By Siu Keat Chak

Mobile number portability (MNP) has been implemented in stages in Asia Pacific markets, with the developed markets of Hong Kong, Australia, and Singapore being the early adopters. The push for MNP implementation in the industry has always been led by market regulators in an effort to provide mobile consumers with the freedom to move between service providers, with eventual hopes that it will lead to healthy competition in the mobile industry. Meanwhile, mobile service providers have been generally adverse to MNP for fear that its deployment would lead to greater increase in subscriber churn rates. Nevertheless, while MNP reduces one of the main barriers to subscriber churn, which is the custody of the same mobile number, its potential negative effects to subscriber retention are likely to be over-rated. Service providers should also realize that MNP brings competitive opportunities for intrepid service providers to leverage on.

This market insight discusses the implementation and impact of MNP in the Asia Pacific region.

MNP in its simplest form is the ability to retain subscribers’ phone numbers when changing the subscription from one mobile service provider to another. It allows competition by allowing consumers to switch service providers, yet retaining their old mobile phone number. As a result, service providers will need to actively compete, and provide innovative as well as improved customer service, in order to retain and expand their subscriber base. True number portability is when the same mobile number from the previous service provider is retained for usage even after changing the service provider. There is also the ’mobile number forwarding service’ that is currently being used in Singapore, where a new mobile number is issued by the new service provider, and is used along with the previous mobile number from the previous service provider.

Singapore was the first to implement MNP in 1997, followed by Hong Kong in 1999, Australia in 2001, South Korea in 2004, and Taiwan in 2005. These markets had already achieved, or were near, the 50 percent mobile penetration rate (except for Singapore) during its implementation period. The idea was to prevent market stagnation by urging service providers to offer more services that are competitive and compelling. Developing markets that are currently very close to, or have recently passed the 50 percent mobile penetration rate, such as Thailand, Malaysia, India, and the Philippines, are starting to consider, or are already planning the implementation of MNP.

                                                                                                 Source: Frost & Sullivan

Current MNP implementation has produced mixed results. Hong Kong’s MNP implementation can be considered successful as it managed to spur an extremely competitive mobile market, while MNP hardly made any impact in markets such as Singapore and Taiwan. However, contrary to service providers’ fears, the disruptions caused by MNP were either momentary, or not as bad as initially perceived. Even though customers are free to switch service providers and retain the same mobile number, there are still many other barriers to customer churn.

In some developed markets such as Singapore and Taiwan, service providers often tie down their subscribers in long-term service contracts that range from 12 to 24 months. In return, service providers will subsidize or provide free mobile handsets. Mobile phone subscribers must wait until their contract expires, or pay a penalty for breaking their contract if they insist to switch.

In certain highly penetrated markets, where the fear of increased customer churn is initially perceived to be high, service providers are still able to retain their customer base due to the already competitive pricing, along with the excellent service offerings. There is no compelling reason for customers to change service providers since there is no difference in terms of the services provided.

Consumers likely to change their service providers are those opting for the best promotions and the lowest pricing of the latest services on offer in the market. This is a major characteristic of prepaid users whose loyalty is very low. Since they have already contributed to the bulk of churn subscribers as compared to postpaid users, MNP is expected to marginally increase churn rate from this subscriber segment.

Singapore’s call forwarding service has had very little impact since its introduction in April 1997, when there were only two mobile service providers, Singapore Telecommunications Ltd. (SingTel) and MobileOne Ltd. (M1) operating in the market. There were many technical difficulties regarding Singapore’s MNP implementation. The chief complaint was that subscribers had to maintain two mobile numbers, as the new service provider had to issue a new mobile number, which was to be used in conjunction with the old mobile number. To avoid confusion, subscribers who had ported had to inform their contacts of their new number as only the caller’s new number, instead of the old number would be displayed on the receiver’s handset. Short message service (SMS) portability was available only from 2003.

