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,hh]) ` `  ,hh])  Xv4Request of Lockheed Martin Corporation ) ppCC Docket No. 92237  X_4and Warburg, Pincus & Co. for Review )ppNSD File No. 98151  XH4of the Transfer of the Lockheed Martin )  X14Communications Industry Services hh])  X 4Business` `  ,hh])   X ' ORDER c  X 4X` hp x (#%'0*,.8135@8:_Gv yO'#X\  P6G;/P#эRevised NeuStar Code of Conduct; Supplemental Amended Request at 3. Furthermore, no person employed by, or serving in the management of any NeuStar shareholder will be directly involved in the daytoday operations  X14of NeuStar.R?1b Gv yOD'ԍ Revised NeuStar Code of Conduct.R No employees of any telecommunications service provider will be  X 4simultaneously employed by NeuStar.@ Gv yO'#X\  P6G;/P#э Revised NeuStar Code of Conduct; Supplemental Amended Request at 3. Warburg will not control more than 40 percent of NeuStar's Board and NeuStar Board members are prohibited from simultaneously serving on the boards of any telecommunications service providers. No NeuStar employee will hold any interest in any company that would violate the Commission's neutrality requirements or the  X 4Number Portability Administration Center (NPAC) Contractor Services Agreements.{A Gv yO'#X\  P6G;/P#э Revised NeuStar Code of Conduct. { Finally, NeuStar will hire an independent party to conduct a neutrality review of NeuStar on a  X4quarterly basis.B"Gv yOS'#X\  P6G;/P#э Revised NeuStar Code of Conduct. The neutrality analyst will be mutually agreed upon by NeuStar, the FCC, the NANC and the LLCs. NeuStar will pay the expenses of conducting the review. The results of the review will be provided to the LLCs, the NANC, and to the FCC. NeuStar, however, would like the results of  {O 'the review to be deemed to be confidential and proprietary information of NeuStar and its shareholders. Id.   Xb4 14. ` ` The parties state that CIS will be transferred intact, and that the sole business objective of the new company, NeuStar, is to provide NANP administration and other neutral"K B0*&&99x"  X4third party services to the telecommunications industry.WCGv yOy'#X\  P6G;/P##X\  P6G;/P#э Letter from Cheryl Tritt, Counsel to Lockheed Martin IMS, to Magalie Roman Salas, FCC, dated  {OA'September 28, 1999 (Lockheed Sep. 28 ex parte), at 2; Request at 5; Amended Request at 3. W NeuStar will be primarily financed  X4by funds from subscriptions for the NeuStar shares that are subject to the trust.FD"Gv yO'ԍAmended Request at 5.F Lockheed and Warburg maintain that NeuStar will deliver the same services, under the terms stated in  X4the Requirements Document, and using the same systems, processes and staff.eEGv yO '#X\  P6G;/P#эRequest at 6.e The parties,  X4thus, maintain that the proposed transfer of CIS will serve the public interest.FBGv {O 'ԍ Amended Request at 10; Supplemental Amended Request at 5. See also Request at 910.   Xv415. ` ` In a Public Notice released on August 17, 1999, the Bureau sought comment  X_4from the public and from the NANC on the Amended Request.dGZ_Gv yO'ԍCommon Carrier Bureau Seeks Comment on Lockheed Martin IMS Corporation and Warburg, Pincus & Company Amended Request for Expeditious Review of the Transfer of the Communications Industry  {Ot'Services Business, Public Notice, DA 991647 (rel. Aug. 17, 1999) (Aug. 17 Public Notice). d From the comments and replies we received, all the parties, except for Mitretek and its consultant, Professor Lynn  X14Stout, expressed support for the proposed transfer.H 1 Gv yO'ԍSix parties filed comments with the Bureau on September 7, 1999 and two parties filed replies on September 17, 1999. The parties include: AT&T Corp. (AT&T); Chamber of Commerce of the United States (U.S. Chamber of Commerce); MCI WorldCom, Inc. (MCI WorldCom); Mitretek Systems (Mitretek); Lynn  yO0'Stout (filing comments at Mitretek's request); and United States Telephone Association (USTA).  On August 30, 1999, the NANC informed the Commission that it has reviewed the Amended Request and has concluded that the restructured proposal is substantially better than the previous proposal that it found to be adequate, and that the business arrangement set forth in the Amended Request fully satisfies the needs of the telecommunications industry for a neutral third party numbering  X 4administrator.I Gv yOM'ԍLetter from Alan C. Hasselwander, Chairman, NANC, to Lawrence E. Strickling, Chief, Common Carrier Bureau, FCC, dated August 30, 1999.  X416. ` ` On September 15, 1999, the Commission authorized Lockheed to acquire CGSI  Xy4and to purchase up to 49 percent of Comsat stock.J$"y6Gv yO`"'ԍLockheed Martin Corporation Regulus, LLC and Comsat Corporation, Application for Transfer of Control of Comsat Government Systems, Inc., Holder of an International Section 214 Authorization and Earth  {O#'Station Licenses E960186 and E960187, Memorandum, Order and Authorization, FCC 99237 (rel. Sep. 15,  {O$'1999) (Lockheed/Comsat Order) at  1. In the second phase of the proposed purchase, Lockheed states that it"$I0*&&$" plans to acquire a 100 percent interest in Comsat as the result of a merger of Comsat with Lockheed. These plans are contingent upon an amendment of section 734(b) of the Communications Satellite Act of 1962 removing the current prohibition on an authorized common carrier to own more than 50 percent of the stock of  {O'Comsat. Lockheed/Comsat Order at  1; 47 U.S.C.  734(b); Lockheed/Comsat Application at 2.  