Below are the key findings of an analytical report by J’son & Partners Consulting Co. titled "MNP Implementation Goals and Results". The report contains a summary of international experience in introducing a mechanism that enables mobile telephone users to retain their mobile telephone numbers when changing from one mobile network operator to another (Mobile Number Portability). J'son & Partners Consulting representatives have participated in major industry events dedicated to MNP and maintain close contact with leading players in the Russian mobile market, which allows us to keep abreast of the latest developments and trends.
Service popularity and churn rate
It's been already 13-15 years since MNP was first implemented. Among the country pioneers were: the Netherlands (1997), the UK and Hong Kong (1999). To date, mobile phone users can keep their phone numbers when changing from one mobile network operator to another in approximately 70 countries around the world, including all member countries of the European Union, several African countries (Egypt, Ghana, Kenya, Morocco, South Africa, etc.), almost half of the countries in the Western Hemisphere¹ ( ¹except for small island nations with population under 1 mln) and others.
The experience of countries that implemented MNP in recent past shows that the popularity of the service depends on several factors:
1. The current situation in the mobile market (penetration, churn rate, share of prepaid
users, etc.), and macro-economic situation in general..
2. Porting terms – porting time, porting costs, service convenience, etc.
3. The existing model of subscriber-provider interaction. In the U.S. and Japan, for
example, the current practice is for mobile users to sign long-term service contracts
with operators and for operators to subsidize the purchase of mobile phones. This
approach considerably reduces churn but also makes MNP less popular.
In most cases MNP services were in demand only in the early stages of market development, characterized by a relatively low penetration rate, low quality of communication services, poor coverage and limited competition (as a consequence – high tariffs). In Finland, for example, where one year after its implementation MNP had been used by approximately 20% of the country's mobile users (currently more than half of users), the penetration rate at the time of MNP implementation, in 2003, was at around 90% (current figure for Russia is 159%), and 56% of the market was held by operator Sonera.
In contrast, the U.S market was already highly competitive and well developed at the time of MNP introduction, which was also in 2003 (the service was provided by 6 national and more than a hundred regional carriers). A total of 30 mln U.S. subscribers were expected to take advantage of MNP 12 months after its introduction. In reality, however, that number was much less – only 7.8 million. Significantly below the predicted values was also the churn rate – 1 year after the service launch date it dropped to about 25%, and to 22% after 2 years (predicted values were 44% and 40% respectively).
At the time when MNP was launched in Japan, in October 2006, the market was already highly competitive and awash with various special offers and discount rate propositions for customers signing annual contracts, families, etc. All this allowed Japanese operators to significantly improve customer loyalty and reduce churn. Furthermore, subscribers were deterred from switching providers by high contract termination penalties (up to $87).
In addition, the choice of special deals offered by the "new" operators was often identical to that offered by the "old". As a result, the introduction of MNP resulted only in a temporary churn rate increase, while demand for the service was insignificant. Thus, at the initial stage of MNP introduction in Japan there were only 200,000 porting requests, or 0.2% of the country's total subscriber base. This figure was much lower than the anticipated number of up to 30% of the subscriber base.
Among the countries included in the study, Japan had the lowest churn rate at the time of MNP implementation (4%), while Brazil had the highest (34%). After 5 years, churn rate became higher in some countries (Poland, Australia, etc.), and lower in others (U.S., Japan, Brazil, etc.), while in one country, South Africa, it remained largely unchanged (Fig.1).
Churn rate depends directly on the degree of customer satisfaction with carriers, the number of prepaid users, and other factors. In other words, the impact of MNP on churn rate is not the dominant factor.
J'son & Partners Consulting Co. also examined factors influencing the popularity of MNP services, i.e. porting time, cost, the need for subscriber personal appearance when submitting a request for a change of operator, etc. By August 2004, several years after the introduction of MNP in Europe, the porting rate in European countries ranged from 0.2% to 20.8% of the total subscriber base. Furthermore, the inverse relationship between MNP cost and popularity (Germany, Finland) may not always work here. For example, despite the fact that this service is free in the UK and Spain, it was still less popular than in Denmark where it costs 10 Euro (Table 1).
There exist some significant differences in the run up to MNP implementation between Russia and a majority of other countries included in the study with respect to the key mobile communications indices, i.e. Russia has one of the highest in the world penetration rates (many subscribers simultaneously use the services of multiple carriers), churn rates, very high share of prepaid customers and one of the lowest price-per-minute rates for voice traffic.
