Mobile number portability on customer switching behavior: in the case of the Korean mobile market

Dong H. Shin and Won Y. Kim

Dong H. Shin is Assistant Professor, Penn State University, Reading, Pennsylvania, USA. Won Y. Kim is Professor, Digital Media Division, Ewha Womans University, Seoul, South Korea.

Abstract Purpose This study seeks to investigate the effect of mobile number portability (MNP) on mobile subscribers in Korea by focusing on subscribers perception and behavior related to MNP. Design/methodology/approach The study collected data on subscribers who had changed mobile carriers between the beginning of MNP (July 2003) and December 2005. The data were analyzed by statistical analyses such as ANOVA and logistic regression. Findings Statistical analyses in this study reveal that subscribers perceive the switching barrier still as high, discouraging subscribers from switching carriers. While MNP lowered switching costs considerably, a signicant level of switching costs still remains despite MNP. Carriers develop new subscriber lock-in strategies that make them stay with current carriers. In addition, there are hidden costs other than MNP that should burden subscribers with number portaling. Research limitations/implications The ndings imply that the MNP has directly affected the industries to a greater extent than subscribers, which suggests implications for both regulators and industries: how to effectively enforce MNP to achieve the intended goals and how to achieve competitive advantage with MNP. Originality/value This research is particularly interested in investigating the effect of the introduction of MNP on subscribers behaviors and perceptions, and therefore their motivations for changing or remaining with mobile carriers (operators) with the introduction of MNP. Although there have been many studies looking at the effect of number portability on competition at the industry level, little attention has been shown on the individual level such as subscribers behavior or perception. Keywords Mobile communications systems, Consumer behaviour, Perception, South Korea Paper type Research paper

1. Introduction
Mobile number portability (MNP) is the ability to retain subscribers phone numbers when changing the subscription from one mobile service provider to another. It allows competition by allowing consumers to switch service providers, yet retaining their old mobile phone number. MNP allows subscribers to go for the best deals in a month, from operator to operator, and roam from network to network using the same mobile number. As a result, mobile carriers will need to actively compete, and provide innovative as well as improved customer service, in order to retain and expand their subscriber base. MNP is increasingly accepted as an integral part of a competitive environment and is being considered for introduction in a number of liberalizing countries (Bueler and Haucap, 2003). Its purpose is to foster consumer choice and effective competition by enabling subscribers to switch between providers without the costs and inconvenience of changing telephone numbers. From the middle of the 1990s, many telecommunications regulators in the world proposed to implement MNP as a tool for reinforcing competition in the mobile market. Despite the introduction of competition to the mobile market in Korea, the lock-in effect has helped the incumbents retain market dominance. There was a need to create an

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VOL. 9 NO. 4 2007, pp. 38-54, Q Emerald Group Publishing Limited, ISSN 1463-6697

DOI 10.1108/14636690710762129

effective competition environment where both incumbents and new entrants can compete on a level playing eld. In this context, MNP was enforced in Korea from January 2004 (Ministry of Information and Communication, 2004). The main regulatory objectives of MNP have been the benets to consumers as competition between carriers lowers the prices. In particular, the availability of MNP has been expected to bring substantial benets to subscribers: lower price, greater choice, higher quality and a greater range of services. In particular, it would allow subscribers to take full advantage of the choices that will become available in a more competitive telecommunication market. They will also be able to choose the provider that best meets their needs without incurring switching costs by changing their phone number. With a full overestimated hope, it was expected that 50,000 subscribers would switch providers within the rst year of MNP introduction. In the rst year after the MNP, however, only 1 million subscribers switched from one carrier to another according to data released by the Ministry of Information and Communication (2005). Many researchers and regulators raise the question of whether switching barriers are effectively lifted and thus competition is increased with MNP (Lee et al., 2004; Krupp, 2005). Up to now, MNP appears to have no signicant impact on the churn and competition in the mobile market. The difference of churn rate before and after MNP was insignicant (in 2003 pre-MNP: 7.5 million subscribers churned their services; in 2004 post-MNP, 9 million subscribers changed). It is inferred that as the MNP gives subscribers freedom to change their carriers, mobile service providers are desperately trying to lure customers to stay. An additional impact of MNP was the increase in marketing costs and corresponding decline in protability at mobile carriers as they became entrenched in erce price competition. Three carriers began increasing the amount of subsidies doled out to attract subscribers and increase switching barriers. There were even illegal marketing practices arising from the introduction of MNP. Although MNP in other countries has generally not lived up to the market expectations, the possible threat of its impact triggered the industrys proactive action in Korea. While there have been live discussions whether MNP increases competition in mobile markets, more fundamental question may be whether subscribers are able to switch carriers without signicant switching barriers. In this light, this study focuses on the subscribers response to MNP: the effects of MNP on the switching barrier, switching cost and subscribers perception, and the structural relationship among those factors in the Korean mobile subscribers. This research is particularly interested in investigating the effect of the introduction of MNP on subscribers behaviors and perceptions, and therefore their motivations for changing or remaining with mobile carriers (service providers) with the introduction of MNP. Most studies on MNP investigate the industrial aspect of MNP. The present study aims to ll this gap by analyzing the consequences of MNP at the subscriber level. A compelling question may be how regulators make MNP more effective to give benets to customers, instead of how mobile carriers guard against increasing churn and seize the market share opportunities at the expense of customer benets. In this light, the core of research question of this study is if this MNP regulation has achieved its intended consequences particularly in switching cost and subscriber benets. This investigation can be useful when Park et al. (2007) nd brand effect of MNP, which has adverse effect on competition in the mobile market. Then, the question is if such brand effect exists, how it affects the subscribers in their switching behaviors. Although there have been many studies looking at the effect of number portability on competition at the industry level, little attention has been made on the individual level such as subscribers behavior and perception. Since the primary goal of MNP lies in consumer benet, a fundamental and a priori question needs to address the consumers actual responses. The phenomenon of rising switching costs implies the market failure that the MIC attempts to rectify through MNP. The results of this study shed light on the implications for both researchers and regulators of the effective MNP implementations.

