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Technology / AI and automation

NeuStar profit triples on VoIP demand

NeuStar said it expects more of the same in 2006 and raised its full-year guidance from 25% growth to 28%. Last month it had forecast between $296m to $306m, but now expects between $303m and $310m.

As long as these macro trends continue, customers’ need for Neustar services will continue to grow, said chief executive Jeffrey Ganek, on a conference call.

Demand for new communication services, which drive NeuStar volumes, are in large part from VoIP providers, Ganek said.

The pervasive spread of IP technology through the switching and transport networks has been key, he said. NeuStar VoIP-related transactions grew from almost nothing in 2004 to more than 10% of total revenue last year, Ganek said.

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NeuStar, which competes with VeriSign for network infrastructure services business, earned $13.8m, or 18 cents a share, during the fourth quarter compared with $4.2m, or 5 cents, a year ago.

The Sterling, Virginia-based company, which went public last June, grew revenue to $63.4m from $41.4m last year.

NeuStar proved valuable to VoIP service providers in a few ways, Ganek reckoned. VoIP providers, including pure-play vendors such as Vonage, as well as cable TV operators and big telcos, require a large base of telephone numbers in all the geographic areas they service, Ganek said.

Also, as end users increasingly move to VoIP they tend to move to new VoIP service providers while keeping their existing phone numbers, which creates demand for NeuStar services. When end users switch to VoIP using their existing telco operator, the carriers still use NeuStar services to make the change, Ganek said. VoIP creates end-user churn, as customers move in between networks.

Number portability transactions, in particular, helped the company’s clearinghouse services business grow, said NeuStar CFO Jeffrey Babka. End-users switched their phone numbers to VoIP or changed wireless carriers, for instance.

In total, the company’s interoperability services revenue rose 55% to $13.7m, Babka said.

While VoIP penetration of the end-user market is low, it is widely projected to grow. NeuStar services will likely will continue to grow, Ganek said.

VoIP also boosts NeuStar’s infrastructure services area, which drives 51% of total revenues. To support VoIP and existing voice services, providers are deploying IP technology throughout their networks. This requires frequent and exenstive changes for routing of traffic across network architectuers, Ganek said. The industry’s transition to new technologies drives demand for NeuStar services.

On the whole, VoIP upgrades and wireless drove demand for NeuStar’s infrastructure services, Babka said.

A second macro trend boosting NeuStar’s bottom line is the consolidation of communciations providers.

When companies merger, they may use NeuStar to change the routing of customer traffic and consolidate internal infrastructure, Ganek said. NeuStar also gains from the merging of duplicate back-office systems, especially in provisioning, signalling systems, caller name IDs and line-identification databases, he said.

However, Ganek stressed that each merged company created unique demand for NeuStar services, depending on the integration engineering plan of the combined company. The way we get volumes from consolidations, from any merger and acquisition is not simple and direct, he said.

It takes six to 18 months after a merger has closed before NeuStar can determine the services volume it may expect from the deal, Ganek said. And it’s another 12 motnhs after that until we have a full view of the magnitude of the curve of volumes that we get from the merger overall.

He also said NeuStar’s upcoming SIP-IX program, a set of mangement services for IP networks and services, would be available worldwide later this year. SIP-IX, first announced in October, would enable peering services for data, content and VoIP services, he said. While near-term revenue for NeuStar would be small, Ganek said SIP-IX would make us as essential to IP traffic as we are to voice traffic today.

The fastest-growing single product for the company currently are common short codes, or CSCs, which are the five unit codes used for text messaging. Babka said CSC revenue grew $1.7m during the quarter.

Yesterday, NeuStar announced an agreement with The Wireless Association to expand in spring the CSC pool to include six-digit codes in the CSC Registry. This would boost the amount of usable CSCs to almost one million.

Looking ahead, Ganek said NeuStar plans to continue its clearinghouse services expansion outside the North America, having set up operations in Taiwan last year. The company would look to fast-growing markets for wireless data, content and other IP services overseas, he said, but gave no specifics.

NeuStar shares jumped almost 4% to close at $31.31 on the Nasdaq yesterday.
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CBR Staff Writer

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