FCC Unanimously OKs LNPA Contract Talks With Telcordia

Neustar’s bid remained confidential, and the difference between the two companies’ bids was unknown. But the agency said for the first time that Telcordia’s bid was somewhat less than a total of $1 billion over seven years, which Commissioner Ajit Pai said was less than $143 million per year. Compared with the current contract that paid Neustar $460 million last year, Telcordia’s bid would be a “substantial savings for the American public,” Pai said at the meeting. Telcordia’s tentative selection would mean “significant savings … for American consumers,” Chairman Tom Wheeler said. Telcordia waived confidentiality at a meeting with agency officials Wednesday to allow the commission to disclose the amount of its bid, said an ex parte filing.

The order would name Telcordia the next LNPA if the contract, to be negotiated between the company and North American Portability Management (NAPM), meets neutrality and security standards. The order, as expected (see 1503180033), would create a voting trust on Telcordia’s board to try to create separation between the company and its parent Ericsson, Wireline Bureau Chief Julie Veach said. Neustar and others had raised concerns about Telcordia’s ability to remain neutral given Ericsson’s business ties with large incumbents. The commission will review and vote on the negotiated contract. No timeline was given, but Wheeler said at the meeting he “fully expects” NAPM to proceed “right away.”

Those involved in the long and contentious debate expect Neustar to challenge Telcordia’s selection in court. In a news release after the vote, Neustar President Lisa Hook said the company is “considering all options to address the significant flaws in the selection process.” Neustar nevertheless intends to meet its contractual obligations, “including a transition to another LNPA, if that ultimately is what comes to pass,” Hook said.

“The LNPA vendor selection process overseen by the FCC has been procedurally defective,” Hook said in the release. “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 minimizing risks and ensuring that the broadest set of constituencies benefit from the continued flawless operation of a critical element of U.S. telecommunications infrastructure,” she said.

In November, Standard & Poor’s Ratings Services said it was keeping Neustar on a “negative CreditWatch listing” because of the uncertainty over the LNPA contract (see 1503060037), and the company said that about half of its revenue comes from its LNPA contract. On Thursday, prior to an investor call scheduled for Thursday afternoon, Neustar Chief Financial Officer Paul Lalljie said in the release, “While we disagree with the FCC action today, we remain on track and excited about our business prospects.”

Neustar, in the release, also affirmed its Feb. 3 quarterly guidance to investors predicting revenue for the first six months of this year -- a period during which the company will continue to have the LNPA contract -- will range from $495 million to $505 million. That represents a growth of 6 percent to 8 percent over last year, the release said. Neustar’s current contract will automatically renew for one year if NAPM doesn't issue a notice of nonrenewal 90 days prior to June 30, the FCC said.

Neustar has complained about the selection process throughout the debate, even just before the commission vote Thursday, saying in a letter to the agency that Telcordia violated the commission’s Sunshine provisions -- which largely prohibit parties from having contact with the agency in the week preceding a scheduled vote. The protest was in response to an ex parte filing Telcordia made Wednesday about a meeting earlier in the day between Telcordia counsel John Nakahata, of Harris Wilshire, and Wireline and General Counsel officials, as well as Wheeler aide Daniel Alvarez. The meeting involved “the negotiation of major modifications to a proposed Commission rule, done at the last-minute, without any opportunity for public comment or for meaningful evaluation by decision-makers," said Neustar counsel Aaron Panner, of Kellogg Huber. Veach told reporters after the commission meeting that the meeting was proper under an exemption in the Sunshine rules. Nakahata separately said meetings between parties and the agencies are allowed during the quiet period if they are requested by the agency and followed up with an ex parte filing, as was the case Wednesday. The filing hadn't been posted, but was given to us by Neustar.

The "eleventh-hour" Wednesday meeting concerned the LNP Alliance, said James Falvey, of law firm Eckert Seamans, representing the alliance. The group, which represents a number of small- and medium-sized carriers, has urged that Ericsson be required to spin off Telcordia. Telcordia and agency officials at the meeting appeared "to be working out an alternative structure for Ericsson and Telcordia but with no public comment on their proposed solution," Falvey said. Despite "some form of voting trust," the alliance is "acutely concerned Telcordia will continue to be inextricably intertwined with its corporate parent, when it comes to the financing of Telcordia, taxes, accounting, and Telcordia’s reliance on Ericsson employees for number portability functions," Falvey said.

Among other complaints, Neustar has protested not being allowed to revise its bid. In response to commission statements about the cost savings, Neustar said in a statement to us, "Neustar was prevented from making its best offer, so the FCC Chairman's extolling the great price it got in order to justify a risky transition to Ericsson is like an umpire telling spectators they should appreciate the walk-off home run, even though he called the game at the end of the second inning."

Telecordia’s selection would “yield significant savings … savings I hope will ultimately be passed on to consumers,” Commissioner Mignon Clyburn said. Commissioner Mike O’Rielly concurred with the process used to select Telcordia and approved the selection subject to the contract negotiations. O’Rielly said he has “concerns” about the procedure, including the agency’s decision not to conduct a “a full-blown notice and comment proceeding.” A “significant amount of information -- more than was probably necessary or justifiable -- has been cloaked behind protective orders,” O’Rielly said. But “the outcome, based on the information available, seems to have merit,” O’Rielly said, saying Telcordia’s selection would “lower the cost for those contracting with the numbering administrator, and ultimately end users.”

USTelecom President Walter McCormick applauded the vote in a statement, saying it avoids "an automatic price escalation under the current LNPA contract that could have cost consumers over $1 million a day.”

Veach didn't give details of the makeup of the voting trust when talking to reporters after the vote. Nakahata said the company had suggested Telcordia’s five-member board include three independent trustees. Ericsson would have one representative on the board, he said. Nakahata, in Wednesday’s meeting with agency officials, said requirements about a voting trust should limit it to matters pertaining to LNPA functions in North America, according to his ex parte filing. Veach told reporters the order recognizes that Telcordia has business aside from serving as the LNPA.