This authority allows Lockheed to"y J0*&&99" acquire control of CGSI's FCC licenses, which would make Lockheed a telecommunications  X4service provider with common carrier status.^KGv {OL'ԍ Lockheed/Comsat Order at  2.^ In the Lockheed/Comsat Order, we stated that our grant of authority to Lockheed to acquire CGSI and a portion of Comsat's stock did not signal our approval of Lockheed's proposal to divest the NANPA, nor did it constitute a  X4determination regarding Lockheed's neutrality once that transaction was consummated.8LZDGv {O 'ԍLockheed/Comsat Order at  51. The transaction was consummated on September 18, 1999. See Letter from Raymond Bender, Jr., Lockheed, Counsel for Lockheed Martin Corporation, to Magalie Roman Salas, Secretary, FCC, dated September 20, 1999. 8  X4 ` `  Xx'u DISCUSSION Đc  XJ' A.` ` Commission Authority Over the NANP Administration Functions.    X 417. ` ` The Commission's authority to select a neutral administrator for the North American Numbering Plan, or NANP, is explicit in section 251(e) of the Communications  X 4Act, as amended by the 1996 Act.MX f Gv yO'ԍ Section 251(e) provides that "[t]he Commission shall create or designate one or more impartial entities to administer telecommunications numbering and to make such numbers available on an equitable basis." 47 U.S.C.  251(e). Thus, Congress has vested with the Commission exclusive authority to choose an entity to serve as the NANPA. Through our selection of Lockheed as the NANPA, the Commission delegated authority to Lockheed to perform the numbering administration duties in accordance with our orders, rules, and the Requirements Document. The Commission did not, however, delegate to Lockheed the authority to select a  X{4successor or otherwise "designate" another entity to perform the NANPA functions.UN{ Gv yO'ԍ Mitretek contends that Lockheed must not be permitted to divest the NANPA to the buyer of its choice because the public interest in the NANPA should not be regarded as a saleable commodity. Letter from H.  {OB'Gilbert Miller, Mitretek Systems, to Lawrence E. Strickling, FCC, dated December 8, 1998 (Mitretek Dec. 8 ex  {O 'parte; Attachment at 2. In response, Lockheed and Warburg argue that Mitretek's argument is not supported by  {O 'legal authority. Lockheed Sep. 28 ex parte at 4. U Because this Commission alone has statutory authority to select the NANPA, and we have not delegated this authority to Lockheed or any other entity, we conclude that Lockheed must"M <N0*&&99"  X4obtain our prior approval to transfer the NANPA functions to any other entity.=O\Gv yOy'ԍ Lockheed concedes that the Commission has the power to approve a transfer of the NANP administrator  {OA'under Section 251(e) of the Communications Act. Lockheed Sep. 27 ex parte at 4 n.11; Lockheed May 7 ex  {O 'parte at 3.= Moreover, any successor NANPA also must meet the same neutrality requirements that Lockheed was  X4required to meet.uPGv {Oo'ԍ NANP Administration Third Report and Order, 12 FCC Rcd 23076.u Therefore, notwithstanding Lockheed's proposal to transfer the NANPA business to NeuStar, we must independently evaluate NeuStar's suitability to serve as the NANPA, and also determine whether it meets the requirements stated in our rules and orders.  X4   Xv' B.` ` Lockheed's Compliance With the Neutrality Requirements.  XH418. ` ` In addition to meeting the Commission's requirements set forth in the regulations, the NANPA must be impartial, and may not be aligned with any particular  X 4telecommunications industry segment.Q ~Gv {OI'ԍ47 C.F.R.  52.12(a)(1). See also NANP Administration Third Report and Order, 12 FCC Rcd 23077 (citations omitted). As a threshold matter, we find that no provider of a telecommunications service, because of its direct participation as a competitor in the telecommunications market, can meet these qualifications. Lockheed, due to its acquisition of  X 4CGSI and 49 percent of Comsat, is now a telecommunications service provider.LR Gv {O^'ԍSee supra n.57.L As such, Lockheed may no longer serve as the NANPA under the requirements set forth in our rules and orders.  