FCC ‘naive’ to cite consumer savings as it drops Neustar for Telcordia in US Number Portability deal

Tom Wheeler, FCC chairman

The U.S. Federal Communications Commission (FCC) voted unanimously by five votes to nil, on Thursday to drop Neustar Inc in favour of Telcordia Technologies as the contractor to help telecom carriers route calls and text messages.

The exclusive Local Number Portability Administrator (LNPA) contract, which expires on June 30, 2015 accounts for almost half of Neustar’s revenues, reports Jeremy Cowan. The vote follows a recommendation from the FCC’s staff and advisers to begin contract negotiations with the Ericsson subsidiary Telcordia.

FCC commissioners cited the savings expected to result from the change as a key factor in the decision. The contractor will manage the local number portability registry, which allows consumers and businesses to keep their telephone numbers when switching among providers. Tom Wheeler, FCC chairman (pictured here), says using Telcordia instead will result “in substantial savings for consumers”, a position that one analyst describes as “at best, naïve.”

Wheeler notes that last year the contract cost the US government US$260 million, while according to analysts Telcordia’s bid was $142 million per year.

FCC_logo_name

A statement issued by the FCC said, “The Federal Communications Commission today conditionally approved a recommendation that Telcordia Technologies Inc. serve as the next administrator of the service that allows consumers and businesses to keep their phone numbers when switching carriers, called “local number portability.”

Local number portability fuels competition by allowing consumers and businesses to choose their phone provider based on cost and service, without the inconvenience and expense of losing a familiar number. In addition to the porting of over 100,000 numbers a day, the capabilities built around local number portability are critical to public safety, law enforcement and consumer protection.

The recommendation of Telcordia as Local Number Portability Administrator (LNPA) was developed following a multi-year, competitive process implemented by the FCC’s federal advisory committee on numbering, the North American Numbering Council, with oversight from the FCC. This process included extensive input from industry, consumers, and public safety and government entities, resulting in the recommendation of an experienced, qualified company to administer and keep the system secure.

Neustar, Inc. and its predecessors have administered number porting since 1997, starting with a five-year contract that was extended three times. The FCC’s Wireline Competition Bureau in 2011 issued an Order detailing a process to award the LNPA contract through a competitive process. The process was supported by Neustar, Telcordia, and others, and included evaluation of technical and managerial competence, security and reliability, public safety and law enforcement considerations, cost-effectiveness and neutrality.

The process required bidders to respond to questions about service quality and system security and reliability. It also required bidders to describe how they would ensure a smooth and secure transition, including by providing opportunities to test any proposed system.

The Order today does not award a contract. Rather, it authorizes contract negotiations between the NAPM (North American Portability Management, LLC), which is an industry consortium, and Telcordia.

The negotiated contract will be subject to Commission review to ensure that the neutrality and security requirements are fully satisfied.”

Jennifer Clark, vice president of 451 Research comments: “The transition will take anywhere from one year to three years to execute, giving Neustar some time to absorb the impact to its bottom line.  In the meantime, the company will pursue “all options to address the significant flaws in the selection process,” which it claims was procedurally deficient. Neustar also claims that, despite facing the loss of close to 50% of its revenue stream, it is not planning any layoffs, citing as precedence the 2009 renegotiation of the Number Portability Administration Center (NPAC) contract when the company lost $40 million in revenue but avoided layoffs.

Jennifer Clark, vice president of 451 Research
Jennifer Clark, 451 Research

“The awarding of the contract to Ericsson clearly benefits the Tier 1 carriers, which shoulder the bulk of the financial burden of maintaining the NPAC. The FCC intoned that the transition would result in ‘substantial savings for the consumer’.” As Clark points out, however, “US consumers are not charged for number portability today and the idea of savings trickling down from the carriers seems at best, naïve. Very few details of the two bids have emerged during the process. However, number portability today in the US is carried out within minutes. Ericsson’s guarantee for its other LNP contracts is three hours to a day. It will be interesting to see at the end of the switchover to Ericsson how much the transition process itself ends up costing – in dollars, in performance and in support for a competitive telco environment.”

Neustar calls FCC decision ‘procedurally defective’

Neustar (NSR) is reported to have earned more than US$3 billion from the contract since it started in 1997. Perhaps unsurprisingly, the company does not appear to be taking this decision lying down. It has also declined to alter its guidance to investors.

A statement issued the same day says, “Neustar, Inc., a trusted, neutral provider of real-time information services and analytics, today commented on the FCC’s adoption of an Order to permit contract negotiations to begin between the North American Portability Management LLC and Telcordia, a subsidiary of Ericsson, to serve as the next Local Number Portability Administrator (LNPA). Neustar also affirmed its guidance for the first six months of 2015, and its shares closed up on the day at $23.18 having opened at $21.99.

“The LNPA vendor selection process overseen by the FCC has been procedurally defective. Its action presents substantial transition risks and cost to the industry and the consumers it serves. The FCC has now embarked on a transition that is fraught with complexity and difficulty rather than minimising risks and ensuring that the broadest set of constituencies benefit from the continued flawless operation of a critical element of U.S. telecommunications infrastructure. We are considering all options to address the significant flaws in the selection process,” said Lisa Hook, Neustar’s president and chief executive officer.

Lisa Hook, Neustar CEO
Lisa Hook, Neustar Inc’s CEO

“Even as Neustar evaluates its options, we intend to meet our contractual obligations, including a transition to another LNPA, if that ultimately is what comes to pass,” Hook said.

“We continue to solidify our position as a leading provider of information services and analytics, or IS&A. Our unique datasets and proprietary algorithms enable us to provide real-time, actionable insights for our clients. As the relationship between marketing and security departments evolves into a strategic partnership, our business model is designed to help our clients identify, qualify, and interact appropriately with their audiences, all while ensuring an optimal web experience and protecting companies from cyber threats,” said Hook.

Paul Lalljie, Neustar’s chief financial officer, added, “While we disagree with the FCC action today, we remain on track and excited about our business prospects. To that end, we are affirming guidance for the first six months of 2015 and we plan to address our position on full-year guidance when we report our first quarter results.”

You can comment here or on Twitter:   @jcvplus      OR      @vanillaplusmag

Sources include:  Federal Communications Commission, Neustar, Reuters, Telcordia Technologies (Ericsson), Yahoo Finance, 451 Research

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