Keeping people connected
CEO says Neustar’s low profile shows how well it has performed.
Lisa Hook runs a company overseeing technology that affects millions of people every day, but few people outside of its industry are aware of its importance.
Hook is president and CEO of Neustar Inc., a Sterling-based company that has held the contract handling “local number portability” in the U.S. for the past 17 years. Number portability means consumers essentially own their telephone numbers and can take them anywhere, no matter where they live or what telephone carrier they use.
Congress mandated number portability in the Telecommunications Act of 1996. Neustar, originally a unit of Lockheed Martin Corp., developed the technology that makes portability work.
Today, this private contract is up for renewal. A decision will be made this summer by a 10-member committee representing 4,000 telecommunications companies in the U.S.
The review apparently wasn’t sparked by any problems with the existing system. If anything, Neustar has a low public profile because it’s done its job so well.
The company, which has 1,500 employees, isn’t a one-trick pony. Number portability and number management represent nearly half of its annual revenue. The rest of the money comes from a variety of high-tech marketing, cyber security and analytical services. In fall 2011, Neustar acquired caller identification company Targusinfo in Tysons Corner for $650 million and is on the lookout for other opportunities to expand its portfolio of services.
Hook, a graduate of Duke University and Dickinson School of Law, is the former CEO of Internet phone carrier Sunrocket and led the development of broadband service at AOL.
She serves on the boards of The Ocean Foundation, a nonprofit conservation group, and the PEN/Faulkner Foundation, which promotes writing and presents the annual PEN/Faulkner Award for Fiction.
Virginia Business interviewed Hook at the company’s Tysons Corner office on March 29. The following is an edited transcript. A videotaped interview is available at www.VirginiaBusiness.com.
Virginia Business: One of the things, of course, we’re interested in is your number portability contract. I understand that it is up for renewal. Could you tell me how the company wound up having the contract in the beginning?
Hook: Neustar actually won the number portability contracts — there [originally were] seven of them — back in the 1990s as [part of] Lockheed Martin. In the Telecommunications Act of 1996 the government required phone companies to let consumers take their phone numbers with them when they moved from one carrier to another. The whole idea was to stimulate competition … effectively giving ownership of the phone number to the consumer.
To do that it meant that phone companies for the first time ever had to start sharing information with each other. They couldn’t do that one-on-one, so they decided to put out RFPs [requests for proposals] to ask for a database provider to come in and do that for them. At the time Lockheed Martin had a communication services division that competed for large communications contracts. Lockheed Martin won four of those contracts. Perot Systems won three of those contracts. Perot Systems was not able to build the databases in a timely fashion so Lockheed Martin wound up with all seven of the contracts, combined all of them into one single ecosystem and ran the number portability system from there.
A couple of years later, Lockheed Martin decided to buy [satellite services company] Comsat. That was considered to be a telecommunication service provider, so [Lockheed Martin was] required to spin out the number portability [division], which needs to be neutral. The management … named it Neustar and ran it as a private company backed by a private equity firm until 2005. We went public, and now we’re a widely held public company traded on the New York Stock Exchange.
VB: Now where does the renewal stand? Where are we in the process?
Hook: This is the first time an RFP has been put out since the beginning … The company has renewed the contract several times privately with telecommunications industry. After 17 years, they decided they should see what else is out there, so they issued an RFP. The proposal responses [were due April 5]. The industry will make a decision over the summer and recommend their decision to the Federal Communications Commission, which should be blessing it sometime late this fall.
VB: So the decision is actually made by the companies rather than the government?
Hook: Yes, it’s a private contract. There’s no government money involved here at all … There are over 4,000 carriers in the U.S., believe it or not. Those carriers are represented by a group of 10 carriers … It’s with that group that we negotiate, and that group effectively makes the decision that is then approved by the FCC.
VB: Do you expect to have many competitors for this contract?
Hook: I expect we’ll have a couple … We, of course, have prepared ourselves for a competitive process, which is what the industry wants. Whether we have competitors or not, we’re keen on providing the best service at the best price … I think we’re very well positioned. There’s absolutely nothing like this ecosystem anywhere else in the world. No one else has ever built anything this complex before, and any disruption or transition would really cause significant problems for the telecom infrastructure. So we’re somewhat optimistic.
