The Asymmetric Impact of Customer Information Portability on Service Competition: Evidence from the Global Wireless Industry

Abstract

We study the impact of customer information portability on market competition in customer-centric, technology-intensive service industries. By allowing customer information to be transferrable among service providers, portability in theory may help reduce switching costs and promote competition. Yet the actual consequences are unclear. To investigate this issue, we focus on the global wireless industry, and examine the impact of Mobile Number Portability (MNP) policy. We construct a duopoly model with heterogeneous switching costs, which predicts that the market share of the large firm will shrink after MNP, while the average price may depend on firms’ customer base composition. We test these hypotheses empirically on a panel dataset of 218 wireless operators in 52 countries over 6 years. We find relative market share gains for small firms and reductions for large firms under MNP. However, large firms can maintain higher prices than small firms. Probing deeper into customer segmentation, we find that on average, the share of contract customers increases for large firms after MNP, while it decreases for small firms. Large firms are able to retain higher-value contract customers while small firms tend to attract lower-value “pay-as-you-go” customers. Contrary to the policy intention, large firms tend to remain dominant, and MNP is incapable of changing this. In fact, contracts become even more important after MNP, highlighting the sticky “lock-in” effect of contracts. Our findings have broad applicability to other service industries (e.g., healthcare, financial services, and digital media), where policymakers are considering making customer information more portable in hopes of increasing competition.

Keywords: public policy, portability, wireless telecom industry, switching costs, competition, customer segmentation