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The inefficiencies of the mobile phone market slowly go away

Like those in most developed countries, British telecommunications regulators several years ago introduced something called ‘mobile number portability’, which simply means that if you change from one mobile phone operator to another, you are able to transfer your number to the new network. Legally, this is basically a statement that phone numbers are the property of telephone company’s customers and not the companies themselves, and I find this entirely reasonable. As items of property, telephone numbers are now transferable and tradeable in a way they were not before. Certainly it means that when your contract is up you can shop around for any deal on the market, change to that deal, and then not have to tell all your friends and acquaintances that your number has changed.

As it happens, a few months back I took advantage of this. I switched over from Orange (whose customer service had been questionable, and whose network has poor coverage at my workplace) to O2 (formally BT Cellnet, and but who have managed to transform themselves into a surprisingly good business since being divested by BT). Normally what one does in such circumstances is get a new handset and sign a new 12 month contract. (British networks seem to be trying to lengthen this 12 month upgrade cycle at the moment – many of the cheapest deals now seem to be offered on 18 month contracts, and there are plenty of post-pay deals out there that provide substantially cheaper calls if you don’t take a new handset). Coming from Australia (which typically used 18 month contracts when I got my first mobile phone in 1999 and switched to 24 month contracts in around 2001) I was struck by the shorter contracts and higher prices.

However, my circumstances were that I wanted a Pocket PC running Windows Mobile. The best selection of these devices in the UK seemed to be the XDA range offered by O2 from HTC of Taiwan. (Also, a friend had one of these and it was really cool). So I got an XDA IIi with a mobile contract with O2. There was a hefty up front cost for this, but it was still substantially cheaper than buying a Pocket PC without a mobile contract. The XDA works fine as a phone, but it is big and bulky. (Most people want to want their mobile phone to be stylish, but the XDA is a device for people who want everything including the kitchen sink in their phones, but who do not care about being uncool). My plan was to transfer the phone number from my old phone over to the new O2 SIM, and then to use the O2 SIM, which I could transfer between the XDA and the old phone (a perfectly fine Motorola v500) as need be.

So, after I had worked out the Orange contract I did all this. The next problem was that very irritatingly (like most UK mobile phones, even those you get on a contract) the v500 was “locked”, meaning that it could only be used with one network. UK mobile networks do this, principally because they want to add an extra little hassle to leaving the network, and because they want you to pay their extortionate roaming rates rather than a local SIM in some other country. As a consequence, a large (and perfectly legal) unlocking business has sprung up in the UK to unlock phones like mine. Rather than using one of these businesses I paid to download some unlocking software and an unlock code over the internet, and did the job myself. This greatly relieved one of my female workmates, who saw me talking into a PDA and assured me that if I kept doing this there was no way I would ever find a girlfriend.

So, anyway, that was all resolved. One further reason that I wanted to get the v500 unlocked was that it is quad band GSM, whereas the XDA is only tri band. Although both phones will work in the US, the v500 will therefore likely provide better coverage. And as I got all this done immediately prior to a trip to the US, this was important to me.

Another thing that is interesting about number portability is that despite the fact that it has been in existence for several years, most people seem unaware of its existence. When I have mentioned to friends that I have changed mobile networks, several have then asked me for my new number. When I extol to virtues of being able to shop around and keep my number, people using prepay have said to me that this is great, but that it doesn’t apply to prepay numbers. They are of course wrong. Carriers are legally obliged to transfer your number to another carrier if you ask them to, and although I don’t think they are obliged to allow new customers to bring their new numbers with them (or perhaps they are – I must check), most will, including those offering prepay plans.

And when I think about it some more, there is another fact that suggests that number portability is not well understood, which is that most networks offer much better deals to new customers coming to the network from somewhere else than to existing customers at the end of a contract who simply wish to upgrade a phone. This has made it almost necessary to switch networks at the end of a contract. Number portability was perfectly efficient one would expect the deals in both cases to be the same. As it happens, I think that it may be getting more efficient, as the difference between the offers in the two cases has been getting smaller. Ian addition, once a mobile carrier figures out that you are really serious about leaving, they tend to start offering the “new customer” offers to existing customers as well. But they seem to try not to publicise this. If you don’t explicitly tell them that you know the rules of the game, they are not eager to tell them to you.

Of course, it is in the interests of the large four mobile operators with most of the market already to not want to publicise portability very much. The four operators have most of the people in the UK between them as customers, relatively fat margins, and are probably likely to lose more than they gain if the customers who have until now stuck around start moving from network to network. For each customer they gain they will lose another, and their marketing costs will likely go up for little net gain. As the four UK GSM operators have nearly identical market shares to each other, there aren’t smaller operators to chip away at the market share of big operators in the way there are in some other countries.