VB: As I understand it, you not only manage this for the U.S. but also for Canada and Taiwan?
Hook: Yes, we administer something that, in fact, is exactly the same for Canada because it’s administered as part of the North American ecosystem. We also do number management in Taiwan and in Brazil. Those countries, however, are very different. They only require number portability, meaning moving your phone number from one carrier to another. In the U.S. the ecosystem is now used not just for number portability — landline to landline, landline to mobile, mobile to mobile — but it’s also used by companies to manage their numbers inside their networks. So, it’s used for many more purposes in the U.S. than anywhere else in the world.
VB: I saw some statistics that you had like 1.2 million updates to the database daily.
Hook: We update the database 1.2 million times a day, which doesn’t sound like that much frankly in a data world, but it’s not just updating the database here in Virginia at an undisclosed location. We have to push those updates out in real time to over 10,000 endpoints around the country. We need to make sure that the end points have received the updates before the update goes live. Then your phone call will actually hit a local copy of the database. [We handle text] messages as well, about 7 billion text messages a day. We support a huge amount of traffic, which means the data absolutely, positively has to be right at every single moment or phone calls start not getting completed and text messages start not getting completed.
VB: How much revenue do these contracts represent to the company?
Hook: It represents a little bit less than half of the company’s revenue. In 2012 we had $831 million of revenue in total.
VB: Now I understand that the company has diversified in recent years and apparently this space was occupied by Targusinfo, correct?
Hook: We’ve diversified in two ways. We realized a couple of years ago that the number portability or number administration is a big information exchange. We sit in the middle of 4,000 companies, all of whom have to trade information with each other but don’t want to do it directly. Everybody dumps their data into us, and then we publish it out to the industry.
That skillset is fairly unique but can be applied in other circumstances. We do the same thing in the Internet world. Today we [believe we complete between 10 and 20] percent of all Internet queries globally. When you type in www.neustar.biz, that’s a query — it’s a question — on what server can I find neustar.biz? We give you the answer: This is where this server exists. We’ve got 6,000 customers, all of whom give us their information about where they exist on the Internet and then we push that information out through the networks.
More recently we built a registry called Ultraviolet for the film and entertainment industry. All of the studios other than Disney want to distribute their films digitally through retailers so they have signed up for this registry. They all made their films available online to be sold through Best Buy, Amazon, etc., so that you can buy a film at any retailer, you can store it in your personal cloud from any movie studio. We’re the guys who make that possible.
VB: Now one thing that I’ve seen mentioned several times in stories about Neustar is neutrality and the emphasis that you put on that. In fact I think one quote was, “The fact that you haven’t heard about them is a compliment.”
Hook: It’s absolutely a compliment … It’s a compliment because we need to be 100 percent accurate. We’ve learned over 17 years to be absolutely correct in every instance, which is why you never hear about us. It’s also difficult. If you always have clean water, if you always have electricity, you really don’t think about how difficult it is to deliver that, but perfection is incredibly difficult.
Neutrality is equally important, and we’re very different from any other company you will see in that neutrality is written into the company’s charter. We have a board-level committee that looks at our neutrality requirements and our compliance. We train every single employee, no matter where they are in the world, about what neutrality means. We’re hyper-vigilant in our efforts to be neutral.
And what does neutrality mean? It means that, with respect to number portability and number management, we can’t favor any one company over another, and if we’re trained not to favor any one company and if we don’t have any economic incentive to favor any one company over another, then we’re in a good place.
The way we avoid having any economic incentive to favor one company over another is none of the officers can hold interests in telecommunications providers. None of our directors can hold interests in telecommunications providers, and they can’t sit on the boards of telecommunications providers. And our equity shareholders, if they want to hold more than 5 percent of our equity, they have to certify that they don’t hold an interest in a telecommunication service provider. We’ve been very restrictive about making sure that there are no undo economic influences so that we can protect our neutrality, and we can assure our customers that not only are we going to be right, not only are we going to keep their data safe, but it doesn’t really matter what size they are. Whoever asks to be [served] first is going to be [served]. That’s critical in this kind of competitive environment to know, if you’re a new entrant, that we’re not going to favor a big guy, or we’re not going favor one big guy over another big guy.
