Americans can easily take their phone number along when
switching carriers. But try to move the entire database of those
numbers, and things can get complicated.
Law-enforcement and national-security officials are closely
watching the fate of the database, which tracks the vast
majority--about 680 million--of the U.S. cellphone and land-line
phone numbers in use.
The database was set up in 1997 so that subscribers don't have
to get new numbers when they change phone-service providers.
But it is also a little-known linchpin for federal agencies
setting up wiretaps or conducting surveillance.
For almost two decades, a small U.S. company called Neustar Inc.
has held the contract, which was valued last year at nearly $450
million. It is up for a competitive bid for the first time ever,
and a Federal Communications Commission advisory panel has
recommended it be awarded to Telcordia Technologies Inc., a
subsidiary of Swedish telecom-equipment maker Ericsson.
Security officials don't oppose a change in what company runs
the database. But in letters filed last month with the FCC, they
said they want to make sure a transition wouldn't hinder their
future access to who owns which phone numbers or allow suspects to
discover they are the target of an investigation.
"Law enforcement cannot afford to have a lapse in this vital
service," lawyers from the Federal Bureau of Investigation, the
Drug Enforcement Administration, the U.S. Secret Service and U.S.
Immigration and Customs Enforcement wrote in a joint letter to the
FCC.
Steve Edwards, senior vice president for data solutions at
Neustar, said transitioning the database would be extremely complex
and could take two to three years and result in a database with
less functionality.
"I haven't really met anybody who thought this was a good idea,"
he said.
Telcordia says it is confident it can build a new system and
offer far cheaper service without disrupting needed functions. U.S.
carriers would ensure it works before making the switch, said John
Nakahata, a lawyer at Harris, Wiltshire & Grannis LLP who is
working for Telcordia.
The Ericsson unit already manages similar systems in more than a
dozen other countries and says concerns about its ability to manage
one in the U.S. are overblown and being fanned by Neustar.
The final decision rests with the FCC. The debate is likely to
require a vote by the agency's five commissioners.
The database accounts for about 50% of Neustar's revenue.
Telecom carriers pay Neustar a flat annual fee for the hundreds of
millions of times they tap the database each year for things like
switching and network management. Neustar also makes money through
other IT and data services.
In an effort to save the contract, Neustar has mounted a
campaign in Washington, D.C., and has spent $410,000 on lobbying so
far this year, more than double the amount it spent in all of 2013,
according to lobbying disclosures.
Congressional leaders on national security, Rep. Peter King (R.,
N.Y.), Rep. Mike Rogers (R., Mich.) and Rep. C.A. "Dutch"
Ruppersberger (D., Md.) have sent letters to the FCC expressing
concerns the bidding process hasn't done enough to ensure law
enforcement would still have full access to the database or that it
would be protected from outside threats.
If the database doesn't work properly, law enforcement agencies
warn it would be possible for innocent people to be inadvertently
targeted by government surveillance.
The fight highlights the extent to which law enforcement and
security agencies have come to rely on access to Americans"
cellphones--and the central role of private companies in
facilitating that access.
The equation has become more complicated as foreign ownership of
U.S. telecom assets has grown. Sprint was bought last year by
Japanese telecom company SoftBank Corp., and German-based Deutsche
Telekom AG owns two-thirds of T-Mobile US Inc. Most of the
network-equipment suppliers relied on by U.S. carriers are foreign
owned.
Because Ericsson is based in Sweden, Neustar and some national
security experts also warn that the Swedish government could gain
insight into targets of government investigations because law
enforcement agencies regularly query the database when setting up
wiretaps.
Telcordia counters that as a U.S.-based subsidiary there won't
be conflicts. Ericsson Chief Executive Hans Vestberg said in an
interview that Telcordia has a separate legal board and that
Ericsson has minimal oversight and limited control over the
company.
Mr. Nakahata, Telcordia's lawyer, added that the company will
work with law enforcement to ensure their needs are met. "There's
not going to be a problem because the incentives are aligned to
deliver a highly reliable safe and secure system," he said.
Under the Ma Bell monopoly, keeping track of phone numbers fell
to a unit of the old AT&T. As part of the 1984 breakup of Ma
Bell, the unit was spun out as a separate company that eventually
became Telcordia and was bought by Ericsson in 2012.
After the industry fragmented and Congress in 1996 allowed
people to keep their local phone numbers when switching carriers, a
separate, central database became necessary.
Neustar won a portion of the contract when the database was
created in 1997. Customers who switch carriers now just have to
wait a couple of minutes while Neustar's database is pinged and the
number is reassigned.
There are more than 800 million numbers in use in the U.S.
Numbers not in the database would be landlines that have never
switched owners or have never been acquired by other providers
through mergers and acquisitions.
The company, based not far from the Dulles International Airport
outside the nation's capital, has around 1,500 employees.
The contract with North American Portability Management LLC, an
industry group of phone carriers, paid Neustar $446 million in
2013. The company likely has a profit margin of between 50% and 60%
on the contract revenue, estimates John Bright, senior research
analyst at Avondale Partners. The company's stock has fallen about
50% this year as it became clearer it could lose the business.
Write to Ryan Knutson at ryan.knutson@wsj.com
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