WASHINGTON -How much is a little competition worth? In the local telephone industry, the dollar figure is astounding.
Consumers and incumbent local-exchange carriers have spent hundreds of millions of dollars to allow telephone customers to switch their local telephone provider without changing their phone number. That ability, called local number portability, has helped open the market to competitive local-exchange carriers (CLECs), including some cable systems.
Nearly five years after Congress mandated local number portability in the Telecommunications Act of 1996, the service is finally available in most major U.S. markets. But the price of purchasing the systems needed to enable portability has been quite high.
"This is a massive undertaking for the industry," said Sprint Corp. director of federal regulatory relations Pete Sywenki. "What used to be very orderly has been integrated into every other company."
Sprint-the largest local telephony provider, aside from the four regional Bell operating companies or "Baby Bells"-will spend $200 million to make all of its numbers portable, Sywenki said. But its unclear how many consumers will be served by the change.
"We're not seeing the big benefits out of this," said Briana Gowing, a spokesperson for Verizon Communications. Few customers have actually switched providers, she noted.
Most CLECs are focusing on the local business market, said Gowing, so consumer choice isn't yet practical for many residential customers.
Verizon has spent $900 million on modifying its facilities to route numbers, converting 85 percent to 95 percent of its access lines, Gowing said.
Incumbent local carriers such as Verizon have passed many number portability- related costs on to consumers through a monthly fee. The Federal Communications Commission allows local carriers to collect such fees until five years after the first portability-related charges are levied.
Verizon, formed by the merger of Bell Atlantic Corp. and GTE Corp., assesses former Bell Atlantic customers 23 cents every month and former GTE users 36 cents per month. The fees reflect the cost of changing switches and implementing new systems, a Verizon senior planning manager said.
But major carriers said the monthly fees aren't enough to recover all costs. Sprint's Sywenki estimated his company would recover only 75 percent of its final outlays.
FCC rules prevent companies from seeking reimbursement for costs not directly related to number transferability. That has prevented telcos from collecting fees to cover the cost of new billing methods or the salaries of some supervisors who have managed the conversion, according to Sywenki.
The FCC has monitored the charges carefully. It forced a number of carriers, including GTE and U S West Communications Inc., to reduce their fees in early July of last year, citing lower costs for network configurations and service areas than the companies had estimated.
Sprint's monthly charges remain some of the highest in the industry, at 48 cents per month.
The monthly fees have forced telephone users to bankroll much of the cost of number portability.
It "is the worst form of rate assessment available," said Mark Cooper, director of research for the Consumer Federation of America, noting that telephone users are paying for much-needed updates to major carriers' networks.
But Cooper called number portability a "public good" that ultimately could benefit consumers as well as telecom providers, by spurring local competition.
Number retention is important for consumers willing to switch their local telephony provider, one analyst explained. For new carriers to attract customers number portability "is almost a have-to-have," said Shar Haidley, director of consulting for New Paradigm Resources Group, a Chicago-based consultancy that specializes in the local telecom industry.
"It's ludicrous to think that anyone would want to change carriers without keeping their number," she said.
Newcomers to the local market rely on ported numbers for 85 percent to 90 percent of their local telephone business, said Robin Lewis, director of routing management for Virginia-based CLEC Teligent Inc.
Most customers keep their old numbers when they sign up for Teligent's service, she noted.
Haidley said competitive carriers still account for a small share of providers-less than 10 percent. But penetration by new carriers would be even smaller without number portability, she noted.
"There is a lot more competition now" than there was five years ago, said Jim Crawford, a spokesman for the Association for Local Telecommunication Services, an industry group representing new carriers that own independent networks. Crawford cited number portability as a major reason for the rise in local telephony options.
There are 375 exchange carriers in the local marketplace, according to the group's February survey.
And number portability rollouts have eased the problems faced by overburdened telephone networks-most notably number shortages.
Number portability technology also allows local phone carriers to receive smaller, 1,000-number blocks of telephone exchanges. Telephone numbers have traditionally been awarded to carriers in 10,000-number blocks.
"Pooling is actually requiring local number portability," said Teligent's Lewis.
The ability of consumers to keep their number when they switch carriers has fueled calls for systems that would allow users to keep an established phone exchange when they move.
"Any small business that moves anywhere loses the time, money and effort they spent to develop their phone number," said Bruce Kushnick, executive director of the New Networks Institute, a New York-based group that has monitored the 1984 break-up of AT&T Corp.
Consumers, he said, need a "portability that actually is portable."
Kushnick petitioned the FCC in late June to require location portability. He said Verizon was hoarding numbers and forcing area-code splits that would not be necessary if consumers could keep their numbers when they moved.
Currently, telephone numbers in a specific area are routed through a central switching facility. If a resident moves out of the area served by that facility, he must give up his number.
Changing systems again to allow for geographic portability, however, still is far off.
"The demand is not that great," Sprint's Sywenki said.
Wireless carriers will be forced to face the costs of implementing number portability before local carriers must deal with the more expansive issues related to number routing, such as location portability. The cellular industry has until late November 2002 to comply with federal portability requirements.
Wireless providers "have benefited from being able to watch the wireline industry," said Michael Altschul, vice president and general counsel for the Cellular Telecommunications Industry Association, which has worked with carriers to develop timelines and standards.
But like many who have changed systems to make numbers portable, Altschul was skeptical about the need for the service.
"It's expensive, and the benefits don't outweigh the burdens," he said.
States News Service