Xy419. ` ` Our rules provide further that, in the event of the NANPA's default in the performance of its obligations, the Commission shall advise the NANPA of such default,  XK4request immediate corrective action, and permit the NANPA reasonable time to correct.SKj Gv {Of'ԍSee 47 C.F.R.  52.12(e). See also Requirements Document at  1.7. In light of our conclusion above and because Lockheed has already initiated steps to divest the NANPA functions to a new entity and to preserve its own neutrality until such divestiture  X4takes place,T Gv {O 'ԍSee supra  68; see also Code of Conduct, appended to Letter of J. G. Harrington, Counsel to  {O}!'Lockheed Martin, to Magalie Roman Salas, Secretary, FCC, dated September 16, 1999. See also Letter of J. G. Harrington, Counsel to Lockheed Martin, to Magalie Roman Salas, Secretary, FCC, dated September 22, 1999; Letter of J. G. Harrington, Counsel to Lockheed Martin, to Magalie Roman Salas, Secretary, FCC, dated September 23, 1999. Lockheed informs us that it has implemented a Code of Conduct to safeguard the NANPA's neutrality by insulating CIS from Lockheed's newly acquired telecommunications interests pending the"$S0*&&$" Commission's ruling in this proceeding. we find it unnecessary to formally notify Lockheed that it has defaulted on its"XT0*&&99" NANPA obligations by becoming a telecommunications service provider. We need only determine if Lockheed's proposed "corrective" action transfer of the NANPA business to NeuStar is consistent with our rules.  X420. ` ` We also note that, in the event that the NANPA's default in the performance of its obligations is not corrected within a reasonable time, we designated Mitretek as the  Xv4alternate NANPA in the NANP Administration Third Report and Order.uUvXGv {O 'ԍ NANP Administration Third Report and Order, 12 FCC Rcd 23081.u In designating Mitretek as the alternate, we did not intend for Mitretek automatically to succeed Lockheed as  XJ4the NANPA in the event of a breach by Lockheed, as Mitretek argues.UVJGv yO 'ԍ Mitretek Reply Comments at 89, 15.U In fact, we explicitly stated our intent to allow the NANPA an opportunity to cure any breach before being  X 4replaced with an alternate.}W zGv {OG'ԍ 47 C.F.R.  52.12(e). See also Requirements Document at  1.7.} Therefore, Mitretek's designation as the alternate was primarily a mechanism for the Commission to avoid initiating another lengthy, disruptive, evaluation process, should Lockheed be unable to cure a breach. We therefore will not consider replacing Lockheed with the alternate NANPA unless or until we determine that Lockheed  X 4has failed to correct within a reasonable time its breach of the NANPA obligations.   X 4` `   X' C.` ` Evaluation of NeuStar   Xd421. ` ` Under the first proposal submitted by Lockheed, Warburg, as the entity to which CIS would have been transferred, would have been subject to compliance with our neutrality requirements. In this instance, however, it is NeuStar, not Warburg, that is subject  X4to compliance with our neutrality requirements. In evaluating NeuStar's suitability to serve as the NANPA, we must evaluate NeuStar's ability to meet the requirements set forth in our order and in sections 52.12 and 52.13 of our rules, which fall into two general categories: performance and neutrality. Regarding the new entity's ability to perform the NANPA functions, the NANC has stated that it believes that the new entity, which is comprised of the existing CIS business unit that currently performs the NANPA functions, would continue to perform the NANPA functions in accordance with the Requirements Document and  X~4Commission rules.SX~ Gv yO;"'ԍ NANC Recommendation at 2. S "gX0*&&99"Ԍ X422. ` ` Because the parties represent credibly that only the ownership of the NANPA  X4would change,IYGv {Ob'ԍSee supra  14.I we agree with the NANC's assessment that the transfer of CIS intact would not affect the NANPA's immediate ability to perform its functions in any appreciable way. Given that Warburg will not be involved in the day to day management of NeuStar, we agree with the parties that Warburg's own expertise, or lack thereof, in numbering administration is  X4irrelevant to our evaluation of NeuStar's capabilities as the NANPA.VZZGv {O'ԍLockheed Sep. 28 ex parte at 2.V We also find that NeuStar's affiliation with Warburg will provide it with a reliable source of financing, and therefore, we expect that NeuStar will remain adequately capitalized, and thus able to perform the NANPA functions. We undertake in this order, therefore, only to evaluate the neutrality of NeuStar. Because we also recognize the need to ensure that the quality of service remains consistent under the new ownership structure, however, we will ask the NANC to continue to exercise its oversight of the NANPA's performance, including conducting an annual appraisal  X 4of the NANPA's performance."[~ Gv yO'ԍThe NANC's NANPA Oversight Committee conducted an appraisal of Lockheed's performance as the  {OQ'NANPA this year. See NANPA Annual Performance Evaluation, April 21, 1999. The NANC found that Lockheed was performing at an acceptable level. The NANC, however, also found some deficiencies in the NANPA's performance concerning communication, the timeliness of administration, and NPA relief planning.  {O'Id. at 3133. The NANPA has responded to the NANC's concerns by improving internal and external  {Ou'communication, increasing staffing, and providing more detailed reporting of its activities. See NANC Meeting Minutes, June 2223, 1999; NANC Meeting Minutes, August 2425, 1999." We, moreover, will continue to require the NANPA to correct any deficiencies noted in the NANC's appraisals.  