The switching costs

The switching barrier refers to the difficulty of switching to another provider that is encountered by a customer who is dissatisfied with existing service, or to the financial, social and psychological burden felt by a customer when switching to a new carrier (Fornel, 1992). Essentially if consumers continue to encounter switching barrier then they will be forced to remain with their existing operator. (Dick & Basu, 1994) describe them as costs incurred when switching, including time, money and psychological costs.

2.2. Conclusion

The review of literature indicates that MNP had negative and positive effects. Its successes could not be conclusively reported as there is no clear measure which constitutes success with regard to MNP. All studies mentioned that the objective of introducing MNP is to lower the costs, bring about quality of service, provide consumer choice and drive competition.

Competition was not only with regard to price drops but to also level the playing field among telecommunications market players. There was a regulatory expectation in ensuring that consumers exercise their right to choice, public education with regard to MNP was to be conducted by operators and regulators in order for consumers to make informed decisions. With the introduction of MNP, consumers who could not terminate their contract with mobile operators without the fear of losing their number were now free to do.

Operators were expected to adhere to the time frames provided for the final implementation but this expectation was difficult to achieve in many countries including South Africa due to technical challenges. Fundamentally, operators had to upgrade their technology in order to accommodate all numbers from other operators with different prefixes. Citing from research results of various reviews of literature, Lago (2007), indicated that there were also downsides with regard to the implementation of MNP. Consumers could not distinguish the network operator they were calling on ported numbers. He argues that the naivety by consumers led to operators increasing termination charges. The technology used for MNP was also expensive and operators had to incur costs for set–up costs, customer transfer costs, routing costs, and costs for managing the MNP database. Furthermore, he mentioned anti-competitive behavior whereby consumers were tied for longer to contracts, and those who terminated their contract anyway were compelled to pay penalty fees. Consumers were obliged to purchase new handsets as their old phones could not be compatible with the new operator’s network.

The effects of MNP vary and Levin (2006) summarises them as follows: In Finland, the number of subscribers grew at 37% during its 1st quarter of MNP introduction; Singapore had a low intake due to the fact that customers were expected to pay monthly fees to their previous service providers and this was a limitation for porting. UK only one out of five subscribers ported their

number and this was attributed to poor marketing campaigns and delays in porting periods which took about four weeks. Hong Kong had high number of ported subscribers of about 85% five years after implementation, In Germany 15 month after the introduction of MNP, only 0, 43% of mobile subscribers ported their number (Levin, 2006), Buehler et al (2005) mentioned that the introduction of MNP remained ambiguous as many consumers did not benefit and implored further academic study on the purpose for the introduction of MNP.

Melody (2003) mentioned that real competition cannot take place in a duopoly market. South Africa has three mobile operators only. The purpose is to determine if three players in the market could bring costs down and provide consumers a quality service through MNP.

This study was motivated by previous academic literature discourse on MNP, which indicate that most countries in Europe did not benefit as anticipated. To name a few, United Kingdom (UK) subscribers were not inclined to port because they perceived switching costs to be high and that discouraged them from porting. In the US porting was very low during its first year. Delays in respect to the implementation of MNP by several countries were also a contributing factor for lack of interest in consumers porting.

Summary

As stated before, prior to the introduction of MNP, consumers were required to give up their numbers when they changed service providers and as a result, they were reluctant to switch (Buehler & Haucup, 2003). In South Africa, a study by Goldstuck indicated that competition remained stifled by continuous exorbitant prices while consumers were forced into long contracts, moreover, bundled services such as handsets subsidies exacerbated the problem (Goldstuck, 2005).

Policy makers saw MNP as a mechanism to change the outlook of the industry but this initiative was not welcomed by market players. Almost in all countries, operators were opposed to the introduction of MNP. In the UK, operators raised concerns that the introduction of MNP before a study is conducted would result in regulatory burden. ‘We don’t have any level playing field with MNP and its a millstone round our necks. Anything over a day to organise to change networks with MNP is unacceptable and giving operators a win-back chance makes market less competitive’ (Russell, 2007, p. 1). They further argued that it would bring about additional costs, and would be a barrier to new entrants, a view which was disputed by OFTEL (Gupta et al., 2001).