This lack of enthusiasm can be seen in the way in which the large mobile operators have implemented number portability. The law requires that when asked to move a number to a new network, the process should take no more than a week. So, when you apply to have a number switched over, the process always takes exactly a week. This is usually not a problem – if you have had to give a month’s notice to terminate a previous agreement then you can incorporate the week it takes to switch the number into this – but in some countries a number can be switched over in a couple of hours.

However, what are known as Virtual Mobile Network Operators (VNMOs) are becoming more common. These operators buy airtime wholesale on the four main networks and then sell it at the retail level, and provide billing, support etc to the customer directly. The best known of these is Richard Branson’s Virgin Mobile, which is in the process of selling itself to cable operator Telewest Broadband. The Carphone Warehouse, Britain (and Europe’s) largest retailer of mobile phones, also operates a substantial VMNO prepay business under a variety of brand names. (Fresh, Mobile World, and TalkTalk, in case you were wondering). Supermarket chain Tesco markets mobile services to its large customer base. And, quite interestingly, British Telecom markets mobile services (reselling time from Vodafone) to its many fixed line customers under the “BT Mobile” brand.

One would think that these businesses would be extremely aggressive about advertising the fact that customers who switch to them from other networks do not need to change their numbers. They have relatively little to lose, and lots to win. However, they haven’t really done this. They have FAQs on their websites that mention that customers coming from other networks do not need to change their numbers, but nobody has run a big advertising campaign along the lines of “Come to us and save money. You can keep your number” which would to me seem obvious. This may be because they are relatively small companies that mostly sell relatively low value prepay products to people who want a mobile phone now and want it to work immediately without any hassle, or it may be (particularly in the case of BT) due to their general cluelessness as marketing organisations or it may be (in the case of the Carphone Warehouse) that most of their revenues come from selling phones for the four big networks as an agent and they are therefore walking a very fine line between selling their own mobile services and annoying their biggest customers. (They show now such reticence in selling fixed line services in competition to BT).

But I think things are changing. After five years of rubbing their wounds of the late 1990s and slowly paying down their debt, the telecoms companies another wave of mergers has been underway this year. The has been lots of talk of “triple plays” and “quadruple plays”, in which a consumer will supposedly want to buy fixed and mobile telephone services, pay television and broadband internet from the same company, or at least in which companies will use the fact that they sell one of these things to a customer to try to sell the others. In that vein, we have seen Rupert Murdoch’s satellite television company BSkyB purchase the small but technically advanced ISP and telephone company Easynet, we have seen the Carphone Warehouse purchase British Gas’ telecommunications subsidiary OneTel and merge it with its own existing services to become the largest telecommunications provider in the UK besides BT and the four mobile companies, and the abovementioned merger between Telewest (which has also merged with NTL to form a single cable television company for the entire United Kingdom) and Virgin mobile. Even prior to the coming merger, Virgin Mobile has recently been adding higher value, post-pay services to its traditional pre pay only product mix.

Not all these players are substantial mobile players at the moment, but inevitably they are going to offer services of this ilk (setting up a VMNO is not difficult if you have the other resources and infrastructure these companies have) but these players are generally substantially capitalised and with large marketing budgets and substantial existing customer relationships. Inevitably some of these companies are going to attempt to raid the mid-market post pay customers of the existing networks. It has to happen soon.

And for this as well as a lot of other technical reasons that I might go into in another post some time soon, the existing mobile networks to me look extremely vulnerable. In the short to medium term they will remain important as providers of wholesale services, but they have long tried to see themselves as more than that. However, I am not sure that they are.

20 comments to The inefficiencies of the mobile phone market slowly go away

  • nic

    My god, you’re sad. But yes, you are right: everything is legal, just difficult.

  • permanent expat

    Good grief!……..I admit to owning a vintage Motorola Star-Tac (probably steam-driven) which I carry as an emergency measure when out & about. I am the only one, apart from Telecom, who knows the number. My card is prepaid & should I cross a border I am able to roam extortionately.
    That most folk have these horrendous pollutant appliances grafted onto an ear is, albeit in some cases beautifying. a sad comment on the interpretation of “progress”.

  • GCooper

    Just to add to the misery, what is also not widely appreciated about number portability is that, once you move to another company, you appear to lose all ‘native metwork’ benefits. In other words, no one gets cheap calls to you, whether they are using the company you left, or the one you joined.

    Still, on the bright side, at least mobiles generally work in the UK. Not something one could say of the USA which seems, most uncharacteristically, to have made a complete mess of this most useful techonological advance.

