Clouds gather over LNP: Critics argue that current contract is burning consumers

The nation’s top consumer group urged the Federal Communications Commission to consider eliminating provisions in the local number portability administration contract that critics view as anti-competitive and costly to consumers, wireless carriers and other telecom service providers.
“These clauses impose a $30 million annual penalty simply for making a statement that the industry intends to seek lower rates or competitive alternatives,” stated Consumers Union. “We question the purpose of these contract provisions, which essentially block the negotiation of lower rates, and mean that carriers-and therefore consumers-are locked into paying higher rates.”
The group’s comments come on the heels of a June filing by Telcordia Technologies Inc., based in Piscataway, N.J. Telcordia, the top global provider of local number portability, petitioned the FCC to rescind select clauses in LNP administrator Neustar Inc.’s contract and to return to the kind of competitive landscape for porting originally envisioned by the FCC.
The last time the FCC-overseen North American Portability Management L.L.C. offered up the number-portability contract for competitive bidding was back in 1997. NAPM was formed from a collection of limited liability companies originally set up to represent telecom carriers in contract negotiations with database administrators. The Neustar contract was to have run through 2002, but has been extended three times without competitive bidding, and-owing to contract Amendment 57-will not expire until 2015.
Neustar, formerly Lockheed Martin Information Management Services and headquartered in Sterling, Va., had $333 million in revenues in 2006.
“Consumers pay the price if the telecommunications industry has agreed to pay too much for these services,” said Consumers Union. “Many carriers put line items on telephone bills to recover these charges. The commission, through exercise of its retained oversight authority, must make sure that these contracts are administered in a way that best protects consumers.”
Telcordia claims competition in LNP administration could produce savings of $60 million a year for telecom carriers and consumers, or $240 million by 2012. Wireless LNP kicked in three years ago and proved a big hit with cellphone consumers.
The FCC recently completed the pubic comment cycle on Telcordia’s petition and now must review filings before deciding the matter.
“The longer this languishes, the longer inflated prices are paid and so we look forward to a speedy resolution,” said Richard Jacowleff, a Telcordia executive. “We maintain our position that the current process is fundamentally flawed, and look to the FCC to continue to act quickly to eliminate the financial penalty provisions of the current contract and direct the NAPM to implement an open, competitive bidding process. Only an open, competitive bidding process will ensure the best product for consumers at the most reasonable cost.”
In an August filing with the Securities and Exchange Commission, Neustar said much is riding on its contracts with NAPM and vowed to fight Telcordia’s challenge.
“Our contracts with North American Portability Management L.L.C. represent a majority of our revenue. We believe that our contracts are valid, consistent with the regulatory framework governing the services we provide, and in the best interests of the industry. We further believe that Telcordia’s petition has no merit, and intend to defend vigorously our position in this matter,” Neustar stated.
Top mobile-phone carriers, who have become increasingly irritated over wireline carrier delays in porting numbers to them, oppose Telcordia’s petition. AT&T Inc., Verizon Communications Inc., Sprint Nextel Corp. and TMobile USA Inc. are among the official NAPM members, meaning they vote on business matters like the Neustar contract at issue.
“Telcordia has not provided any valid justification for the extraordinary relief it seeks,” T-Mobile told the FCC. “The record in this proceeding demonstrates both that Amendment 57 serves the public interest and that current framework for industry oversight continues to be the best means for protecting the public interest.”
Sprint Nextel said Telcordia mischaracterizes Amendment 57 and the contract between NAPM and Neustar.
“Sprint Nextel and other telecommunications carriers, therefore, have every incentive to keep their portability costs to a minimum while ensuring that number portability functions at a high level,” the carrier stated. “As a result of Amendment 57, Sprint Nextel will now pay lower per-port transaction fees.”
Telcordia, however, counters that wireless and wireline carriers do not dispute the notion that competitive bidding for LNP administration could yield even further cost savings for them and their consumers. Telcordia said the FCC was in the dark about Amendment 57 provisions until it filed its June petition to reinstate competition in LNP administration.
“The commission is likely to act favorably on our petition,” predicted Scott Blake Harris, an outside attorney for Telcordia.