MNP influence on the market
By summarizing the experience of countries that implemented MNP a few years ago, J'son & Partners Consulting Co. has drawn the following conclusions:
1. The mobile penetration rate of countries included in the study increased significantly following
MNP adoption, which fact cannot be attributed solely to the introduction of this service though.
In Russia, for example, where MNP is still unavailable, the mobile penetration rate has also risen
considerably – by almost 50% – over the last 5 years and reached 159%.
2. Although the introduction of MNP typically causes the churn rate to rise in the short term (aprx. 1
year), its value may fall in the long term to below the level seen before the MNP implementation.
3. MNP influence on operator market share is limited compared to the influence exerted on it by
such factors as mergers and acquisitions, marketing initiatives of operators, changes in the
service terms and tariff rates, etc. However, one cannot deny the fact that MNP adds to the
competitive environment and encourages operators to intensify the fight for subscribers.
4. The experience of countries where MNP hasn't been implemented yet (these include Russia)
shows that tariff rates will continue to fall regardless of whether the porting service is available
or not. Still, MNP acts as an additional stimulus for more competition and, consequently, for a
reduction in tariff rates. In most European countries, except Belgium and Latvia, the average
price-per-minute rate continued to decline several years after MNP implementation (Fig. 2).
MNP-related expenditures and cost savings
Calculations of economic feasibility of implementing MNP conducted for the UK, Dutch, Swedish, Danish, Australian and Honk Kong national regulators showed that the launch of MNP would generate each of the above countries between 55 and 900 million Euro in net savings over the first 10 years after its introduction.
However, many operators who implemented the porting service in the past often underestimated the cost due to the difficulty of making such estimations. For example, the cost of MNP implementation in the UK was more than $88 million versus the estimated expenditure of $58.6 million, in Ireland the actual cost was $62 million vs. estimated $20.6 million, in the Netherlands, $42.7 million vs. $29.4 million. (Fig. 3).
Prior to implementing MNP, many countries tended to calculate the economic impact from MNP launch in terms of costs and savings. Nowadays, however, the prevailing view is that an option to retain a phone number when changing from one operator to another is a legitimate right of every consumer, irrespective of the economic factors, and an important indicator of market competitiveness.
J'son & Partners Consulting believes it's highly likely that MNP will be introduced in Russia in 2014 but in a limited format, i.e. will be restricted to a single constituent territory of the country. With this in mind, and taking into account the fact that the cost of the service is expected to be around 100 rubles, demand for MNP in Russia will probably not exceed 3-5% in the next 2-3 years following its launch.
The implementation of MNP in Russia is unlikely to result in either an increase in churn rate, which is already one of the highest in the world, or in a major redistribution of the operator market share, as there is little difference between operator service offerings. In other words, the implementation of MNP will most likely have little impact on the market.
Given the late implementation of MNP in Russia compared not only with developed but also many developing countries and the different market conditions (e.g., limited geography), its benefit for Russian consumers and the market as a whole will be rather limited. However, one cannot deny the fact that the implementation of this service can improve the competitive situation in the country and encourage operators to deliver better coverage and improve the quality and diversity of their servi.
J'son & Partners Consulting believes in order to improve the competitive environment and Russia's telecommunications market in general, the implementation of a fully-featured MNP service should take place in parallel with the creation of more favorable conditions for MVNOs and the abolition of internal roaming charges and regional restrictions on number porting. This, in turn, will call for a substantial reform of the industry specific legislation, which is expected to take at least 3-5 years.
Should Russia choose to adopt the European approach (free porting within one business day) to MNP implementation and spread it across the entire country, up to 10-15% of the country's mobile phone users may use the service over the next 1-2 years after its launch.
Contents of the report "MNP Implementation Goals and Results"
1. Key characteristics of countries at the time of MNP implementation
2. State of countries' telecommunications sector at the time of MNP implementation
2.1. Level of fixed-line telephony digitalization
2.2. Carriers and their market share
2.2.1. South Africa
2.2.4. Czech Republic
2.3. Mobile penetration rate, tariff rates, churn rate
2.4. Prepaid to postpaid subscriber share ratio
3. Expected results from MNP implementation
3.1. South Africa
3.2. Czech Republic
3.6. NP availability to mobile and fixed-line network subscribers
4. Actual results and implications of MNP implementation
4.1. Number of carriers and their market share
4.1.1. South Africa
4.1.4. Czech Republic
4.2. Mobil penetration rate
4.3. Tariff rate dynamics
4.4. Churn rate
4.4.1. Countries included in the study
4.5. Share of subscribers who retained their number when changing operators
4.5.1. European countries
5. Country and operators' costs related to MNP implementation
5.1. Regulator and analytical firms' estimates prior to MNP implementation
5.1.1. South Africa
5.1.7. Hong Kong
5.2. Actual cost of MNP implementation
5.2.1. UK, Ireland, Hong Kong, Netherlands
5.2.2. South Africa
Summary and Conclusions
ANNEX 1. Main international MNP models (ACQ, QoR, RoP, OR)
ANNEX 2. MNP procedure for European subscribers
List of Figures
Fig. 1. 2006 mobile operator market share, South Africa
Fig. 2. 2008 mobile operator market share, Brazil
Fig. 3. 2006 mobile operator market share, Poland
Fig. 4. 2006 mobile operator market share, Czech Republic
Fig. 5. 1999 mobile operator market share, UK
Fig. 6. 2003 mobile operator market share, Finland
Fig. 7. 2003 mobile operator market share, U.S.
