Wireless Churn Creams Laggards

Analysts like Rich Nespola of Management Network Group say the biggest risk to investors is on operating margins as these costs rise. He also cautions that the timing of the new rules may threaten the all-important holiday buying season.

The fourth quarter is traditionally the strongest sales season for cell-phone service providers. But Nespola fears that if telcos haven't prepared for the even higher volume of service switching, sales staffs will likely get tied up, which would interfere with the normal holiday rush.

Verizon was the first of the six national players to stop fighting the federal number portability rules and start talking about making the switching process easier. But some question whether that has translated to actual operational changes as well.

And though AT&T Wireless has been plagued by service quality complaints and was late to embrace number portability, at least one analyst says don't rule out the company -- it may yet show the mettle to compete in a number-portable age. Ken Hyers of In-Stat, a market research firm, says AT&T has developed a decent strategy. In fact, Wednesday, on a conference call with analysts, AT&T executives said that among their efforts to stem subscriber losses, they plan to contact high-spending customers as their contracts come to an end and try to entice them to sign them on again.

Number portability is likely to have the least effect on Nextel, say analysts. The Reston, Va., cellular service has a remarkably loyal following attributable to its defining walkie-talkie feature. Nextel has enjoyed profitable growth and the industry's lowest churn rate at 1.4%, as of the third quarter.

To be sure, the strong sales push ahead of number portability has made the wireless sector one of the few success stories in tech this year. But even the bulls concede that that streak may be in jeopardy as the players turn their efforts toward managing the upcoming chaos.