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The paper is organized as follows: In section 2, the characteristics of the Korean mobile market are described. Section 3 reviews literature review on MNP studies. The methodologies used in this study are explained in section 4, 5, and 6. Section 7 and 8 report ndings and results. Finally, conclusions and future studies are summarized in section 9.

2. The characteristics of the Korean mobile telecommunication services market

Korea is the third largest mobile market in Asia after China and Japan. The Korean mobile telecommunication industry exhibits typical aspects of the industry reaching the saturation stage. Korea had a mobile subscriber base of more than 39 million at the end of 2005, representing a penetration rate of almost 80 percent (Ministry of Information and Communication, 2005). The market grew by 4.8 percent over this year, but by just 1.1 percent during the fourth quarter, as was illustrated in previous quarters, implying a saturated market. There are only three network operators resulting in intensive oligopoly and saturated market. In particular, the incumbent is maintaining slightly more than half of the market share for more than two years. MNP in such a saturated market was expected to increase subscribers churn rate and to drive the mobile market in turbulent competition. There has been a rapid development in Korean mobile communications in recent years. An increase in market competition has lead to a decrease of prices and an improvement of service quality. SK Telecom (SKT) had monopolized the mobile service market since 1988. The long monopoly was stopped by entry of Shinsegi Telecommunication in 1996. Afterwards, three more operators joined the market in the late 1997. New entrants pushed the prices down so that they attracted new customers, which turned out to be successful. Within one year of entry, three new entrants acquired signicant market shares and the proportion of SKT dropped from 66 percent to 42 percent. Successful entry of new entrants may be due to not only their aggressive price strategies, but also growing market demand for mobile service. The competition stood at its peak in 2000, the year when new entrants were settled stably in the market, starting to generate positive net prots. However, SKT has built a strong reputation for service quality because it has enjoyed rst-mover advantages over other service suppliers, including early investment in the base station and acquisition of valuable or protable subscribers in the early stages of the market. Using reserved prot accumulated by these advantages, SKT has invested in large-scale marketing and thus occupy a dominant position in the industry to attract new subscribers created by market expansion. The Korean mobile market clearly shows a saturation stage. A stagnating rate of diffusion, indicated by a fall in the rate of increase in subscriber numbers, suggests that the market may have now reached the peak point. This change of paradigm and the symptoms of a market in transition are driving the industrys restructuring efforts and intensifying competition between companies. Korean mobile carriers are coming to a full realization of the importance of a customer-oriented business strategy as a condition for sustaining their competitive edge and maintaining a stable prot level, and, indeed, for their very survival. When the number of subscribers has reached its saturation point, creating and securing new customers is not only difcult but also costly in terms of marketing. Hence, industries focus on the marketing strategy to retain existing customers by heightening customer loyalty and customer value. Before implementing MNP, the MIC commissioned a feasibility study and cost-benet analysis which concluded, A wide range of consumers will benet from the MNP. Mobile subscribers will be able to switch operators and avoid the costs and inconvenience associated with a number change. Competition in the industry will be heightened as a barrier to switching is removed, further beneting residential and business users. With these goals, the MIC began to enforce MNP in January 2004[1] (see Figure 1). In order to prevent tipping towards the dominant provider and enhance user benets in the longer term, the MNP was introduced gradually in the order of market share. MIC launched MNP chronologically to protect LGT and KTF, the latecomers; SKT is currently dominating the mobile market (SKT to KTF/LGT in January 2004, then KTF to SKT/LGT in July 2004, and nally LGT to SKT/KTF in

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Figure 1 Chronological MNP in Korea

January 2005). In the rst phase, users were only able to take their numbers with them when they moved away from SKT to other providers. It will not work in the other direction. This is an effort to protect against a mass exodus from the other providers to SKTs more comprehensive network. The project provoked a high level of interest, with 122,800 subscribers moving from SKT to KTF and another 75,600 migrating from SKT to LG Telecom, all within the rst month of availability[2]. The number portability was expected to reduce signicant amount of transaction costs. Considering the market situation, the regulators made the portability between networks asymmetric. For the rst six months, switch from only SKT to the other two networks are admitted. Customers of KTF are allowed to change to SKT or LGT from July 2003. All the mobile service users were supposed to be free to choose their providers after 2004. The market share of SKT decreased from 54.5 percent to 51.3 percent. Both KTF and LGT exhibited increased market share. Even after the MNP, SKT has still enjoyed the market leadership with a market share of over 50 percent. At rst, mobility rapidly increased by KTFs and LGTs aggressive marketing activities and illegal distribution, but now is decreasing by government regulation on excessive competition and lack of effectiveness of discount price schemes. Since MNP was fully available to those mobile carriers in 2005, the average churn rate of three different mobile carriers was 1.96 percent, a little bit lower than 2004, and the forecasted churn rate for 2008 will drop to 1.5 percent. The statistics of MNP in Korea suggests that most users prefer to stay with their current mobile service providers. Between late 2003 and early 2004, SKTs market share fell 3.2 percentage points to 51.3 percent, while KTFs market share rose from 31.1 percent to 33 percent and LGT from 14.4 percent to 15.7 percent. The changes resulted primarily because SKT was the rst carrier to be affected by the new rule. By August 2006, the market share rankings of SKT, KTF, and LGT stood at 50.5 percent, 32.2 percent and 17.3 percent respectively. This suggests that while users may take advantage of MNP immediately after introduction, it has little impact on user movement over the longer term as customers are unlikely to change carriers frequently. Another noticeable thing in the Korean MNP is that more than 13 million mobile phones became redundant with the introduction of MNP and the number is growing even faster. An unseen side effect of MNP is that people switching networks have to purchase a new handset because of the incompatibility of Koreas three major mobile networks. MNP alone creates an additional 3-4 million handsets that need to be disposed of each year. Given the lack of regulation, recycling and take-back programs in Korea, many in the industry are calling for mobile carriers and handset makers to aggressively tackle this growing problem. Considering the unexpected consequences, now the MNPs effectiveness is questioned in Korea. Even way before customers would be able to benet from the effective competition among carriers which was the original intent of the MNP, competitive factors exposed by the hyper-erce competition prior to the MNP launch, made the competition go to the wrong way.

