Neustar Inc. is fighting to retain its exclusive role in ensuring that customers in the U.S. are able to retain their telephone numbers when switching carriers.
At risk of losing a government contract that has made up more than half its revenue, Neustar is warning of service delays in the U.S. like those in India if it’s replaced by Ericsson AB. In India, where Ericsson’s Telcordia unit operates, it can take seven days to switch a number from one phone company to another, according to an advertising campaign by Sterling, Virginia-based Neustar, which said it does the same job in minutes.
Telcordia scoffed at the assertion, part of a tussle that shows the competitive zeal surrounding a pending May 6 decision on a five-year contract renewal for the transfer and management of more than 500 million phone numbers. Neustar went so far as to ask for the bidding to be reopened, a request that was denied earlier this year, sending the stock to a 19-month low.
“The FCC has to determine what level of service they want,” John Bright, a Nashville, Tennessee-based analyst with Avondale Partners LLC, said in a phone interview. “If they want a lower level of service, they’ll probably get a lower-priced contract.”
Neustar said a haphazard process let Telcordia enter a late bid for the next contract, and last week it asked an advisory committee of the Federal Communications Commission to use a March 26 meeting to decide on its demand for another round of bidding.
“There’ve been irregularities,” Steve Edwards, Neustar’s senior vice president for data solutions, said in an interview. “The selection process hasn’t unfolded in the way it was assumed and expected.”
Neustar has taken in more than $3 billion in revenue from FCC contracts to run the technical link that lets U.S. customers keep telephone numbers when switching carriers, a service in which it has had a monopoly since local number portability began in 1997. Its current contract expires June 30, 2015.
“We get the sense they’re desperate,” Richard Jacowleff, chief executive officer of iconectiv, the operating name for Telcordia’s U.S. unit in Piscataway, New Jersey, said in a phone interview. “The only conclusion there is, they’re not in the best position on this and they’d like to see it re-done.”
Mark Wigfield, an FCC spokesman, declined to comment on the contract.
Neustar said that if it loses the contract, things could get worse for phone companies and consumers.
“Why wait days to move your number to your new smartphone when Neustar can do it in minutes?” the company asked in a full-page advertisement in the Washington Post and in specialty publications aimed at U.S. lawmakers and congressional aides.
The ad cites a 2012 study commissioned by Neustar on mobile number porting in India. It doesn’t include language from the study that warned against comparisons between India’s market, where low price is paramount, and the U.S., where richer customers prize holding onto numbers for convenience.
“We believe it is fair to compare the experience,” John Buckley, managing director for the Harbour Group, a Washington-based communications company working as a spokesman for Neustar, said in an interview. “We are comparing both the markets and the actual experience.”
The study’s author, Professor W. Bruce Allen of the University of Pennsylvania’s Wharton School of Business, didn’t return e-mails seeking comment.
The comparison “is wrong and misleading” and “there is no danger” of days-long ports because operating requirements for the contract demand action within seconds, said Telcordia’s Jacowleff. Telcordia is a unit of Stockholm-based Ericsson, the world’s largest maker of wireless networks.
Confidentiality rules forbid the government from identifying bidders or disclosing information about terms and prices offered for the new five-year contract, which also includes two possible extensions of one year each. While both Neustar and Telcordia confirmed they are bidders, the companies are barred from publicly discussing pricing.
Neustar shares tumbled 20 percent to $35.11 on Jan. 30, the day after the company told investors it had learned its proposal for another bid wouldn’t be considered. The shares fell 2.4 percent today to $35.27 at 4 p.m. New York time.
Among 10 equities analysts that follow Neustar, seven have hold ratings and three recommend buying the shares, according to data compiled by Bloomberg. Avondale’s Bright, who has a target price of $60 and a buy recommendation, said the market is overestimating the danger to Neustar.
“I think they’ll end up winning the contract,” he said.
Telcordia may be making a bet on pricing. In filings at the FCC, the company has said competition could bring lower charges to phone companies, which pay mandatory fees for number porting and may pass charges on to consumers.
Telcordia made an offer for the contract before, in 2008, and said in a filing the offer would entail savings of about $550 million through 2015. Neustar stands to take in $2.8 billion in revenue through 2015 under the current contract that offers pricing 22 percent higher than Telcordia’s offer, according to the filing.
Neustar reported net income last year of $163 million, or $2.46 a share, on revenue of $902 million. Sales are projected to rise to $957 million this year, according to average of nine analysts’ estimates compiled by Bloomberg.
Neustar “would improve our proposal” if more bidding were allowed, said Edwards, the Neustar executive.
When asked on a Jan. 29 earnings conference call what a new bid would entail, Lisa Hook, Neustar’s chief executive officer, replied, “I think that we can all sharpen our pencils on overall value.”
Julie Veach, chief of the FCC’s Wireline Competition Bureau that oversees the bidding, in a Feb. 11 letter asked an advisory group that helps regulate telephone numbering to investigate “claims of potential unfairness.” That includes Telcordia’s claim that Neustar obtained non-public information to conclude its hold on the contract was endangered, and Neustar’s complaint of a flawed process.
North American Numbering Council Chairman Betty Ann Kane, who leads the investigation, said in a voice-mail message that her findings aren’t complete.
“I do not think it will cause any significant delay in the procurement process,” Kane said.
The North American Numbering Council, with members including companies and trade groups, will make its recommendation to the FCC, which has final say.