Fig. 8. 2007 mobile operator market share, Canada
Fig. 9. 2001 mobile operator market share, Australia
Fig. 10. 2006 mobile operator market share, Japan
Fig. 11. Prepaid mobile subscriber market share in Europe, October 2010
Fig. 12. Prepaid mobile subscriber market share in Brazil, 2006-2010
Fig. 13. Anticipated U.S. churn rate after MNP implementation, 1998-2006
Fig. 14. NP service implementation timeline, CEPT countries
Fig. 15. 2006-2011 mobile operator market share, South Africa
Fig. 16. 2008-2011 mobile operator market share, Brazil
Fig. 17. 2006-2011 mobile operator market share, Poland
Fig. 18. 2006-2011 mobile operator market share, Czech Republic
Fig. 19. 1990-2010 mobile operator market share, UK
Fig. 20. 2003-2008 mobile operator market share, Finland
Fig. 21. 2003-2008 mobile operator market share, U.S.
Fig. 22. 2007-2010 mobile operator market share, Canada
Fig. 23. 2001-2006 mobile operator market share, Australia
Fig. 24. 2006-2011 mobile operator market share, Japan
Fig. 25. Mobile subscriber base: operator market share, October 2010
Fig. 26. Mobile penetration rate in countries included in the study on the date of MNP implementation and beyond
Fig. 27. Mobile subscriber base (mln) and mobile penetration rate in EU countries, October 2004-October, 2010
Fig. 28. Mobile penetration rate in EU countries, October 2009-October, 2010
Fig. 29. Average price-per-minute in mobile communications in countries included in the study on the date of MNP implementation and beyond
Fig. 30. Average price-per-minute in mobile communications in EU countries (Euro), 2008-2009
Fig. 32. Annual subscriber churn rate in Finland on the date of MNP implementation and 1 year thereafter, %
Fig. 33. Subscriber churn rate in Japan before and after MNP implementation
Fig. 34. Subscriber churn rate in Brazil before and after MNP implementation, %/ month
Fig. 35. Share of ported numbers, % of subscriber base in Finland, Denmark, Norway and Sweden
Fig. 36. Share of ported numbers in the UK, 2004-2011
Fig. 37. Total number of ports and cost of MNP in EU countries, January-September 2010
Fig. 38. Number of days needed for porting in EU countries, October 2010
Fig. 39. Relationship between demand for MNP and state of mobile market development
Fig. 40. Japanese operator KDDI's MNP penetration rate
Fig. 41. Share of ported numbers in the U.S., 2006-2011
Fig. 42. MNP types in the UK
Fig. 43. Expected and actual cost of MNP implementation in the UK, Ireland, Hong Kong and the Netherlands
Fig. 44. All-Call-Query method
Fig. 45. Onward-Routing method
Fig. 46. Query-on-Release method
Fig. 47. Return-to-Pivot method
Fig. 48. All-Call-Query and Onward-Routing combination method
List of Tables
Table 1. Key characteristics of countries at the time of MNP implementation
Table 2. Level of fixed-line telephony digitalization in certain countries (%), 1997-2011
Table 3. Key characteristics of mobile telephony in the countries included in the study on the date of MNP implementation
Table 4. Average effective-cost-per-minute decline rate in countries included in the study, 2007-2010
Table 5. Share of ported numbers in Europe, % of subscriber base
Table 6. Number of ported numbers in European countries, 2010-2010
Table 7. Estimate of MNP implementation costs, $mln
Table 8. Approximate operator cost of MNP implementation in India, $mln
Table 9. International experience – MNP models
Table 10. Strengths and weaknesses of the main MNP models
Table 11. Ways to route the call to the ported number
This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.
For additional information:
J'son & Partners Consulting
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Moscow, Russia, 101990
T.: +7 (495) 625-72-45