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3. Other studies on MNP

Most studies on MNP have developed from the framework of network competition, mostly by adding switching costs to the model. Studies on the impact of MNP on competition tend to have macro perspective using economic analyses. Aoki and Small (1999) is the most frequently cited research that directly investigates the effect of MNP implementation. This work gave the interpretation of MNP as a reduction in switching costs accompanied by increase in xed and marginal costs of the rms. Their analytical investigation is focused on the MNP-caused welfare change of consumers and producers. Similarly, Srinagesh and Mitchell (1999) analyze that MNP has signicantly contributed to the effective competition in the US mobile market. Gans et al. (2001) also positively assess that MNP would encourage participants to search for and achieve socially efcient outcomes by giving consumers ownership of their phone number and a right to port a number. Other studies highlight the negative aspects of MNP. Reinke (1998) argues that even if number portability can increase the competition in the telecommunication market, the means by which number portability is implemented may either ensure or threaten competition and universal service. Buehler and Haucap (2004) also investigate the effect on MNP implementation on consumers welfare. Novelty of this research was consideration of the effect of MNP on level of information available to consumers. They argue that under MNP number prex has no indicative power. Callers are not able to distinguish between on- and off-network phone numbers and may end up paying higher than average bills. They also argue that MNP implementation will benet the entrant rm and will hurt the incumbent. Buehler and Haucap (2004) concentrate on the analysis of xed-to-mobile calls ignoring the more difcult mobile-to-mobile case, which involves changes of market shares. Similarly, Lee et al. (2006) estimate consumer benet from content use with a mixed logit model, which provides a exible specication for representing the distribution of preferences in the population and the choices of each customer. Another stream of literature on the MNP effects is in analysis of customer behaviors toward MNP. Shin (2006) investigates the effect of MNP in the USA by focusing on subscribers perception and behavior on MNP. Lee et al. (2004) estimate subscriber preference of considering attribute of choosing a carrier through conjoint analysis technique. They also estimate quantitative users value given to switching cost and MNP and concludes MNP is an important cause of decreasing switching cost. Similarly, Gerpott et al. (2001) investigate the structural relationships of subscriber retention, subscriber satisfaction, and loyalty in German mobile subscribers. Their ndings show that customer support has a signicant impact on subscriber loyalty which in turn inuences a subscribers intention to terminate/extend the contractual relationship with his/her mobile carrier. Kim et al. (2003) use the Gerpott et al.s (2004) model and apply it to Korean mobile market whose ndings show the two factors of satisfaction and a switching barrier which constitute subscriber loyalty in mobile service. Their structural equation modeling among customer satisfactions, subscriber loyalty and switching show that switching cost like switching number is considered as a formation factor of an important subscriber loyalty, preventing subscriber from churning for other carriers, in the result. While Kim et al.s (2003) framework is a good tool to investigate a series of behavioral factor affecting switch mobile service, a question of competition in mobile carriers remains unanswered. For this question, Krupp (2005) assesses the effect of MNO in the USA in terms of competition in industry and subscriber benet. Krupps study method is purely qualitative, collecting data through six interviews from industry, regulatory agencies and selected subscribers. Bjorkroth (2005) focuses on the cost of MNP administration in Finland mobile carriers before and after MNP. Using statistical analyses, Park et al. (2004) estimate the impact of MNP on the competition and social welfare and conclude that the MNP has achieved effective competition in mobile market, but MNP has not contributed to social welfare.

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Jeong and Park (2003) examine the difference of subscribers switching intention before and after the introduction of MNP in Korea. Their study nds the factors associated to switching: service quality, brand image and price and service benets. Based on the factors from Jeong et al.s study, Yang and Choi (2003) further analyze the structural relationships of the identied factors of brand perceived level, service quality, a charge cut and value-added service. Yang and Chois study would have been better with a specic customer retention strategy of telecommunication carriers with MNP. Lee et al. (2004) used contingent valuation techniques to estimate the prospective demand for MNP in South Korea. They found that the average South Korean mobile user was willing to pay an average of 3.24 percent of his or her monthly bill for a mobile number portability option. Willingness to pay (WTP) showed a strong positive association with income, awareness of MNP, and intention to switch. The authors also found that WTP varied signicantly depending on a users network operator: the gure was lower for customers of the incumbent operator than those using either of the alternative operators. Other demographic variables such as age, gender and occupation were not found to be signicant. Kim (2005) estimated switching costs for customers of two of the countrys mobile network operators by applying a random utility model to cross-sectional subscriber-level user data. The paper compared switching costs calculated using samples before and after MNP, and differences between these estimates were attributed to MNP. The paper estimated that MNP reduced average switching costs in South Korea by more than 35 percent. Data reported in the paper indicate that there was signicantly more switching after MNP was introduced, at least among customers of the largest operators. Though number of empirical papers grows quickly still there is enormous space for investigation. Few attempts have been made to measure the effect of MNP at subscriber levels leaving the concept of switching barriers unclearly dened terms. The present study aims to ll this gap by analyzing the actual subscriber behaviors and perceptions on MNP. The term of switching barrier needs to be claried with subscribers behavior. A question of how subscribers see switching barriers with MNP is practically related to actual subscriber benet and eventually competitions.