Service providers will often want to charge an administrative fee and recurring monthly fees for number porting services. These fees could discourage some potential porters, as they do not see the justification for such service charges. Often, there is also a waiting period for mobile subscribers to get their number successfully ported. This waiting period, which could be from one to two working days in Hong Kong, could even extend to four to seven working days in Taiwan and Singapore, resulting in too much trouble for some subscribers.

Chart 1: MNP: Number of Hong Kong Mobile Subscribers Who Have Applied for Mobile Number Porting and the Percent of Successful Applications over the Total Hong Kong Mobile Subscriber Base, 1999 to 2005.

                                                                                                 Source: Frost & Sullivan

Hong Kong is now an extremely competitive mobile market, largely to MNP, with six mobile service providers competing in a market with a population of only seven million. MNP came into effect in Hong Kong in March 1999. The number of successful porting applications rose sharply in the first three years of implementation, before stabilizing as mobile subscribers shifted between service providers whom they felt offered the best deals. Customers had a lot to choose from as service providers constantly competed against each other for subscribers. As a result, service providers are now experiencing the highest churn rates in the region, with monthly blended churn rates between 4 percent and 5 percent in 2005 for Hutchison Telecom Hong Kong Limited (Hutchison), the incumbent Hong Kong service provider. However, despite market saturation, the Hong Kong mobile industry still managed to experience a commendable 16.9 percent growth in revenue over the previous year, to generate $2.03 billion in 2005. This showed that MNP was a win-win situation for all parties in the country as customers are able to benefit from the competition, and service providers are able to increase revenue from the rising mobile usage amidst a saturated market.

Chart 2: MNP: Number of Taiwanese Mobile Subscribers Who Have Applied for Mobile Number Porting and the Percent of Successful Applications over the Total Taiwanese Mobile Subscriber Base, October 2005 to June 2006.

                                                                                                 Source: Frost & Sullivan

Taiwanese service providers did not see a large increase in churn rates due to MNP implementation. Since MNP was implemented, the monthly number of successful porting applications for the past nine months was below 0.3 percent of the total mobile subscriber base. This is almost insignificant. On the contrary, the Taiwanese incumbent, Chunghwa Telecom Co., Ltd. (Chunghwa), managed to reduce its churn rate after the introduction of MNP. Chunghwa’s 2G monthly churn rate was 1.25 percent in October 2005, (its implementation month), and was stable at 1.27 percent, 1.08 percent, and 1.12 percent, respectively, for the next three months. During the last two months before implementation, Chunghwa’s monthly churn rates were 1.55 percent and 1.45 percent, respectively. The other two established service providers, Taiwan Mobile Co., Ltd. (Taiwan Mobile) and Far EasTone Telecommunications Co., Ltd. (Far EasTone) also did not experience any problems in retaining customer loyalty as they are already offering an excellent range of services, equaling that of the competition. Therefore, customers see little reason to change their service providers. Taiwanese MNP implementation is still without any trouble as there is a long waiting period of up to four working days for number porting to become effective from the date of activation of the process. Besides, many subscribers are on long-term service contracts, and this helps in preventing a large number of potential number porters from switching service providers.

Some mobile service providers have been using the number prefix as an identifier for their services. For example, the number prefix for Maxis Communications Berhad (Maxis), Malaysia, is currently 012/017 and Telstra Corporation Limited (Telstra), Australia used 04x7/8/9 before Australia’s MNP implementation. Without these exclusive number prefixes, service providers will lose one of their branding platforms, and with the loss of the number prefix identifier, mobile subscribers will not be able to recognize which service providers they are calling or receiving a call from.

Mobile subscription numbers have been allocated in blocks by regulators to service providers. Block number assignments enable easier management of individual mobile numbers and their relevant subscription services. With MNP, back-end services will become complicated, and this will incur more cost for service providers. In order to implement MNP or porting, service providers have to invest in more back-end services to allow such capabilities.

