The FCC's staff recommended that Ericsson's (NASDAQ: ERIC) Telcordia unit win a key government number portability contract, dealing a grievous blow to Neustar, which has administered the number portability system since 1997 and counts on it for about half its revenue. The recommendation, from the Wireline Competition Bureau, still needs to be approved by a vote of the agency's five commissioners, who can accept, reject or modify the FCC staff's proposal.
At issue is which vendor is going to be the U.S. government's neutral and tested local-number-portability administrator (LNPA), which helps phone subscribers keep their numbers when switching carriers.
The LNPA contract accounted for 60 percent, 50 percent and 49 percent of Neustar's revenue in 2011, 2012 and 2013, respectively, according to an annual filing at the Securities and Exchange Commission. Neustar's stock fell the most in a year on Wednesday on news of the FCC decision.
In April, the North American Numbering Council (NANC), a federal advisory committee, recommended that Telcordia's Iconectiv unit win the contract. Neustar has been protesting ever since, arguing that Ericsson is not a neutral party, since it has contracts with many U.S. telcos, including the major wireless carriers. Additionally, Neustar, along with Michael Chertoff, a former secretary of homeland security, has argued that security considerations were not properly taken into account with the NANC in awarding the contract to Telcordia.
In a fact sheet, the FCC said that agency staff "independently reviewed and corroborated the NANC recommendation and analysis. Staff worked closely with law enforcement and national security experts outside of the FCC to ensure that security and reliability issues are addressed."
"The draft order takes into account the NANC recommendation, input from many interested parties, and Telcordia's experience administering sensitive numbering systems in the U.S. and abroad," the fact sheet states. "The Commission will coordinate with other federal agencies and ensure that any final contract includes provisions to protect national security."
Part of the job of the LNPA is to handle the Number Portability Administration Center (NPAC), which manages the routing of all calls and texts for more than 650 million U.S. and Canadian phone numbers for more than 2,000 carriers, according to the Washington Post. Security of the NPAC is crucial, since law-enforcement agencies need to make sure numbers in the database are not erased or tampered with. According to the Post, the FBI and other law-enforcement agencies query the database every day, and about 4 million times a year in total, as part of criminal and intelligence probes, as they seek to determine which carrier provides the service for a particular number.
Neustar said in a statement that is "extremely disappointed that the Wireline Competition Bureau is calling for action when, in its fact sheet, the staff has profoundly underestimated the breadth of the LNPA's responsibilities."
"Although apparently the LNPA is used to port numbers, it is also critical for technology migrations, mergers and acquisitions, disaster recovery, accurate 911 location, and is the only authoritative database for the proper call completion of 11 billion voice calls and text messages each day," the company noted. "The recommendation misunderstands the operating system and would harm public safety, law enforcement, fundamentally burden small carriers, and disrupt service for 12 million consumers--all in pursuit of theoretical savings for a few carriers, which Neustar believes will be dwarfed by the costs and risks of transition."
Neustar said that the the LNPA vendor selection process "has been botched procedurally" and that "awarding the contract to manage an essential U.S. telecommunications infrastructure to a foreign manufacturing and telecommunications concern that is not neutral and has substantial commercial arrangements with certain telecommunications carriers would compound the significant errors made in a process that has violated the Federal Advisory Committee Act and the Administrative Procedures Act."
Further, Neustar said it "will continue to raise important questions about this process, and will review all of its options." Reuters reported in August that Neustar was considering selling itself amid interest from private equity firms.
- see this FCC fact sheet (PDF)
- see this Neustar release
- see this Reuters article
- see this Bloomberg article
- see this WSJ article (sub. req.)
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