4. Operational denitions
For the operational denitions of subscribers behavior, this study takes factors regarding subscriber behavior from Gerpott et al. (2001), Kim et al. (2003), and Lee et al. (2004). Gerpott et al. (2001) use three variables of customer retention, loyalty and satisfaction. Based on these three variables, Kim et al. (2003) develop two factors (service quality and switching cost) comprising 12 variables. Their variables are not mutually exclusive to each other and somewhat redundant, for example, variable of adaptation cost and move-in cost. Under the service quality factor, variable of subscriber support and services are redundant as well. To avoid inter-correlation effect among variables, 12 variables are simplied into three variables. A new variable of subscriber lock-in is added to reect the current carriers counteract of MNP. In addition, a variable of opportunity cost is added to encompass concepts like adaptation cost, move-in cost and loss cost (see Table I).

5. Theoretical concepts and hypotheses development

5.1. Switching cost Switching cost occurs when customers face changeover cost in a market when switching from a purchased product to one of its substitutes (Krupp, 2005). Switching cost is commonly dened as perceived risk, insofar as there are potential losses perceived by subscribers when switching carriers, such as losses of a nancial, performance-related, social, psychological, and safety-related nature (Dick and Basu, 1994). Substantial research addresses the economic theories and practical implications of switching costs with respect to various market structures (Jones et al., 2002). Initially, the theory introduces a market in which the consumer has not yet purchased a good or service.

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Table I Operational denition and measurement of variables

Factor Service Variable Call quality Value-added services Customer support Switching cost Opportunity cost Operational denition Call quality according to subscriber perception Type and convenience of variety of services Subscriber support system Financial cost switching carrier Forgone alternative by switching carriers Measurement items Call clarity, coverage Variety of value-added services Ease of accessing subscriber services Surcharge, fee to change carriers Concern on the loss of benets Cost of replacing mobile device, subscription fee for new membership Contract, or other credit Reasonability of price Variety of price scheme Activation cost, termination fee, regulatory fee, etc.

Switching barriers

Prices

Subscriber lock-in Pricing structure Pricing scheme Additional service fee

Service specic to carriers Pricing and price schedule A choice of price scheme Fee for extra services

Source: Adopted from Gerpott et al. (2001), Kim et al. (2003), and Shin (2006)

When the subscriber makes a purchase decision, the initial costs are assumed to be the same across all rms (Klemperer, 1987). These rst period sales create the second period, or aftermarket, switching costs. High consumer switching costs are a prime example of a market failure that creates barriers to competition by keeping subscribers locked into particular aftermarket. Economics dictate that subscribers strongly bound to a particular provider effectively grants monopoly power to that provider. This absence of competition allows the seller complete control over the choice, quality, and price of goods in the market, typically resulting in decreased output with inated prices, reducing consumer choice and value of products immensely. While most industries should not naturally display characteristics of a monopoly, such situations can, and do, arise as a result of market failures, such as high switching costs (Kim et al., 2003). De Ruyter et al. (1998) rebut the claim that monopoly situations arise through switching costs by arguing that competition in the rst period precludes any evidence of monopoly power in the aftermarket. This question has been the focal point in several court cases, exemplied in the early 1990s by Kodak vs. United States. To defend against charges of illegal monopolization, Kodak argued competition existing in the rst period prevents manufacturers from exercising monopoly market power in the aftermarket in all circumstances. The Supreme Court, consistent with a trend to limit per se or absolute violations of antitrust law, rejected this idea, believing while Kodaks theory is plausible, deciding whether the market actually functions as such should be resolved on a case by case basis. Borenstein et al. (2000) directly address Kodaks claim by investigating if economic power over subscribers in the aftermarket can be protably exploited even if competition exists in the rst period. Assuming consumers to be fully informed with perfect foresight of the market, their work supports the Supreme Courts hypothesis that a rm with a dominant position in an aftermarket could protably exploit its position despite rst period competition (Borenstein et al., 2000). It is important to note that complete information is very costly, markets are dynamic, and long-term forecasts, especially within innovative markets, are rarely accurate. In practice these imperfections provide the manufacturer with even greater opportunities to exploit economic power over service subscribers than their research illustrates. Various iterations concerning the concepts of switching costs emerge, especially with respect to technology markets. This research will take its cue from switching costs to see whether companies can still harm consumers by monopolizing an aftermarket (MacKie-Mason, 1997). Aftermarket monopolization becomes protable because the cost of switching carriers is enough of a disincentive to keep the subscribers locked into their original rst period purchase decision.