The need to retain a regular number and the risk of losing that number when changing service providers has always been a barrier for customers when opting to change their service provider. With the emergence of MNP, this barrier is lowered, and service providers have to deal with a potential higher increase in subscriber churn, leading to further price-based competition among service providers.

With many attractive choices available in the market and the freedom to change service providers, mobile subscribers can afford to be more demanding. Therefore, service providers have to invest more in customer retention programs. This implies more investments for service providers in advertising and loyalty programs.

MNP enables incumbent and challenger service providers that position themselves well to establish themselves in the markets.

Incumbent service providers are often market leaders in terms of quality of services, network availability and coverage, customer service, and packaging and pricing. Therefore, incumbents are able to retain their high-value mobile users, who contribute to the significant bulk of their overall mobile revenue. These high-value mobile users are often postpaid subscribers, business users, or heavy consumer users who value the ability to retain their numbers. With MNP, incumbents could easily attract other postpaid or business users from other lower performing service providers, who otherwise would be reluctant to switch due to the inconvenience of losing their current mobile numbers.

In highly penetrated mobile markets such as Singapore and Taiwan, the focus is no longer on gaining new subscribers, but on retaining the current base, and increasing the average revenue per user. MNP enables new market entrants or challengers to compete in these markets against incumbents. For example, a service provider that could potentially gain from MNP is VIBO Telecom Inc. (VIBO), which launched commercial services in Taiwan in 2005. At the end of 2005, established service providers, Chunghwa, Far EasTone, and Taiwan Mobile, along with Asia Pacific Broadband Wireless Communication Inc. (APBW), were already controlling a collective 99.8 percent of the total mobile subscriber market share in Taiwan. With a mobile penetration rate of 92.6 percent at the end of 2005, there is hardly any room for growth in terms of new subscribers. However, with the right services, pricing, and marketing plans, VIBO could possibly place itself in a competitive position, aided by MNP to compete for high value or high data usage mobile subscribers from established service providers.

With MNP combined with fixed number portability and the upcoming fixed mobile convergence, the next step would be the transparency of interconnection fees. As the same number can be used on any type of carrier service, be it mobile or fixed subscriptions, interconnection tariffs among fixed and mobile service providers will have to be made transparent and standardized to reflect this new landscape.

MNP implementation is expected to be more feasible in markets that have already reached a 50 percent mobile penetration rate. At this rate, MNP is more likely to spur competition in the market, as service providers need to compete for subscriber’s patronage in a smaller untapped pool. Currently, the success of MNP implementation is measured by the percent of ported numbers. Frost & Sullivan believes that a few other factors should also be taken into consideration. Some of these include:

• Decrease in mobile tariffs and increase in mobile-related usage
• Improvement in customer service and satisfaction
• Differentiation and innovation in mobile packages and value-added services
• Introduction of new technology
• Ease of market entry for new participants
• Fair market competition

MNP implementation is an unstoppable trend in the region. Rather than to protest or delay regulator efforts with regard to the implementation of mobile porting, it is best that mobile service providers embrace the inevitability, and in the process prepare themselves to take advantage of its implementation. Regulators throughout Asia Pacific will eventually start to push for MNP implementation. However, service providers in those markets are likely to have ample time to strategize and prepare themselves to gain the most from MNP, as MNP implementation, due to its complex nature, could take anywhere between 12 and 18 months to complete. Competition has always been good in any industry and with more healthy competition expected, more innovation, solutions, and competitive pricing is anticipated from mobile service providers. This will subsequently lead to more consumer interest and usage, thus resulting in revenue growth.

Siu Keat Chak is a Research Analyst at Frost & Sullivan. He focuses on the mobile and wireless sector in Asia-Pacific, covering services, content, and applications.

Media Queries: letticia.leopold@frost.com

All Other Queries: sarah.o@frost.com

Frost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years. The company's industry expertise integrates growth consulting, growth partnership services, and corporate management training to identify and develop opportunities. Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics. For more information, visit www.frost.com.