Wireless Industry Braces for Phone Number Moves

Starting Monday, U.S. wireless customers will be able to jump to a different service without losing their telephone numbers, under a new regulation that unnerves carriers as much as it pleases cell phone users.

For the first time, customers will not need to hassle with updating their business cards and telling everyone they know if they want to move to a new service, setting the scene for a big shake-up in the wireless market.

For wireless companies, the stakes are high. Any carrier that sees a customer exodus will suffer not only a loss of revenue, but will also take a hit to its public image if people line up in stores to cancel their service.

Mobile phone companies have been gearing up for months, collectively spending as much as $1 billion to prepare their networks for the switches. They say the moves could still be plagued by technical snafus.

"We'll all experience pain in the short term." Randall Stephenson, chief financial officer of SBC Communications Inc. (SBC) told Reuters. SBC, along with BellSouth Corp. (BLS), owns Cingular Wireless (search), the No. 2 U.S. wireless phone company.

While some analysts expect consumers to line up at stores or rush to the Internet to switch, others say it could take months for the impact on the industry to become clear.

"I think it will take several quarters or longer to make a determination of who the winners are," said Shosteck Group analyst Jane Zweig.

About 44 million cell phone users will change providers next year compared to 34 million this year, predicted Legg Mason analyst Craig Mallitz. This will force companies to invest more to improve the quality of their networks.

SG Cowen predicts carriers will need to spend another $3 billion next year in their efforts to hold onto customers.

Analysts believe the new rules will shed light on what customers think of their current service providers.

Market leader Verizon Wireless (search) may be the big winner due to public perception that it has the best network quality, analysts said.

"We think Verizon Wireless could be a beneficiary ... but only if it can maintain its network quality," said UBS analyst Colette Fleming in a note to clients.

Conversely, Sprint PCS (PCS) is plagued by the perception that its network quality is poor, analysts said. AT&T Wireless Services Inc. (AWE) just started a new ad campaign after its mLife ads failed to connect with customers.

The start of the number-shifting option comes at the beginning of the busy holiday retail season, when many consumer service plans are due for renewal. That could prompt customers to switch immediately instead of getting locked into another contract with a carrier they don't like, analysts said.

Lucrative business accounts are also at risk, as corporations that use more than one service provider may decide to consolidate wireless accounts to a single company. Previously, businesses refrained from doing this for fear their employees would lose touch with clients, analysts said.

Sprint Chief Financial Officer Dellinger said he is hoping to pick up business customers from longer-lived rivals such as AT&T Wireless and Verizon Wireless. The predecessor companies that merged to form AT&T Wireless and Verizon wireless were offering cell phone service years before Sprint started its wireless efforts.

"Companies that were early adopters are more likely to have gone with them," Dellinger told Reuters.

Even traditional phone companies could see customer defections. Customers will now have the option to ditch their fixed-line telephones to switch their home number to a mobile phone, known in the industry as "cutting the cord."

Up to 4 percent of the U.S. population have already scrapped their home phones for wireless services, Gartner Inc. analyst Phillip Redman estimated. He expects the new rules will double this trend but will not threaten the existence of landline phones altogether.

But the four-day lag in switching home numbers to wireless phones may make that option impractical for many, said Kevin Beebe, group president of communications for landline and wireless operator Alltel Corp.

"How much of that is going to happen?" Beebe said.

In order to hold onto customers, wireless companies can offer slicker gadgets and cut-rate plans, but it remains to be seen how much that will help in a market already crammed with funky gadgets and promotions.

Deutsche Telekom AG's T-Mobile USA (search) prepared for battle by offering three days a week of unlimited phone calls and discounting certain phones.

"Forty percent (of wireless users) plan to change on value," said T-Mobile USA Chief Executive Robert Dotson in reference to a market survey the company conducted.

"It is well suited to our position," he told Reuters.