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5.2. Subscriber lock-in Service providers may attempt to lock in customers to prevent them from switching to alternative products, technologies, or suppliers (Bueschken, 2004). Customer lock-in entails charging such high switching costs for changing vendors that customers are stuck. Customer lock-in involves raising customers switching costs to the point that the cost of switching outweighs the potential benets from switching. This kind of subscriber capture can take many forms, including: contractual commitments, bundling of services, product-specic learning costs, search costs, and loyalty programs. However, each of these industry tactics represents various embodiments of switching costs and aftermarket monopolization. The higher the cost of switching providers within a particular market, the more the subscriber is captured, or locked into, the original purchase decision. In this situation, the provider may be able to increase the service price without a signicant loss of subscribers, providing the service price increase does not exceed cost of switching providers. This approach forces subscribers to balance switching costs with the benet of saving money in a competitors original systems market (Borenstein et al., 2000). Switching costs thus generates consumer lock-in, allowing rms to earn above-competitive, monopoly prots. This form of subscriber capture is especially effective when coupled with marketing phenomenon such as brand loyalty, where consumers are strongly motivated to make consistent repeat purchase decisions of a particular product or service. In any market, a provider competes for both existing and potential consumers. While markets with high switching costs serve to retain existing subscribers, industry claims suggest that potential subscribers provide the competitive discipline to resist overpriced products and services. This supports the often-claimed phenomenon of reputation effects. If it becomes known that providers will charge excess prices in the aftermarket, consumers may avoid such costs by purchasing from a different provider in the rst period. This theoretical argument has again been utilized in antitrust cases, for instance, when Prime Computers argued that second period subscriber services are essential to a rms competitiveness (Borenstein et al., 2000). While the tactics employed by various industries to seduce potential and retain existing subscribers will vary extensively across markets, it has become an economic lesson that lower switching costs force competition for initial subscribers and tie down liberate second period subscribers in a particular aftermarket. With the introduction of MNP, Korean carriers offered at calling rates and privileges for long-term users. Sales promotions got so intense carriers offered incentives that were illegal. Interestingly, most subscribers are required to change their mobile terminal due to incompatibilities in products and frequency bands among service providers. The incompatible products and frequency bands are another subscriber lock-in in Korean mobile market. 5.3. Hypotheses As shown in the literature review, there are signicant amount of previous studies done on the relation of customer satisfactions and customer loyalty (Shin, 2006; Kim et al., 2003; Dick and Basu, 1994; Reichheld, 1996); the relation of customer satisfactions and call qualities (Keaveney, 1995; Soderlund, 1998; Gerpott et al., 2001); switching demand and MNP (Lee et al., 2004). However, the relation between factors and customers switching has been rarely discovered. Shin (2006) investigates the effects of MNP by focusing on the US subscribers perceptions and behaviors on MNP. It is worthwhile applying his approach to the Korean mobile context. The hypotheses below are based on the relations among the factors. Perception of switching barriers is a cue in the hypotheses which leads this study to explore the customers switching behaviors: H1. There are signicantly different perceptions on switching barrier between the switching and non-switching groups. H1a. Higher level of perceived switching barriers is related to lower level of switching.

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H1b. Higher level of prices is related to the higher level of switching barriers. H2. There are signicant different future intentions between the switching and non-switching groups. H2a. Higher level of perceived service is related to lower level of switching. H2b. Higher level of perceived switching barrier is related to higher level of perceived service.

6. Survey design and variables

This study collected data on subscribers who changed mobile carriers between the beginning of MNP (January 2004) and December of 2005. Data for the present study were collected from two venues. First, this study obtained data from the Ministry of Information and Communication in Korea. The data contain information of more than 2,000 subscribers in the mobile service industry. The sample is divided into two groups: switchers and non-switchers (see Table II). The switching group includes the consumers who have not changed their service carriers. The non-switching group includes the consumers who have changed their service carriers. Second, these data were consolidated by other data from a private market-research company. The present study had the research company performed extensive telephone surveys among randomly selected mobile subscribers out of the initial list from the MIC. This study uses a survey questionnaire derived from Shins (2006) study, which had been developed based on previous study on MNP (Gerpott et al., 2001; Lee et al., 2004; Kim et al., 2005, 2003). The telephone questionnaire asked subscribers reasons for switching carriers such as satisfaction, service, switching cost, lock-in, and prices. A total of 552 survey forms were collected after a three-month data collection. Among completed survey forms, excluding those with omissions or with randomly repeated answers, a total of 490 valid survey responses were obtained. SPSS 10.0 was used for descriptive statistical analysis, factor analysis and reliability analysis. Regression analysis was done by AMOS 4. A factor analysis was performed to reduce the number of variables and to avoid multi-collinearity (linear inter-correlation among variables). A principal components method with a varimax rotation of the 11 variables reveals ve underlying factors with eigenvalue (characteristic value) of greater than one. These ve factors explained 67.8 percent of the variability in the 11 variables. A description of each factor and its corresponding variables are: 1. service; 2. price; 3. switching cost; 4. call quality; and 5. customer service. A conrmatory factor analysis was performed on the data to analyze the constructs validity on units remaining after discarding items disturbing the homogeneity of the set (Table III). Table II Sample and data collection
Telephone survey Switching group Total sample Response 441 289 Non-switching group 870 201

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Table III Description of derived factors and its corresponding variables

Variables/factor Call quality Move-in cost Customer support Switching cost Opportunity cost Subscriber lock-in Pricing structure Pricing scheme Other service fee Value-added services Adaptation cost Subscriber loyalty Mobile devices Factor 1 2 0.908 2 0.905 2 0.754 2 0.129 0.110 0.349 0.293 0.523 2 0.423 0.128 2 0.082 0.015 0.024 Factor 2 2 0.0447 2 0.192 2 0.098 0.801 0.823 0.862 0.080 0.123 0.224 2 0.231 0.032 0.012 0.029 Factor 3 2 0.177 0.239 0.292 0.011 0.130 0.0811 0.901 0.799 0.901 0.283 2 0.003 0.0084 0.0338 Factor 4 0.097 0.301 0.334 0.013 0.049 0.325 0.102 0.0092 0.0494 0.398 0.234 0.134 0.121 Factor 5 2 0.039 2 0.032 0.390 0.293 0.0932 0.301 0.214 0.0021 2 0.046 0.025 0.253 0.0792 0.7623

The conrmatory factor analysis indicated that the factors generally satised validity evaluation standards.

