STERLING, Va.—NeuStar Inc., the company which issues phone numbers, has been awarded extensions on the seven contracts that allow it to manage wireline and wireless number portability in the United States. The company too plans to reduce costs for its customers and give up some of the sizable margins that it has achieved by holding an effective monopoly on number portability.
The contracts were extended four years, until June of 2015. Existing pricing, which includes discounts depending on the number of transactions, will stay in place through the end of this year. Next year, flat-rate pricing will kick in.
“We believe that this move was generally expected, and the primary question was not whether it would happen, but how favorable the contract terms would be to [NeuStar],” wrote John Bright, director of communications technology for Avondale Partners, in a research note.
According to Avondale Partners, NeuStar’s transaction costs range from 93 cents to $1.08 per transaction, varying by cumulative volume since the beginning of the contracts. The company will impose a flat-rate structure of 91 cents regardless of volume for 2007. From 2008 until the contracts expire, transactions will range from 95 cents for annual volume of fewer than 200 million transactions to 75 cents per transaction with at least 500 million per year.
Avondale Partners cut its estimates for NeuStar’s operating costs based on the “belief that NeuStar has held back on aggressive cost-cutting measures due to its desire to avoid offending its customers with even larger margins.” The company has reported margins of around 50 percent. NeuStar’s chief financial officer, Jeff Babka, said in a company statement that NeuStar still expects to deliver margins in the “mid-30 percent range” after the contract changes.
According to NeuStar, portability transactions have grown more than 35 percent annually during the past two years. For 2007, the company expects to see transaction growth of at least 25 percent. About 78 percent of NeuStar’s revenue comes from number portability, and about 10 percent from administering telephone numbers and number pooling.
