Transitioning to a new local number portability (LNP) administrator in the US would impose substantial costs on US wireless and wireline carriers, according to a report released today by Hal Singer, principal at Economists Incorporated, a DC-based economic consulting firm. The report, “Estimating the Costs Associated With a Change in Local Number Portability Administration” finds that during the first year of a transition in LNP administrators, US telecom carriers would see their costs rise by approximately $719 million.
The report, which comes as the US is considering a new LNP vendor, explains that during the first year of a transition to a new vendor, carriers would encounter four sources of errors that will drive costs up: (1) errors induced when records are transferred from one vendor to another; (2) errors related to lack of experience related to handling transactions; (3) unplanned outages and (4) testing.
“Because LNP is fully embedded in core telecom infrastructure, a problematic transition to a new administrator could cause carriers to reallocate resources away from introducing new technologies,” explained Singer. He said, “Carriers instead would find themselves focusing on the remedial work of fixing and implementing more controls over the LNP process and repairing customer relationships.”
According to the report, the transition costs would include service credits, hands-on customer service, operations research and additional system testing. The report further notes that increased service delays and errors in porting would likely cause some customers to switch to a new provider, resulting in lost revenue and increased churn.
Key findings within the report include:
• An increase in service delays and errors associated with the transition will cause some customers to demand service credits and hands-on customer service, which will trigger additional costly operations and engineering research efforts and system testing. During the first year of the transition, these costs will amount to approximately $719 million for wireless providers, incumbent carriers, competitive local exchange carriers and cable providers.
• According to Singer’s model, 7.1 million consumers would be impacted by a potential transition – 21 percent of impacted customers would not receive phone calls; 72 percent would experience problems with service features and seven percent would experience porting problems.
• The report estimates that carriers would receive 4.9 million customer complaints related to the change in LNP administrators, leading more than 200,000 consumers to leave their service providers.
• The lifetime revenue impact for carriers that lost an opportunity to win these consumers would exceed $500 million.
“Transitions in other industries have underscored the costs associated with the type of regime change being contemplated with local number portability,” Singer added. “You need only look to the problems encountered by the launch of healthcare.gov or the problems experienced by customers when United Airlines’ changed its reservation systems to understand that decision-makers must also consider the impact of such a change on consumers.”
This report, which was funded by Neustar, was originally drafted by Hal Singer while he was a managing director and principal at Navigant Economics. Singer recently moved to Economists Incorporated, which is publishing this report. Any opinions expressed herein are those of Hal Singer and do not necessarily reflect the opinions of Economists Incorporated.
Barry Harris, Michael Baumann and Matthew Wright, along with their co-authors, have posted on SSRN a draft article addressing the Supreme Court’s recent Actavis opinion. The SSRN article can be downloaded at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2387863.
ABSTRACT: In FTC v. Actavis, Inc. the Supreme Court asked whether a patent settlement agreement involving a so-called “reverse payment” from a patent holder to an alleged infringer of a pharmaceutical patent “can sometimes unreasonably diminish competition in violation of the antitrust laws.” Edlin, Hemphill, Hovenkamp, and Shapiro (2013) propose a method of evaluating the competitive effects of reverse payment settlement agreements that compares the magnitude of the reverse payment to the sum of the patent holder’s prospective litigation costs and the value of services provided by the alleged infringer to the patent holder. This paper shows that the method proposed by Edlin et al. holds only under limited conditions. This paper also identifies conditions where a reverse payment in excess of litigation costs may lead to earlier generic entry and would be pro-competitive. In addition to avoided litigation costs, relevant factors in evaluating patent settlements involving a reverse payment may include inter alia the risk-tolerance of the parties, the level of the drug’s sales, the parties’ expectations and information asymmetries related to future competition for the drug, the parties’ subjective views of the likely outcome of the litigation, the parties’ differences in time-values of money, the applicability of Hatch-Waxman first-filer exclusivity, the relative size of the alleged net reverse payment, and the extent of the alleged delay and associated diminution of competition.
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He is discussing the recent US Department of Justice challenge to the proposed merger of American Airlines and US Airways.He discussed the various economic arguments that the government might have put forward at trial to support its position that the merger was anticompetitive, and the merging parties’ possible responses to those arguments. He also discussed the likely economic effects of the settlement agreement between the Department and the airlines.
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In a previous article published on the Antitrust Law Journal, Professor Steve Salop proposed the Protected Profit Benchmark (PPB) as a screen for evaluating price squeeze and refusal to deal claims against a vertically integrated firm (VIF). An important shortcoming of the PPB is its lack of administrability because the diversion ratio has to be estimated. In his comment, Dr. Sun proposes the Efficient Component Pricing Rule (ECPR) be used as an alternative screen, which is based on information readily available to the VIF. He argues that the ECPR is a good approximation of the VIF’s profit maximizing input price, and it is easy for the VIF to comply with and for the court to use in adjudicating such cases. Read Full Article.
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This article was published in the Spring 2013 edition of “The Exchange,” a periodical of the American Bar Association. According to the authors, distorted LIBOR submissions may cause several different types of economic harm, and each of these types must be measured in a different way. The economic harms from making false LIBOR submissions can be categorized into three groups: the direct harm that results when investors rely on false submissions; the indirect harm associated with the effect that the misreporting of submissions has on LIBOR rates; and the more general systemic harm associated with the manipulation of a key benchmark interest rate.
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