X 423. ` ` Compliance with the neutrality criteria. Lockheed and Warburg argue that  X4NeuStar is a neutral third party entity because the proposed organizational structure ensures that no single holder of more than 9.9 percent of the voting rights for NeuStar's equity will be a telecommunications service provider or will hold more than 9.9 percent of a telecommunications service provider, consistent with the provisions of Criterion One of our  X64neutrality rules.\62 Gv {O'ԍAmended Request at 8.  See supra  3 for discussion of our neutrality criteria. The parties further maintain that the proposed transaction complies with Criterion Two because NeuStar will not issue any debt to any telecommunications service providers, and neither NeuStar nor any affiliate will derive a majority of its revenue from any  X4single telecommunications service provider.K] Gv yOf"'ԍAmended Request at 8, n.9.K In addition, Lockheed and Warburg argue that an analysis of NeuStar's ownership structure demonstrates that NeuStar is not subject to undue"T ]0*&&99{"  X4influence by parties with a vested interest in the outcome of numbering activities.O^Gv yOy'ԍ Amended Request at iii, 7, 9.O Mitretek, on the other hand, contends that the proposed transfer to NeuStar will clearly violate the Commission's neutrality standard because its largest shareholder, Warburg, is aligned with  X4several telecommunications interests._XGv yO'ԍ Mitretek Comments at 3; Mitretek Reply Comments at 3, 10, 12, 1415. All references to Mitretek Comments refer to the September 1999 comments listed at n.54. Moreover, Mitretek states that the particular construction of the neutrality criteria urged by Lockheed and Warburg undermines public  X4confidence that the Commission's rules and policies can be enforced.I`Gv yO 'ԍ Mitretek Comments at 7.I  X_424. ` ` In reviewing the neutrality of NeuStar, we employ the definitions and criteria  XH4we used in the NANP Administration Third Report and Order and our rules.aH@Gv {O9'ԍ NANP Administration Third Report and Order, 12 FCC Rcd 2308023081; 47 C.F.R.  52.12(a)(1). The purpose of the neutrality criteria is threefold. First, they set a clear standard by which to govern the NANPA's impartiality to ensure that entities seeking to participate in the telecommunications marketplace obtain timely and efficient access to numbering resources, and that no particular  X 4industry segment, consumer group, or technology is unduly favored or disadvantaged.b& Gv {Oq'ԍ NANP Order, 11 FCC Rcd 259596. We note that the billing and collection functions carried out by the NANPA also require a neutral entity responsible for these tasks since they involve the calculation, assessment,  {O'billing, and collection of payments for numbering administration functions. NANP Administration Third Report  {O'and Order, 12 FCC Rcd 23057.  Second, the criteria ensure that the NANPA remains neutral in order to maintain the trust and confidence of the entities that must submit sensitive data to the NANPA in its numbering administration activities. Third, the criteria ensure that the NANPA is able to comply with its obligations without extensive and constant Commission oversight. Criteria One and Two serve as objective, quantifiable measures intended to prevent the NANPA from maintaining financial or equity relationships with telecommunications service providers that could exert control over the decisions and activities of the NANPA or otherwise compromise its impartiality. Criterion three, however, affords us broad discretion to determine whether the entity is subject to undue influence by parties with a vested interest in the outcome of  X4numbering administration activities. In this order, as did the Commission in the NANP  X4Administration Third Report and Order, we will evaluate NeuStar's neutrality under each of the three criteria.  X425. ` ` Criterion One: Affiliate Relationship with Telecommunications Providers. Section 52.12(a)(1)(i) of our rules provides that the NANPA may not be an affiliate of any" b0*&&99"  X4telecommunications service provider. In the NANP Administration Third Report and Order, the Commission determined, in accordance with the Act's definitions of "telecommunications"  X4and "telecommunications service," and federal precedent,cGv {OM'ԍ47 U.S.C.  153(43); 47 U.S.C.  153(46). See also NANP Administration Third Report and Order, 12 FCC Rcd 23077. that telecommunications service providers are carriers that hold themselves out "to service indifferently all potential users" of  X4common carrier services.d"Gv {Oy'ԍNANP Administration Third Report and Order, 12 FCC Rcd 23077 (citations omitted). It also determined that common carrier services include services offered to other carriers. Further, the Commission concluded that whether an affiliate is a telecommunications service provider does not depend on whether it provides services directly to end users, but instead on whether it has "been authorized to offer services indiscriminately  XJ4to the public," and is, therefore, "providing services on a common carrier basis."zeJGv {O 'ԍNANP Administration Third Report and Order, 12 FCC Rcd 23077.z ` `  X 426. ` ` NeuStar itself will not provide telecommunications services, nor will NeuStar have an affiliate relationship with a provider of