keep their phone numbers.
The price of change probably would be far higher than $50, however. Roger Entner, a wireless analyst for Yankee Group, a research firm in Boston, warns that some companies may double their early-termination fees to stop subscribers from absconding.
Sprint PCS President Len Lauer explained the industry’s position. “It cost us $350 to $370 to acquire a customer,” he said. If the customer quits Sprint in less than a year, “it costs us money.”
The tough talk doesn’t deter some. Cocoran says she plans to dump her carrier in November, even though she’ll face a $100-plus cancellation fee.
“It will save me money in the long run to switch to a company with better coverage in my apartment,” where she will be able to make long-distance calls on her cell phone and pay less than she would on her land line, she said.
Unlike in Europe and Asia, where uniform wireless standards make choosing cell phone service relatively simple, the U.S. market is divided among three major transmission standards. Carriers exploit those differences -- and couple them with long-term service contracts with hefty termination fees -- to bolster customer loyalty.
For example, Verizon Wireless and Sprint PCS use a digital technology called code-division multiple access to transmit phone calls. As a result, the two carriers’ phones can’t be used on networks run by AT&T; Wireless Services Inc., Cingular Wireless and T-Mobile USA Inc., which use a competing standard called GSM, or global system for mobile communications. They also cannot be used with Nextel Communications Inc., which uses a third standard.
Consumers can’t even switch among carriers using similar technologies. Phone equipment used by Verizon and Sprint is incompatible. And carriers offering GSM technology employ software to “lock” the subscriber’s telephone handset to their network.
That has created a cottage industry of entrepreneurs such as Lincoln Han of San Diego. He operates a Web site that does brisk business unlocking GSM phones.
“For people who just want to switch providers or to use their GSM phone when traveling abroad, this is the only option,” Han said. “Without unlocking the phone first, consumers won’t be able to make the switch to another GSM network without throwing away a perfectly usable phone.”
The wireless industry sued to stop the number portability rule but lost the case. Now the industry is pressuring the FCC to amend the rule to discourage consumers from breaking service contracts.
“When you ordered that a wireless carrier may not require a consumer to live up to his/her contractual obligation, you put the federal government on the side of marketplace malfeasance,” Thomas Wheeler, president of the Cellular Telecommunications & Internet Assn., wrote in a July 11 letter to the FCC. “I cannot walk away from my new car lease just because I see a snappier new model at another dealership. Why should I be encouraged by federal rules to walk away from the commitment I made when I signed a contract for wireless service?”
In an interview, FCC Wireless Telecommunications Bureau Chief John B. Muleta urged the industry to let the marketplace sort out the terms of service agreements, which he said are “not presented very accurately” to consumers.
“Our thinking process on this is that those decisions on contract terms are all things consumers can make choices about,” Muleta said. “It might be worth it for you to pay $100 and terminate the service if it is not meeting your expectations.”
