On March 4, the U.S. Federal Communications Commission staff suggested that its $450 million contract with Sterling-based Neustar, Inc. (NSR) be terminated. The recommendation supports Neustar’s rival Ericsson AB subsidiary Telcordia Technologies (ERIC) as the replacement contractor for allowing telephone carriers to route calls and text messages.
In the draft order released Wednesday, the Federal Communications Commission stated that the Wireline Competition Bureau is initiating contract negotiations with Telcordia as the replacement LNPA after evaluating “the bids for technical and managerial competence, security considerations, and cost-effectiveness”.
Neustar’s exclusive 18-year government contract, set to expire on June 30, accounts for half of the company’s $964 million annual revenue and could affect approximately 800 Washington-based employees. The contract involved the management of 500 million telephone-phone numbers. The amount of time that it takes to transfer numbers could increase from hours to days if the contract loss occurs, according to Neustar. In 2014, the numbers service accounted for 49 percent of Neustar’s revenue, according to an annual filing at the Securities and Exchange Commission.
Since 1997, Neustar has brought in more than $3 billion and served more than 2,000 telecom carriers in the U.S. and Canada. as the largest local “number portability” registry. “Number portability” technology lets consumers to keep their original numbers when they switch carrier or get a new phone, for almost twenty years.
Competition arose between the two companies in early 2014 when lawmakers urged the FCC to consider national-security concerns when the time would come for reevaluating its telephone-numbers contract. The battle began in April when the North American Numbering Council (NANC), a federal advisory committee, suggested that Telcordia should be awarded the contract. Security plays a vital role in the job of the LNPA, which handles the Number Portability Administration Center (NPAC), to ensure the protection of calls and texts from over 650 million U.S. and Canadian phone numbers for over 2,000 carriers and to prevent hacking by foreign governments.
In a statement released Wednesday, Neustar responded to the FCC draft order by saying that it “could have widespread and long-lasting negative consequences for consumers, competition, and national security.” It also went on to state that “Neustar 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”, claiming that “the recommendation misunderstands the operating system and would harm public safety, law enforcement, fundamentally burden small carriers, and disrupt service for 12 million consumers”.
Neustar accused the FCC of pursuing a savings for a few carriers and faulty evaluation of the costs of creating a brand new telephone numbering system via an undefined plan of action that fails to allocate who is responsible for heading the transition to the new system. Neustar warned that these choices will result in “costs and risks of transition”, and that the “LNPA vendor selection process has been botched procedurally.”
The Swedish telecommunications company Ericsson, the world’s largest maker of wireless networks, acquired Telcordia Technologies back in 2012. In 180 countries with over 90,000 employees, Ericsson provides support for over two billion subscribers with a generated revenue of USD 28.2 billion.
The date is yet to be determined for the final decision of the five-member commision. The draft order states that if the Commission adopts the order, than the NAPM will start negotiating contract terms with Telcordia.
Since the FCC’s draft order came out on Wednesday, Neustar has suffered on NASDAQ. Currently, shares of NSR are falling 3.15% to $22.11. On Wednesday, the stock fell 16.1% to $21.08.