7. Results
A t of the model is conducted to test the validity of the model (Table IV). Fitness evaluation for the model denes the process that measures the appropriateness of the level of similarity between the samples characteristics and its theoretical characteristics. The most widely represented value and recommended optimal standard is as follows, and rather than deciding on one standard, values are compared overall and a decision is made: Chi-square value (signicant level . 0:05), Goodness of Fit Index (GFI . 0:80), Adjusted GFI (AGFI . 0:80), Normed Fit Index (NFI . 0:9), Comparative Fit Index (CFI . 0:90) and Root Mean Square Residual (RMR . 0:05). Table IV shows that most index values approach the general standards for index of t. The test of H1 shows that there are signicant different perceptions on switching between the groups (Table V). This triggers following hypothesis how it is different (H1a). The test of H1a implies that unswitching group generally has higher switching barriers than switching group. In addition, the test of H1b shows that price level is associated with the subscribers switching decision. The test of H2 (future switching intention) shows that there is also different intention between the two groups. Then, the test of sub-hypothesis H2a is rejected implying that the service factor is not a determining factor in their future intention. Further hypothesis of H2b is also rejected which implies that better service is not necessarily associate with switching carriers. Table IV Index of t of the model
Index of t Value Chi-square 722.9 df 301 P 0.000 GFI 0.842 AGFI 0.893 NFI 0.922 CFI 0.808 RMR 0.122

Table V The results of hypothesis tests

Hypotheses H1 H1a H1b H2 H2a H2b Mean difference 0.233 0.106 0.289 0.539 0.120 0.178 t-value 3.314 2 1.390 3.182 3.248 2 0.248 1.231 Signicance 0.003 0.028 0.000 0.001 0.791 0.231 Result Reject Accept Accept Accept Reject Reject

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A t-test is conducted to corroborate the hypothesis tests. The results of t-test show that the means of the two groups are statistically different from each other. P-value further supports that the differences of the two groups are statistically signicant except the variable of value-added service. Usage time and call frequency are the two variables clearly distinguished in the two groups. Analysis of variance on switching shows that there are statistically different in usage patterns in the two groups. Subscribers in the switching group show a tendency of heavy users making calls more frequently, subscribe to more and diverse services and use more call-time than unswitching group. Conversely, subscribers in the unswitching group tend to be light user group having call less frequently, having only one or two additional services, spend less call-time. These differences imply that the behavioral differences of the two groups that the switching group tends to be more adaptive in change, more sensitive to service quality, and more willing to pay switching costs to optimize their needs than the other group. The two most signicant factors for the switching group to change carriers shown in Table VI are price and the switching cost. Of those who switched, 39 percent responded they left for a better price on monthly service and 10 percent switched because of a promotion of sale. A total of 23 percent switched because of coverage or service quality, which the two factors, had been considered major reasons that would lead to widespread switching. Service factors show generally higher inuence than switching barriers. Unlike the commonly accepted notion, switching barriers had not been the signicant factors. MNP was not by itself a reason for subscribers to switch carriers, but did lessen the hassles of switching. Subscriber lock-in is the most signicant switching barrier discouraging subscribers from switching decisions. Analyses show that switched subscribers generally are satised with new service and carriers. The switched subscribers in general are well informed of the MNP. Around 71 percent of subscribers were very or somewhat satised with their porting experience. In addition, approximately 81 percent of subscribers indicated that length of porting met or exceeded expectations. On the other hand, most unswitching subscribers felt the switching barriers higher than switching group. Even after the MNP enforcement, switching barriers have inuenced subscribers decision. In addition, subscriber lock-in is the second important factor makes subscribers stay with current carriers. Unswitching subscribers have been locked in with long-term contract, fee, and memberships. These unswitching subscribers received a promotional discount when they selected the current carrier in the condition of two-year contract. Furthermore, the unswitching subscribers worried about hidden costs that included early termination fess (in case subscribers switch carriers during contract, subscribers should pay early termination fee). Of the respondents, 14 percent said that they stopped pursuing switch after they were aware of the early termination fee. The unswitching groups explained another hidden cost of fee to keep current number after switching carriers. In addition, unswitching group worried about a requirement to purchase a new handset compatible with the new carriers network. These subscriber lock-in factors have heavily discouraged subscribers from changing carriers. Table VI ANOVA on switching
Variable Usage time/week Call frequency/week Services in use Switching cost Subscriber lock-in Price Opportunity cost Call quality Subscriber service Value-added service Switching group Mean SD 4.49 70.224 6.923 1.270 3.342 4.323 1.523 5.902 4.121 4.412 0.112 0.213 0.129 0.440 0.340 0.2123 0.209 0.094 0.132 0.390 Unswitching group Mean SD 1.712 26.23 2.118 5.092 4.002 2.194 4.023 2.921 1.202 2.256 0.1103 0.1721 0.239 0.430 0.233 0.242 0.401 0.373 0.129 0.412 t-value 3.1012 4.992 2.254 2 3.162 3.2545 4.274 1.813 2 3.041 3.312 2 0.8274 p-value 0.027* 0.024* 0.010** 0.001** 0.002** 0.001** 0.050* 0.002** 0.001** 0.110