VB: Now there’s some sort of neutrality committee, a three- member committee?
Hook: Yes, that’s the committee of the board.
VB: OK, it regularly reviews the policy and how it’s being enforced?
Hook: They review the policies and then once a quarter every single employee in the company is trained, and then we as well have once a year an independent firm comes in and does a neutrality audit. So the board committee reviews the compliance by all of the employees. They review any infractions and sort of punishments, and then they review the independent neutrality audit once a year as well. It’s pretty onerous stuff, but it has built neutrality into the DNA and, of course, into the name of the company.
VB: Oh, I didn’t even catch that. That’s very subtle.
Hook: Exactly. It’s sort of like when they used to airbrush the name of Coke into the ice cubes. You walk in here, and you just start thinking neutrally with the name.
VB: Was Targusinfo your first acquisition?
Hook: We did three acquisitions in the 2010-2011 timeframe. We bought a small company based in Mountain View, Calif., called Quova. As we’re building out these information exchanges we also buy information exchanges. So Quova is an information exchange that contains every IP [Internet protocol] address in the world: its physical location and its network location.
So that service is used by, for instance, Major League Baseball. When you log on to mlb.com and if you’re in DC and you want to watch the [Nationals], mlb.com will dip the database, find out that the IP address is in Washington and give you the black screen that says, “Sorry. There’s a sports blackout so you can’t watch the game in market.” It’s also used by financial services companies … for fraud management.
The second acquisition was an acquisition in Denver of a set of assets that sort of map into the number portability management information exchange. Then, the third acquisition, our largest in the company’s history, was the acquisition of Targusinfo in November of 2011. That’s the building that we’re sitting in today.
It was a fascinating opportunity for us because they started off very similar to Neustar as an information exchange. They have about a 50 percent market share in caller ID, which is a set of large databases that have your name, your phone numbers and your physical address. Then they appended over the past 18 years other types of information to the caller ID databases so that today they’re able to offer marketing insights to their customers. They started off by servicing pizza companies which, when you call in for pizza, want to know not just what is your name but what is your address, and is this the closest pizza shop. From there, it’s not just what is your name and what is your address but how can I better serve you? Are you more or less likely to like pizza with toppings on it or not?
Over the years they’ve expanded from just the information exchange aspect of the business to providing information and marketing insights on top of that to customers. That’s really the path that the entire company is taking, is to continue to operate these information exchanges, to build new authoritative exchanges, to buy exchanges and then to use the information … to provide security insights to chief information officers and to provide marketing insights to our customer marketing departments.
VB: So further acquisitions are a possibility then?
Hook: They are a possibility. We’re lucky in that we’re very cash flow generative. When we acquired Targusinfo we leveraged the company for the first time ever with a facility of about $600 million. So we would prefer, because we’ve got a very strong balance sheet, to maintain some level of leverage. The free cash that the company generates annually will be used either for acquisitions or will be returned to shareholders, likely in the form of buybacks as opposed to paying down the debt.
VB: One of the things I noticed is that you had worked at AOL, [and I was curious as] to how that has …
Hook: Scarred me for life? Actually, for me, AOL was a phenomenal experience because I was lucky enough to run new businesses. We built AOL Broadband, which went from about $250 million in revenues to $1 billion in revenues in the space of 2 ½ years. I was one of the fortunate ones to be riding the rocket ship at AOL. What I learned from that experience, which was fairly breathtaking, is that in a service business you have to make decisions much more quickly than you do in a manufacturing business or in a business where you’re selling equipment. When you’re selling a subscription service, if you miss a week of sales you can really never get those back. If you miss a week of refrigerator sales, the next week you can sell twice as many refrigerators and be in the same place … You have to move quickly. When you’ve made a decision, no matter how tough it is, you have to execute on it immediately. The pace of change here and the rate of decision making are fairly breathtaking, but we’re having a blast.