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FCC Letter Appears to Confirm NANC Recommendation of Telcordia Over NeuStar

FCC Letter Appears to Confirm NANC Recommendation of Telcordia Over NeuStar

An FCC website filing confirmed that the body (North American Numbering Council, or NANC) charged with selecting the new local number portability administrator (LNPA) has likely recommended Telcordia (iconectiv) over NeuStar in a letter initially sent on April 28, 2014, to the FCC. In our view, the release confirms that Telcordia was the recommended party, but the letter itself is not what we believe to be the final decision rendered by the FCC. The FCC is reviewing the NANC s recommendation and we believe has the option to accept, modify, or reject the recommendation.

While we view the revelation from the NANC as an incremental negative, it largely confirms what investors had already feared given the tone of publicly available filings. In our view, the apparent recommendation by the NANC of Telcordia (iconectiv) as the next LNPA reduces the likelihood that NeuStar will outright win the contract or retain a partial component of the contract. We expect a modest negative reaction to the stock, but believe the main battle will now shift to the FCC, where NeuStar will argue over procedural and neutrality grounds.

We believe the FCC is proceeding cautiously in order to avoid the potential for lawsuits and to take into consideration the interests of the broader industry. NeuStar s primary argument with the FCC is that Telcordia, which is owned by telecom equipment provider Ericsson (ERIC $1238), should be barred from bidding as a non-neutral provider. NeuStar has also argued that the bids should take into account the broader switching costs incurred by the industry and rapid shift toward IP-based networks. In our view, NeuStar also argues that the selection of a new LNPA and changes in neutrality requirements require procedural changes to law, which would require additional comment and review by the industry.

We expect the decision process to be long and drawn out based on the potential for lawsuits from both parties regardless of the outcome. In our view, these delays could lead to an interim extension of NeuStar s existing contract (set to expire June 15, 2015) at attractive terms. At a minimum, this would give the company additional time and cushion to transition its business model beyond the core NPAC contracts.

FCC Letter Appears to Confirm NANC Recommendation of Telcordia Over NeuStar