telecommunications services. NeuStar's affiliates are those persons or entities that will: 1) own a 10 percent or more equity interest in NeuStar; 2) have the power to vote 10 percent or more of NeuStar's securities; or 3) have the  X 4power to direct NeuStar's management and policies.sf FGv {O'ԍSee supra n.14 for the definition of affiliate in our rules.s We find, therefore, that NeuStar management and the voting trust, because of their respective 28.1 percent and 59 percent interests in NeuStar, are affiliates of NeuStar. We also find that WPEP and its parent Warburg, because they indirectly own 54 percent of Neustar through their interest in the voting trust in addition to directly owning 9.9 percent of Neustar, are affiliates of NeuStar. Neither of these entities, however, is a telecommunications service provider as defined under  X64the Act and our rules. g6Gv yO'ԍWe recognize that Warburg and WPEP have several affiliate relationships with telecommunications service providers through their ownership of an equity interest in those companies. These telecommunications holdings, however, do not make Warburg and WPEP telecommunications service providers, and these affiliate  {O'relationships cannot be attributed to NeuStar, under Criterion one. See supra  8 for discussion of Warburg and WPEP's telecommunications holdings.  Therefore, we conclude Criterion One is satisfied.  X4 ` `  X427. ` ` Criterion Two: Debt or Revenues from Telecommunications Services Providers. Section 52.12(a)(1)(ii) of our rules provides that neither the NANPA nor any of its affiliates may issue a majority of its debt to, or derive a majority of its revenues from, any  X4telecommunications service provider. Although Warburg is providing most of the operating capital, and thus, those investments will comprise more than 50 percent of NeuStar's revenue, we conclude that Warburg's investment in NeuStar does not constitute a violation of this" g0*&&99" criterion because Warburg is not a telecommunications service provider. Moreover, Lockheed's investment in NeuStar is limited to three percent, which falls below the 50 percent threshold in this provision. Because they are not telecommunications service providers, neither NeuStar management, nor the voting trust present any issues under this criterion, either. Therefore, we find that Criterion Two is satisfied.  Xv428. ` ` Criterion Three: Undue Influence. We now consider section 52.12(a)(1)(iii) of our rules, which provides that, notwithstanding the first two neutrality criteria, we may determine that the NANPA may or may not be subject to undue influence by parties with a vested interest in the outcome of numbering administration and activities. We must determine, therefore, whether we believe NeuStar will be subject to undue influence by any party with a vested interest in the outcome of numbering administration and activities.   X 429. ` ` We find that Warburg, by virtue of its investments in telecommunications service providers, would have an interest in the outcome of numbering administration and  X 4activities.]h Gv {O"'ԍ See supra discussion at  8.] Although there is no indication that any of the telecommunications service  X4providers affilliated with WarburgPiZGv {O'ԍ See  30 infra.P currently use numbering resources, each of these affiliates is authorized to provide telecommunications services on a common carrier basis and certain of them are positioned to compete directly with other telecommunications service  XM4providers that do use numbering resources.jzMGv yO'ԍ For example, we note that Covad, on June 7, 1999, issued a press release announcing that it has completed trials that successfully demonstrate its ability to provide voice over DSL. While this is not determinative of Covad's intent to obtain numbering resources in the future, it is indicative that Covad's market position continues to evolve and demonstrates Covad's intent to compete head to head with entities that do utilize  {O 'numbering resources. See "Covad Successfully Executes Trials of Combined Voice and Data Over DSL," press release, dated June 7, 1999. This document is available at  As such, these affiliates have an interest in numbering administration issues, and in particular, in obtaining information about how their competitors obtain and use numbers because such information may reveal the marketing  X4strategies of these competitors.yk\. Gv yO'ԍ In addition, Mitretek and Professor Lynn Stout raise several arguments disputing the ability of NeuStar  {O 'to remain neutral under the proposed structure. See generally Mitretek Comments; Mitretek Reply Comments.  {Oy!'See also Lynn Stout Comments; Lynn Stout Reply Comments. y  X430. ` ` Although NeuStar, not Warburg, is subject to compliance with our neutrality requirements, we nevertheless are concerned about the extent of Warburg's holdings in telecommunications service providers. Warburg invests in several companies that are"R k0*&&99" "authorized to offer telecommunications services indiscriminately to the public," and thus are  X4telecommunications service providers.lGv {Ob'ԍSee supra  25 for discussion of the definition of a telecommunications service provider. Moreover, because Warburg's interests in Four Media, Covad, and Primus exceed the 10 percent equity interest threshold as defined in section 52.12(a)(1)(i) of our rules, Warburg is an affiliate of at least three telecommunications  X4service providers.m ZGv yO'ԍBecause the GTS and NTL equity interests are not greater than ten percent, these companies are not affiliates of Warburg, and thus Warburg's interest in them would not violate our neutrality criteria, even if those criteria did apply to Warburg. We do not have any information as to the ratio of Warburg's equity interest in the European Venture to its total assets.  Also, in their Amended Request, the parties inform us that Warburg has  X4continued to make new investments since the submission of the original Request.JnBGv yO 'ԍAmended Request at 3 n.6.J The present level of Warburg's investment in the telecommunications market, as well as the likelihood that those investments will continue to increase, raises concerns about Warburg's incentive to influence NeuStar in a manner that might compromise NeuStar's neutrality.  X14 ` `  X 431. ` ` Given these concerns, we must consider whether the proposed structure of the  X 4voting trust will sufficiently guard against Warburg exercising undue influence on NeuStar.Fo Gv yO'ԍAmended Request at 9.F We conclude that, despite Warburg's investments in telecommunications service providers, the placement of a large majority of Warburg's shares in the voting trust structure proposed by the parties will adequately prevent Warburg or its affiliates from exercising undue influence on the NANPA in its numbering administration duties. We decline to evaluate the independence of the NeuStar voting trust in the context of the regulation of investment  Xy4companies, as Professor Stout undertakes to do.p|yb Gv yO'ԍ Although Professor Stout does not offer any citations to support her analysis in her comments and reply comments, we have been informed by Mitretek that her analysis is based on the discussion of voting trusts in the  {O'context of the regulation of investment companies, as noted in articles provided to us by Mitretek. See Letter from John E. Logan, counsel for Mitretek, to Magalie Roman Salas, Secretary, Federal Communications  {O'Commission, with attachments (dated October 12, 1999) (Mitretek Oct. 12, 1999 ex parte). Although the Investment Company Act of 1940 may be informative by analogy, the present voting trust is not subject to those statutory requirements.  Instead, we evaluate the independence of the trust in a manner consistent with the exercise of judgment afforded under the Third Criterion.  X432. ` ` The presence of unaffiliated directors and trustees, who owe fiduciary duties to parties other than Warburg with a paramount interest in ensuring NeuStar's neutrality, should"p0*&&99"  X4ensure that NeuStar does not compromise its neutrality obligations.q"Gv yOy'ԍ Lockheed Reply Comments at iii; Amended Request at 7; Lockheed Reply Comments at iii. We do not believe that it is necessary for the unaffiliated NeuStar directors and trustees to owe fiduciary duties to the general public, as Professor Stout's suggests, in order for them to act in a manner that maintains NeuStar's  {O'neutrality. See Lynn Stout Comments at 4.  Contrary to arguments raised by Mitretek and Professor Stout that the proposed organizational structure will permit  X4Warburg to exercise control over the actions of the unaffiliated directors and trustees,rGv {O5'ԍ Mitretek Comments at 4. See also Lynn Stout Comments at 24; Lynn Stout Reply Comments at 1. the structure of the NeuStar Board and the terms of the Trust Agreement provide a strong basis for the directors and trustees to act independently and prevent any attempt by Warburg to exercise improper influence. The independence of the trustees is reinforced by the  Xv4establishment of a specific level of compensation for the trustees during the life of the trust.GsvDGv {Ok 'ԍ See supra n.51.G The structure also mitigates Warburg's influence over NeuStar through the trustees because,  XH4although Warburg participates in the selection of successor trustees,tHGv {O'ԍ See supra text accompanying n.55 (describing Warburg's reservation of a "veto" in the selection of successor trustees). the trustees do not  X14participate in the day to day management of NeuStar.Gu10 Gv {O'ԍ See supra n.53.G Thus, Warburg's reservation of a veto in the selection of successor trustees presents no real threat to NeuStar's neutrality, because any influence that Warburg might have over successor trustees would not likely have any effect on NeuStar's numbering administration activities.  X 4 33.