  • a sad comment on the interpretation of “progress”.

    They represent huge progress, freeing us from the tyranny of location. Don’t want to be reachable? That is what the off-button is for.

    The positives of mobile telephony vastly outweigh the negatives, even more so when we can start getting VOIP to work on them reliably.

  • permanent expat

    Of course you are right Mr. de H…….I tend to witter. VOIP is another matter; I use it frequently but not over-happily as it still has far to go in the technology……in Europe at least; I have heared that in the Far East it is often used to the exclusion of landlines. Is this so? And yes, a successful coupling of Mobiles & VOIP would be a godsend.

  • I use Skype VOIP via my computer with a headset or webcam+microphone and between that and mobile, I cannot even remember when I last made a regular landline call.

  • Kyle Jelle

    You don’t have to go to the far east. I’m in the western U.S., and I dropped my landline for VOIP last year. The only time I can tell the difference is when the much cheaper bill needs to be paid. Oh, and sometimes when I use services that weren’t available with the old landline. Even kept my original number. No downside so far.

  • snarko

    That is a very interesting piece you’ve written there, Michael.

  • permanent expat

    I also use Skype (with a Skype-type phone) but, speakers off, of course, I still get echo, breakup & “delay” Using SkypeOut I can contact non-Skype-using relatives in NZ & Cyprus but satisfactorily not. Any tips from regular & happy users are welcomed with gratitude.

  • Rich

    A quick word of caution regarding Skype and it’s new owner E-Bay. Eldest son is at Uni 250 miles away so we got him and us a Skype handset we had been using it for nearly 2 years, till December when a Frenchman who had a paid Skype-Out contract wanted Eldest sons username. They gave it him!
    So don’t get too attached to your username etc. They may well sell it!

  • mike

    Yeah you do occassionally get random strangers trying to talk to you on Skype – just block ‘em.

  • permanent expat

    Skype: Be careful how you set your “status”. In the early days I once inadvertently set it to “Skype me” and got a really unpleasant anti-Semite who I eventually traced back to Austria (Umh!) before reporting & blocking him. Crazies are out there, folks!

  • Devilbunny

    GCooper: while we have worse coverage, we also have much lower population density and very much lower costs for airtime. Hasn’t been enough to convince me to get one – I don’t feel like dropping $35 a month on something I don’t need, and prepaid plans here are terrible, with short expiration times for unused airtime (usually three months). The only time I ever had one, I used about twenty minutes of airtime a month. But then, I’m weird like that…

  • Numbers are a small deal compared to the behaviour of Mobile Companies over micropayments. Last time I looked they were snaffling up to 60% of the revenue collected.

    No wonder e-commerce is failing to take off!

  • ATM

    Exactly how is US mobile service “a complete mess”?

  • GCooper

    ATM writes:

    “Exactly how is US mobile service “a complete mess”?”

    “Exactly” would take a book. Meanwhile, just to be going on with, just look at a map of coverage. It’s so poor it barely deserves the name.

    I regularly have to call people in the US who are using mobiles. Might as well use smoke signals half the time.

  • Ron

    Does number portability apply to landlines in London?

    My mother wants to keep her North London BT phone number when moving to South London and BT won’t let her…

  • For a long time, I swore that nobody could pay me enough money to carry a cell phone. For several years, however, I have been flying around commercially in a way that I never really did before, and the team I work on flies to each gig from at least four different locations in the U.S. Complications can abound by the time we’re together in the same place. Being able to carry my own personal communications for episodes when someone’s flight schedule blows up is a big deal. If I’m halfway across the country and things have changed, that phone is the only way the story breaks on time. Perry is right: this is huge progress.

  • Permanent expat wrote:

    a successful coupling of Mobiles & VOIP would be a godsend

    FWIW, the upcoming Nokia N80 will be able to connect to the Internet via WiFi, and will likely have VoIP support. Whether and how this will be exploited by telecoms companies remains to be seen.

  • Daveon

    The problem with Mobile VOIP is that it’s inherently an inefficient use of spectrum and bandwidth compared to something like circuit switch WCDMA. For the time being I’m not sure there is a practical way around it. It’s fine as long as not too many people want to do it, then you start to hit network limitations which will dramatically affect you.

    An anology is being the first broadband cable user in a particular node. You’ll have great performance and wonderful throughputs and latencies. Once everybody catches on you’ll still have ok performance but it won’t be as good as it was.

    There’s a lot of technical hurdles to get over before you can have true mobile VOIP and the network back end issues might make it relatively expensive compared to wire line VOIP.