Notes: * p , 0:05; ** p , 0:01

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It seems that service quality is not an important issue to unswitching subscribers. They rarely see mobile service any of importance. They have had little real experience with various value-added services. They tend not to differentiate or discriminate different service quality other than voice. They are not highly satised with current services nor think the service will be improved with other carriers. Interestingly, 3 percent of unswitching subscribers are completely unaware of the existence of MNP. Subscribers awareness of MNP was not high that they lacked a detailed understanding of the process, timing and cost of porting. Most of unswitching subscribers had simplistic notion that MNP would be free, immediate and hassle-less. Around 5 percent of unswitching subscribers responded that they would wait for a while until switching costs are lowered.

8. Subscribers future intention: logistic regression

As the results show that the two groups are signicantly different in switching behavior, this study is further interested in whether such different behaviors would continue or change in future. For this question, logistic regression is conducted to see subscribers future intention to switch in the two groups. Dependent variable in logistic regression is switching intention (switch 1, not switch 0) and independent variables are the seven factors above. Independent variables were aligned in ordinal response. Figure 2 shows a matrix: two customer groups were divided into four groups. The rst group (n 120) is a customer group representing switching. The second group (n 52) is those who would remain without further switch. The third group (n 35) is from unswitching group that intends to switch in future. The fourth group (n 112) represents a customer group which consistently remains unswitched. The result of logistic regression overall supports the ANOVA analyses (Table VII). Subscribers from unswitching group are most likely to switch when switching barriers become low. In particular, subscriber lock-in is shown to be the most deterring factor for them to switch. Subscribers in the unswitching group perceive switching barriers higher than switching group as shown in the subscriber lock-in. In addition, unswitching group in general are less intrigued or prompted by lower prices. They are interested in lower price, Figure 2 Customer type regarding switching intention

Table VII Logistic regression analysis on independent variable of switching

Factors Switching barriers Independent variables Switching cost Subscriber lock-in Opportunity cost Call quality Customer service Value-added service B Switching (Group 1) SE p-value 2.434 1.556 0.341 0.862 1.107 0.867 0.212 2 4.959 153.049 142.955 0.837 0.0921 0.042 0.410 0.219 0.159 0.011 0.163 Unswitching group to intend (Group 3) B SE p-value 0.404** 0.478** 0.643** 2 0.551 2 1.119 2 1.070 2.124* 0.000** 11.568 1.621 0.344 3.215 2.122 0.0164 0.012 2 4.647 44.229 68.032 0.002 0.017 0.018 0.631 0.849 0.364 0.033 0.456

Services

Price Constant Log likelihood Chi-square Notes: * p , 0:05; ** p , 0:01

0.0432 0.102* 0.011 5.19* 3.08 6.96** 6.32** 2 3.351

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but they think the lower price would offset by high switching cost and move-in cost. In fact, it is consistent from a series of analyses that unswitching group is less concerned with levels of service quality and are less responsive to price change. Subscribers from unswitching group are least likely affected by the service factor. In general, the unswitching group has causal users which tend not to care about their number. They just need a call when they need it. This observation is consistent with the following variable that unswitching group tends to see the value-added service as the least affecting factor. Call quality is the vital factor for unswitching group to future switch, but it is not signicant factor. On the other hand, subscribers having switching experience are likely to switch again if they nd lower prices. These subscribers are also are tempted to switch carriers with better value-added services. They tend to see mobile service as an additional means of communication looking for richer functionality and greater versatility. While the price is found to be the important factor, switching barriers are the least affecting factor to these subscribers. As they have experience in switching and thus they have know-how how to better deal with switching barriers, switching group now see services are more important consideration than switching barriers. Switching group tend to more easily change current carriers if service quality falls short of their expectations. Also, subscribers in the switching group are willing to switch again if they nd lower price through promotions or special sales offers. An unseen side effect of number portability is that people switching networks have to purchase a new handset because of the incompatibility of Koreas three major mobile networks.

9. Conclusion and future studies

Korea has been hotbeds of mobile innovation, in terms of services, content, handsets and pricing. Being the rst markets in the world to launch 3G services, they have unmatched experience of what it takes to achieve telecommunications success. However, in the race to offer new services, regulators seem to have a lack of understanding of the full implications of MNP meaning that MNP has not always translated into consumer benets. This study investigated the subscribers behavior and perceptions toward switching after the introducing of MNP. The results show that MNP has not signicantly contributed to the regulators goal of removing switching barriers that had prevalent in subscribers perception. Instead, MNP has indirectly enhanced switching barriers through the increased subscriber lock-in strategy and its tactics. Since MNP, there was an outbreak of advertising wars and special offers to retain existing customers and capture those of rivals. Although the introduction of number portability helps to signicantly lower switching costs, the remaining potential switching costs are still large. Subscribers of both the switching group and the unswitching group still felt rather high barriers of switching carriers. Subscribers are not well aware of their individual needs and are not informed well regarding their purchasing decisions. This nding is partially consistent with other studies on Korean MNP such as Park et al. (2007) and Lee et al. (2006), which report a brand effect among subscribers that they feel MNP demands differently. Although portability is designed to benet consumers, it becomes possible that the corresponding increase in marginal cost of production reduces consumer surplus and makes entrants and consumers worse off. As Aoki and Small (1999) nd, it is also possible for consumers to receive fewer benets following a reduction in the cost of switching between carriers. There is a discrepancy between regulatory assumption held by the MIC and actual industrial phenomena. MNP is not always and everywhere socially benecial, therefore future studies may further research on this discrepancy. Interestingly, this discrepancy is consistently found in the US MNP by Shins (2006) study. Based on the discrepancy found across countries, a suggestion can be drawn to regulators: in order to develop socially desirable and economically competitive policy, it is advisable for regulators not just to enforce MNP, but they should rather seek to reduce consumer ignorance (or misconception) and raise customers perceptions on MNP. This argument can be supported by previous research of Wright (2002) and Gand and King (2000) who investigate the effects of consumer ignorance of relevant pricing and suggest that MNP may deteriorate the customers price information.