` ` Moreover, the presence of the unaffiliated directors and trustees will counterbalance Warburg's influence over matters before the Board. First, we note that, as with the selection of successor trustees, Warburg has attempted to reserve for itself a veto in  Xy4the selection of successor unaffiliated directors. B ased on our understanding of the corporate  Xb4structure proposed, this reservation has no practical effect, however, because at least one Warburg board member would necessarily participate in the selection of a new unaffiliated  X44director who must be chosen by a majority of the remaining four board members (i.e. three  X4members).Gv Gv {O 'ԍ See supra n.59.G Moreover, any successor unaffiliated director nominated by the Board must be approved by the trustees. Second, because Warburg will control only 40 percent of the Board's vote, it is unlikely that Warburg's participation in decisions such as the selection of a new Chairman will render NeuStar under the control of Warburg. In addition, the presence of Jeffrey Ganek, the current Senior Vice President and Managing Director of CIS, on the board as NeuStar's proposed CEO further erodes Warburg's influence, primarily because his own"T v0*&&99i" success is dependent on the success of NeuStar, which must remain neutral to continue in business, and therefore his interests are independent from those of Warburg, which has many  X4other investments that overshadow the value of its investment in NeuStar.+wZGv yOK'ԍ Thus, we disagree with Mitretek's position that Mr. Ganek is a Warburg nominee and therefore  {O'controlled by Warburg. See Mitretek Comments at 4; Mitretek Reply Comments at 11. See also Lockheed Reply Comments at 7. +  X4!34. ` ` Contrary to Mitretek's contention, we also conclude that NeuStar's stated commitment to implement a Code of Conduct is an additional safeguard that should provide an additional, appreciable level of protection against the exercise of undue influence by  X_4Warburg.Ix_Gv yO 'ԍ Mitretek Comments at 5.I The Code of Conduct sets clear parameters proscribing behavior that would compromise NeuStar's neutrality, and we commend Lockheed and Warburg's implementation of these additional measures. We condition our approval of the transfer of the NANPA functions to NeuStar on NeuStar's adherence to the Code of Conduct, and the additional protections we propose below.  X 4"35. ` ` The Code of Conduct requires the parties to hire an independent entity to conduct a neutrality review, or audit, of NeuStar on a quarterly basis and commit to provide the results of this review to the Common Carrier Bureau (Bureau), the NANC, and the designated LLC representatives. We agree that a quarterly audit will provide additional incentive for NeuStar to maintain its neutrality, and we add the following conditions to better define the scope of the audits and the procedures to be followed. First, we require that the  XK4independent auditor selected by the parties must meet the approval of the Commission.yKzGv yOv'ԍ The parties should refer matters concerning the independent auditor to the Common Carrier Bureau, acting pursuant to delegated authority. Second, the independent auditor must consult with the Bureau in developing the methodology of the neutrality review, which will encompass NeuStar's compliance with the proposed Code of Conduct and the Commission's neutrality rules in 47 C.F.R.  52.12(a)(1). Third, to ensure that the public maintains confidence in the results of the audit, we require that the auditor adhere to the relevant standards of the American Institute of Certified Public Accountants  X4("AICPA") when performing the engagement and submitting its report.zzGv yOD 'ԍ AICPA standards require the auditor to maintain independence in all matters relating to the assignment.  {O !'AICPA standards refer to the type of review to be performed as an "attest engagement." See American Inst. of Certified Pub. Accountants, Attestation Standards, AT  100; Compliance Attestation, AT  500. This will require NeuStar's management to make an assertion regarding its compliance with the Commission's neutrality rules, and for the independent auditor to express a conclusion about the reliability of the assertion. Also, consistent with AICPA standards, the auditor's report must present a "positive opinion" and note any exceptions uncovered during the engagement.  Fourth, the"z0*&&99 " auditor's working papers should be available upon request for the Bureau's review. Fifth, we add the requirement that the NeuStar Board review the results of the audit for independence, integrity, accuracy and irregularities, and certify its acceptance of the audit report by attesting and forwarding it to the Bureau and other relevant parties. Sixth, as proposed by the parties, we will also require that the two unaffiliated directors serve on any NeuStar Board committee that oversees these neutrality reviews. Seventh, should the neutrality audit uncover any aspect of the NANPA's neutrality or performance that requires corrective action, we require that the Board submit a proposal to the Bureau describing what corrective action, if any, it intends to take.  X 4#36. ` ` Furthermore, although the parties propose to have the results of the neutrality review be deemed confidential and proprietary, we require that the results be made available to the public with proprietary information redacted as necessary. In providing for public review of the NANPA's performance, we seek to encourage and enlist participation by the industry in the oversight of the NANPA's compliance with our requirements.  