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NeuStar looks to play key role in .biz domains

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Despite the growing number of next-generation service providers shutting down operations, one little-known company is making a killing from the deregulated telecommunications industry.

Five-year-old NeuStar has built up revenue approaching $100 million per year by serving as a clearinghouse for transactions between the old-guard telecommunications carriers and their new competitors.

NeuStar operates databases that administer telephone numbers for the 4,000 service providers in North America. NeuStar's databases let user companies retain their telephone numbers while switching local carriers. NeuStar also conserves telephone numbers and limits the need for new area codes, which are expensive for affected companies.

Indeed, every telephone call in North America touches one of NeuStar's databases.

"Until we came along, there was no business in telephone number administration," says NeuStar CEO Jeffrey Ganek. "As part of the Telecommunications Act of 1996, [the industry] needed a neutral third party to administer telephone numbers. You couldn't have Nextel going to Bell Atlantic for this service."

Having carved out a niche as a behind-the-scenes administrator for the telephone system, NeuStar is looking for similar opportunities to operate back-end databases for the Internet's Domain Name System. NeuStar faces an entrenched competitor in VeriSign, which operates the registries for the .com, .net and .org domains.

NeuStar got a foothold in the Internet market last November with the award of the .biz registry to its subsidiary NeuLevel. NeuStar is now eyeing opportunities to match telephone numbers with Internet addresses through an emerging technology called Enum. NeuStar and VeriSign are running Enum test beds.

"We're looking for opportunities where we can be a central clearinghouse" for the Internet, Ganek says. He notes the new .biz registry will match a .biz name with its corresponding IP address and point to the right server, much as NeuStar's existing databases match a local telephone number with the corresponding central office switch.

"It's the same function, the same technology and the same role we play in telephone numbering," Ganek says. "It's a large database with huge transaction volumes that has to be managed in a trusted way."

Where NeuStar's been

Until now, NeuStar has had three main lines of business:

l As the North American numbering plan administrator, NeuStar operates a central database of telephone numbers that ensures interoperability among service providers.

l As the local number portability administrator, NeuStar operates a database that lets companies keep their telephone numbers as they switch local service providers.

l NeuStar also holds contracts in 15 states to manage telephone number pooling, a technique that conserves telephone numbers and limits the addition of new area codes.

Jeffrey Ganek photoquote

NeuStar - whose name is a play on the word neutral - dominates the telephone number administration business. Its main competitor is Telcordia Technologies, which is bidding against NeuStar to handle local number portability for wireless carriers.

"Numbering administration is a growth market," confirms Adam Newman, director of pooling administration at Telcordia, which holds contracts in six states for telephone number pooling.

NeuStar's telecommunications business seems recession proof. As long as companies and individuals move their telephone numbers from one service provider to another, NeuStar gets a transaction fee regardless of how many service providers ultimately survive. And NeuStar's business may grow, as the wireless industry plans to add local number portability next year.

"Even last year, which was a difficult year for the telecommunications industry, we showed great revenue growth and positive cash flow," Ganek says. "We could have gone public, but we decided to postpone that. We're not seeking to flip this investment that quickly."

To support its telephone numbering contracts, NeuStar has built databases that operate at the telecommunications industry's standard of "five nines" of reliability, or 99.999% uptime. These databases run on redundant, fault-tolerant hardware and software in a Chicago data center with a hot standby data center in Tarrytown, N.Y.

The databases must meet demanding performance levels. With local number portability, telephone number changes have to be broadcast to all service providers within 10 seconds. And each telephone number change requires hundreds of operations.

"Our local number portability database handles over one million routing changes per month," says Greg Roberts, vice president of numbering services at NeuStar. "We have a record of every telephone number where the end user changed the local service provider."

Taking care of .biz-ness

NeuStar is leveraging its database skill with its .biz registry, which launches in October. Operated by NeuLevel, the .biz registry will use the same Lightweight Directory Access Protocol-based directory scheme NeuStar developed for local telephone number portability.

"Our database software is not new technology; it's been up and running successfully for five years," says NeuLevel CEO Doug Armentrout.

NeuStar at a glance

Founded:
1996, as a spinoff from defense contractor Lockheed Martin.
Location: Washington, D.C.
Employees: 300
Financials: The privately held company is majority owned by investment banker Warburg Pincus Equity Partners. About 30% is owned by employees. Lockheed Martin owns less than 3%.
Key businesses: Telephone number administration. Recently awarded the Internet’s new .biz registry. Operates an Enum test bed.
Subsidiaries: NeuLevel is 90% owned by NeuStar and 10% owned by MelbourneIT.

Armentrout says the .biz registry will process updates within 15 minutes, compared with several hours for .com. It also will support advanced technologies such as certificate-based authentication, Unicode for internationalized domain names, and IPv6, the next generation of the Internet Protocol.

NeuStar officials see the .biz database as a platform that will eventually support additional services.

"We are building our registry as a thick registry, and we will have multiple data fields in the registry," Ganek says. "We can use those data fields to provide customer services, support financial transactions, provide billing information or offer directory services."

VeriSign executives view NeuStar's entry into the Internet registry business as a validation of their strategy.

"Imitation is the sincerest form of flattery," says Lori Whitted, vice president of marketing and business development for the VeriSign Global Registry.

"Each of the new [top-level domain] registries wants to do what's been done with .com. But it's going to be a little more difficult than they may believe," she adds.

On the horizon is Enum, an emerging standard that lets an end user type a telephone number into a Web browser and pull up the corresponding URL or e-mail address. Enum acts as a bridge between the public switched telephone network (PSTN) and the Internet. NeuLevel is building its .biz registry to support Enum.

"The convergence of the PSTN and IP networks is really going to drive a whole set of technology, service, interoperability and trust issues," says Matthew Wald, vice president of IP services at NeuStar. "There's going to be a real need for a neutral third party to provide administrative services to the industry."

NeuStar and VeriSign are angling to operate a central registry for Enum services, but they are taking different approaches. NeuStar wants regulatory agencies in each country to select a single Enum registry, while VeriSign favors an open, competitive market and is targeting opportunities for private Enum services.

"Every enterprise has an IP infrastructure," Whitted says. "We're looking to leverage that infrastructure with our telephony services like Enum."

Other companies interested in Enum include start-up NetNumber and Telcordia.

"We see a potential market in what Enum will enable," says Rick Harrison, general manager of number solutions at Telcordia, which participates in VeriSign's Enum test bed. "But Enum is still shaking out in the regulatory bodies and international standards bodies."

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