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As Gans et al. (2001) argue, regulators are usually constrained in their ability to effectively develop policy and regulation. Regulators are likely to be less informed than the dominant carriers, who have little incentive to reveal information concerning the appropriate choice and timing of portability decisions (Gans et al., 2001). In fact, abolishing switching cost has led to reducing welfare by burdening extra cost on society and consumers. Regulators face difcult practical decisions of MNP when and how to implement it, and how to reap these benets. Regulators and policy makers should be aware that MNP may increase competition in the mobile market, but the means by which it is implemented would increase or hamper effective competition and thereof detriment consumer welfare. With MNP, there are beneciaries (KT and LGT) on one side and benefactor (SKT) on the other side. Although it is too early to predict and assert, MNP has a risk of hindering effective competition if the mobile market continues to polarize signicant market players and small market players who bring competition to the market. Acknowledging such risk, regulators should come up with detailed and thorough technological, economical and regulatory plans of how to best implement it technologically, when to enforce it, and where to allocate its cost. In addition, after the enforcement of MNP, the assessment of its effect on various levels (market, industry and consumers) should be done periodically and systematically. While regulators may not have perfect information regarding market and social conditions, this does not imply actions to compensate for market failures are useless or counterproductive. Rather, the delicate regulatory balancing act must be viewed with a comprehensive and critical eye to ensure government intervention is in fact attaining its intended effects. This study proposes three practical implications to the Korean mobile regulators regarding prevalent switching barrier. First, it may be useful to establish an effective technology assessment mechanism such as the European case of Constructive Technology Assessment (Shin, n.d.). Constructive Technology Assessment is a regular technology assessment done by an independent group of researchers, industry and government. An independent group may conduct regular evaluation on the levels of quality and price and periodically reveal information on these estimates to the public. Such an arrangement would help reduce the uncertainty costs associated with switching. Its timely communication and early warning component help assure awareness about the MNP provisions, and its policy assessment and choice component produces a mechanism for such awareness to be reexively incorporated into development (Guston and Sarewitz, 2002). In addition, a regulatory authority should force service providers to establish an easy and simple switching system (Lee et al., 2006). Providers may create a web-based process through which consumers can change retail electricity providers, minimizing inconveniences incurred by switching. These provisions are likely to reduce pre-switching search and evaluation costs, as well as setup costs. Related to the easy system, regulators may enforce all service providers to share a common billing system. With this system in place, subscribers who wish to terminate their subscription to one service in favor of another easily can settle the remaining charges by means of a common bill. The latter provision would also reduce setup costs. Finally, this study has practical suggestions to make to mobile carriers. First, mobile carriers have to strategize and prepare themselves to gain the most from MNP. As MNP implementation is an unstoppable trend in the world, it is best that mobile carriers embrace the inevitability, and in the process prepare themselves to take advantage of its implementation. Competition has always been good in any industry and with more healthy competition expected, more innovation, solutions, and competitive pricing is anticipated from mobile service providers. This will subsequently lead to more consumer interest and usage, thus resulting in revenue growth. Second, trafc quality, brand power, membership, handset quality, etc. had been considered as mobile services competitive factors before MNP. After MNP launch it seems development of new services and customer management seems to be much more important. Thus, carriers will have to change their strategies of having focused on marketing by branding their own numbers as MNP removes brand premium by carrier-recognizable numbers.

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Third, the results of this study imply that subscribers do not see customer service much differently. Along with customer services, call quality is found to be not a signicant factor. It is the two areas (customer service and network quality) that mobile carriers have focused on to secure competitive edges. With advancement of network technologies, call qualities in general reach a quality level that customers feel no difference. In addition, customer services are an adjunct tool that customer care processes are somewhat standardized. Accordingly, mobile carriers are advised to focus on other areas such as developing new application, namely killer applications, which are what they have long been seeking. As this study only investigates the subscriber issues of MNP (how to ensure that customer rights are respected and how to prevent operators from abusing or obstructing the system), future studies may delve into various aspect of MNP such as technology issues (how to nd the most suitable technical solutions for number queries and routing), economic considerations (how different operators, including Korean and US operators, and have funded MNP implementation and running expenses as well as the resulting increased interconnection and call-routing costs), and porting procedures (how operators have chosen to carry out the porting process).

Notes
1. The rst provisioning of number portability in Korea was carried in 1997 and 1998 over Freephone service. 2. The term number portability has a little different meaning in Korean mobile context. For mobile users, the MNP means they can keep their old numbers but subscribe to rate plans from other providers. In reality, users never actually leave their original network. An SKT subscriber who wishes to switch to KTF will still communicate via SKTs mobile towers. However, the user will be charged the KTF rates. The user stays on the SKT network but KTF is put in control of the account. Then, the two providers, in this case SKT and KFT, work out payment for use of the network based on interconnection rates.

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Corresponding author
Dong H. Shin can be contacted at: dshin@psu.edu

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