Number portability fee helping carriers turn profit

NEW YORK -- Some cell phone companies appear poised to profit off a new fee that covers the cost of enabling customers to switch wireless services without giving up their phone numbers.

The fee, permitted by the federal government, is already being levied by four national carriers and is generally less than $1 per month. That adds up quickly when multiplied across the millions of subscribers each carrier serves.

And in certain cases, the money being collected appears to exceed the actual cost of meeting a November deadline set by the Federal Communications Commission for "number portability" -- which will let people keep their cell numbers when switching wireless providers.

Sprint PCS, for example, has about 17.9 million customers who began paying an additional 63 cents per month in July, generating $11.3 million per month for "cost recovery."

Over the course of a year, Sprint's fee would bring in about $135 million at current subscriber levels -- though that amount likely will be even higher since Sprint and other carriers are signing up hundreds of thousands of new customers per quarter.

Sprint refused to quantify its expense for enabling number portability beyond a rough estimate of "hundreds of millions of dollars" -- an amount several times larger than more specific estimates disclosed by rivals Verizon Wireless and Cingular Wireless. Similarly, Nextel Communications says it has spent about twice the costs estimated by Verizon and Cingular.

Although costs surely vary among the different companies, government officials and industry analysts say there is little reason to expect those expenses to vary widely as the carriers upgrade systems and create verification processes similar to those that long-distance phone companies use when a customer switches from one service to another.

"A reasonable person would say that carriers of similar size, serving the same markets, providing the same level of service, would have similar cost structures," said John Muleta, the chief of the FCC's wireless telecom bureau. In fact, he added, almost all wireless carriers are using the same software vendor to implement number portability.

Other carriers lump their fee for the changeover in with other charges related to regulatory mandates, such as providing enhanced 911 capabilities so a cell phone can be pinpointed in an emergency.

Nextel has been charging $1.55 per month since October; since the spring, AT&T Wireless has been charging some customers what it calls a temporary fee of $1.75. Since April, Cingular has been charging from 32 cents to $1.25 per month depending on the state. Verizon says it has not yet decided whether to levy a number portability fee.

Beyond a requirement under federal law that such fees be "just and reasonable," there is no specific cap. Likewise, the FCC does not require the companies to report their actual expenses and the agency is not monitoring the fees.

'Just asking for regulation'

But other government officials, and consumer advocates, have criticized the new fees as excessive.

"Sprint is just asking for regulation, and we'll bring tougher regulation on them if they do things like this," said Sen. Charles Schumer, D-N.Y.

Sprint stood firm in asserting it has already spent "hundreds of millions of dollars" to prepare for number portability. That figure contrasts sharply with public estimates from Verizon, which has irked its rivals by breaking ranks with the industry's long-standing opposition to wireless number portability.

Verizon says it has spent about $60 million on preparations, and estimated its ongoing costs to facilitate number portability at 10 or 15 cents per subscriber per month.

With 34.6 million subscribers, Verizon's estimate suggests that it expects monthly portability expenses of up to $5.2 million, or less than half the amount Sprint will be collecting per month.

Verizon's figures are consistent with the estimates provided by Cingular, which told The Associated Press that setup expenses have totaled about $50 million so far, while ongoing costs are expected to be about $50 million per year.

As such, if Sprint's fee is generating $11.3 million per month, the company will have collected at least $55 million by the time portability is supposed to go into effect Nov. 24, an amount that would be enough to defray all or most of the set-up costs indicated by Verizon and Cingular.

Thereafter, if Sprint's ongoing expenses for number portability are similar to those indicated by Verizon and Cingular, Sprint's "recovery" fee may generate more than $5 million in extra monthly revenue.

Nextel, which has already collected more than $200 million to cover various regulatory costs, said it has spent "more than $100 million" in preparation for portability, but has declined to quantify its E911 expenditures.

Cingular's average fee of 50 cents for all regulatory-related costs approximates what Sprint collects for number portability alone.

AT&T Wireless, which declined to quantify its costs related to number portability or E911, is currently collecting the $1.75 from "less than a third" of its 21.5 million customers. Collection totals will increase as the company adds new customers and as service contracts for existing customers come up for renewal.

However, Doug Brandon, AT&T Wireless' vice president for federal affairs, said most of the costs for number portability stem from the preparations. Once those expenses are covered, "we will eliminate or substantially reduce the fee to cover the ongoing administrative costs."

Neither Nextel, Cingular nor Sprint indicated any plan to stop charging for number portability.