Cutting the Cord
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TERENCE SMITH: A new government decision will make it easier than ever for customers to cut the cord on their land line phones. The Federal Communications Commission ruled yesterday that phone companies must allow customers to transfer their home phone number or business number to a cell phone in the same calling area.
Those changes are scheduled to begin on Nov. 24 in the country’s 100 largest metropolitan areas. The same changes will go into effect for the rest of the country next May. Nov. 24 is also the deadline for another big change for the nation’s 150 million wireless users. That’s when customers will be allowed to keep their cell phone numbers when switching wireless carriers. For more on all of this, I’m joined by Rudy Baca, vice president and wireless and media strategist at Precursor, an investment research firm. Mr. Baca, welcome.
RUDY BACA: Thank you.
TERENCE SMITH: Translate this decision for us in terms of what it’s going to mean for the consumer.
RUDY BACA: What it means for the consumer is that they’ve taken the FCC a resource that is traditionally the telephone companies’ and given it as a right to the consumer so the consumer now has bargaining power to go to the phone company and say, “What are you going to give me to stay with you? What are you going to give me if I go to you?”
TERENCE SMITH: Does this mean automatically that there will be more people who use cell phones as their exclusive phones?
RUDY BACA: I think it’s highly likely to provide incentive to move to cutting the cord completely. Right now it’s only about 3 percent which is fairly few, but we have a new generation growing up who never really will have a wire line phone. This gives them every reason to just keep their number and keep their wireless phone.
TERENCE SMITH: Three percent. What might that rise to if this becomes popular?
RUDY BACA: It’s likely to double. There are still some quality differential between wire line and wireless but you have a whole generation that is used to being able to be communicating with others wherever they are, wherever they might happen to be and really don’t care if someone is at home or at work. They expect to be able to talk to them.
TERENCE SMITH: What limitations are there on cell phones if you’re going to use it as your sole phone either at home or at business? I know that I guess there’s some limitations in terms of dialing 911, for example.
RUDY BACA: There are some limitations that are actually becoming much more like the wire line side on 911 because the FCC is also mandating that the wireless carriers provide that emergency location service. It really goes to quality. Anyone who has a wire line phone realizes that usually in natural disasters the phone works because the government has required it to work. It’s built to what they call 5-9s. It’s available 99.999 percent of the time. That’s one hour out of a year that it’s not available. Anyone who has a wireless phone will tell you that it’s available a lot less than that. You can be in the middle of downtown Los Angeles and not get a signal. They have what they call cell phone burping, a terrible term but it means your signal is lost. You suddenly don’t have a conversation. That occurs fairly frequently to most cell phone users.
TERENCE SMITH: Is there any prospect that these problems will be overcome, that the technology will improve?
RUDY BACA: Technology is sufficient now to actually improve them. The problem is there isn’t enough spectrum in the United States to provide the redundant service to improve that quality. It’s a matter of not enough, not a sufficient inventory of that spectrum.
TERENCE SMITH: What about the related decision that the FCC has taken which will allow people to switch wireless carriers and keep their number?
RUDY BACA: That means the consumer then has much more bargaining power than he or she did previously. Basically it was a take it or leave it business. If you wanted the coverage, you went to the provider in that area. Now you say I have a significant resource.
This is my number. This is not the phone company’s number. What do you want to give me to attract me? A new phone? A free phone? Lower rate plan? What about those termination fees? Are you going to pay those for me? So they have much more bargaining power. This is clearly a big win for the consumer.
TERENCE SMITH: Is this going to set off in your view a competitive battle then among wireless providers to either keep the customers they have or attract new customers?
RUDY BACA: We’re likely to go from what is already an intensely competitive wireless marketplace, six to nine providers in any marketplace, to one that is fever pitch. You’ve got some of the providers who have said I want to have customers come to me and I’ll do whatever it takes. I’m going to give them free phones, a free second line.
You have others who say well I’m going to provide a different service — maybe a push-to-talk service. You have others who have said well maybe I’ll give you a discount if you get a second phone. You’re going to see a wide variety of rate plans, a wide variety of incentives so this is the time for the consumer to really determine what they want and what they want to pay.
TERENCE SMITH: That’s assuming that all this does, in fact, go in effect as the FCC has dictated on Nov. 24 or subsequent in some areas, what are the prospects that this will be held up by a legal challenge?
RUDY BACA: There’s always the possibility of a legal challenge. I think it’s minimal here. The FCC has a decision from the D.C. Circuit that said it has very broad authority to implement this. It’s got the ’96 Telecommunications Act that Congress mandated, told the FCC you must put this in place. It has consumer demand. Consumers out there know that on Nov. 24, they get to keep their number. So I think it’s highly likely, probably less than 10 percent, that there will be a court challenge that would be successful.
TERENCE SMITH: So a cell phone user could call up his or her cell phone provider and use that leverage of being able to keep the number?
RUDY BACA: And they are.
TERENCE SMITH: And say what can you do for me?
RUDY BACA: Absolutely. You call them up and you say I am your customer. I’ve got a phone number. I want to keep it with me. What are you going to do to make me stay with you? What do you … how are you going to be competitive? I know I can get other things from other providers.
TERENCE SMITH: Finally, what’s the impact on the companies themselves? It’s big, I’m sure.
RUDY BACA: It’s a huge impact because we’ve got three of the six national wireless providers who are nominally profitable right now. We think this is probably going to kick them back into unprofitable for 2004 so you’ve got a very competitive wireless sector and we may see some of these companies falling by the wayside.
TERENCE SMITH: And the land line companies have already begun losing market share, is that right?
RUDY BACA: Absolutely so. The wire line companies have additional problems. In addition to the number portability, they’re losing for data. They’re losing for broadband. They also are required by the FCC to sell at below-market rates to their competitors who then compete against them. The wire line companies, even if they retain a customer as a wireless customer, are receiving much less revenue because those other services such as caller ID, they’re free with your wireless service. The consumer knows that.
TERENCE SMITH: A good day for consumers.
RUDY BACA: This is a very big win for the consumers and this is a troublesome time for the companies.
TERENCE SMITH: Okay. Rudy Baca, thank you so much.
RUDY BACA: Thank you.