X4$37. ` ` Finally, although we find the current structure of NeuStar to be consistent with our neutrality criteria, we recognize that any change in the structure of the voting trust, the Board of Directors, or overall ownership structure may render NeuStar in violation of our neutrality requirements. Thus, we further condition our approval of the transfer of the NANPA functions to NeuStar on the requirement that the organizational structure of NeuStar, the voting trust, and the Board of Directors be maintained during NeuStar's term as the NANPA. Any private agreements made between the parties concerning the transfer must be made consistent with the terms and conditions set forth in this order. Our approval of the proposed transfer is subject to the parties' acceptance of all of the foregoing conditions.  X4 ` `  X4%38. ` ` We find that the parties' proposal for transfer of the NANPA functions, subject to the conditions enumerated above, meets the Commission's neutrality requirements. NeuStar must accept, in writing, all of the foregoing conditions within 30 days of the date of release of this order. Upon consummation of the parties' transfer of the NANPA functions to NeuStar and written confirmation of acceptance of the conditions, NeuStar will be deemed the appointed NANPA. NeuStar's appointment as the NANPA is in the public interest because of the need for a seamless transition to ensure a lack of interruption of the numbering administration process, given the widespread occurrence of area code exhaust and the industry's continuing need for a smoothly functioning numbering allocation system in this era of competition in all telecommunications markets. We fully expect NeuStar to continue to serve as the NANPA in compliance with the Requirements Document for the remaining term  X!4of the agreement. Should NeuStar in the future violate our neutrality rules, or if NeuStar's performance falls below the level required under the agreement, we will reevaluate NeuStar's fitness to serve as the NANPA, and consider taking steps to disqualify NeuStar as the"#z0*&&99!"  X4NANPA, if necessary, in accordance with our pronouncements in the NANP Administration  X4Third Report and Order and with the findings set forth in this Order.  X4` ` ,  X4&39. ` ` We note that the current NANPA contract will expire in November of 2002. We, along with the NANC, are in the process of formulating the provisions of the new Requirements Document, which will contain the selection criteria and responsibilities of the next NANPA. Besides taking into account current trends in the numbering arena, we will also take a fresh look at our selection criteria. Among the factors that are under consideration as relevant selection criteria is a specific commitment by the designated NANPA to adhere to the neutrality standards throughout the entire term of its contract. We will also consider other factors, such as an entity's commitment not to invest in telecommunications service providers and not to become a telecommunications service provider, as well as an entity's current or future financial interest and involvement in the telecommunications industry. ` `  X 'oG CONCLUSION Đc  X4'40.` ` We conclude that Lockheed must obtain our prior approval before transferring the NANPA functions. We further find that Lockheed currently is in violation of our neutrality requirements but may cure its violation by transferring the NANPA functions to an entity that meets the neutrality requirements. Finally, we find that NeuStar, as currently structured and with the additional safeguards imposed herein, is in compliance with our neutrality criteria. Thus, we approve the transfer of NANPA functions to NeuStar, subject to the terms and conditions enumerated herein, for the remainder of the current appointment  X4term.  X'V ORDERING CLAUSE c  X4(41. ` ` Accordingly, IT IS ORDERED that, pursuant to sections 1, 4(i), and 251 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 251, and section 52.12 of the Commission's rules, 47 C.F.R.  52.12, this ORDER is hereby ADOPTED.  ` `  ,hh]FEDERAL COMMUNICATIONS COMMISSION  ` `  ,hh]Magalie Roman Salas ` `  ,hh]Secretary  ""z0*&&99 "  X' uAPPENDIX A ă  X4#XP\  P6QXP#c X` hp x (#%'0*,.8135@8:&z0*''99B$" independent directors on the Neustar board, since no independent director can be selected without the approval of one of the Warburg representatives and since the Warburgnominated Neustar CEO will nominate the independent directors. In addition, Warburg will ultimately control the voting trust. The Warburgdominated board of directors of Neustar will have the power to remove trustees of the voting trust without cause and to select successor trustees, and the appointment of a successor trustee must be approved by one of the Warburg board members. Under these conditions, I find it impossible to conclude that Neustar will be a neutral entity, truly independent of Warburgs influence. Consequently, I believe that the Commissions approval of the transfer of North American Numbering Plan administrative functions to Neustar violates our rules.