How not to analyze ?
by Thiyagarajan Maruthavanan (Rajan)
Mobile pundit critiques an article on Number Portability, the article suggests that number portability implementation in India should be delayed as it is not the right time now.
While it is true that number portability is not the holy grail solution to competition problems in the telecom industry but nonetheless the arguments in the article have been arrived at erroneously. It illustrates a lack of proper understanding of the economics of number portability.
It is pretty evident fact that a mobile phone number is very sticky to a person from any walk of life not just to business users. Having to change numbers when changing carriers incurs a switching cost which is not a welfare activity. Now if this switching cost could be reduced or eliminated then the resources could be allocate elsewhere and thus society could be better off. Also (high)switching costs reduce the market share gains from price cuts and raise the cost of market entry which dilutes price competition. Now that’s the fundamental reason behind the mandating of number portability by policy makers in many countries.
At a broad level the above statements are true but on going further one has to take a deeper analysis of the effects of number portability and analyze if it is going to gaurantee welfare. A detailed cost benefit analysis has to be performed taking into account the modality of technology implemented as different technologies have different porting costs.
Check out this journal paper titled “The Economics of Number Portability:
Switching Costs and Two-Part Tariff” which argues that number portability may not gaurantee a welfare policy in a developed country but it makes a ton of sense to have it in a developing country.
PS: One of the authors from IBM in the article is a very close friend of mine and apparently none of his views has gone into the article, since he just happens to works in number portability domain in his company his name got plastered which itself speaks for the veracity of the article.