Qwest adds BellSouth to bidding team
Telco and partners seeking $20 billion federal contract
By Jeff Smith, Rocky Mountain News

Wednesday, October 5, 2005

Qwest Communications said Tuesday that BellSouth will be part of its team bidding on a $20 billion federal contract, thought to be the largest pending telecommunications deal in the world.

Other key partners in the Qwest-led bid for the Networx program are Science Applications International, for its network security expertise, and Bearing Point, for applications management.  The group also includes 30 additional large and small businesses.

As team leader, Qwest stands to benefit the most from any award but faces stiff competition from at least three other major teams led by AT&T, MCI and Sprint Nextel.

The groups are vying for pieces of contracts expected to be worth about $20 billion over 10 years, although Qwest said Tuesday the final value of all the contracts could be as much as $40 billion.

The Networx program, run by the General Services Administration, will serve as the primary telecommunications network for federal agencies, including a common procurement system.  It will include the latest voice, data and video services.

Bid deadlines for two separate components are this week and later this month, with awards expected in the summer and fall of next year, according to the GSA's Web site.

"This is 90 percent telecom, with 10 percent being other work such as IT (information technology) and applications management," Qwest spokeswoman Claire Mylott said.  "Other team members are there to help fill the gaps, the niche contracts."

Some analysts think winning a large contract could be a transforming event for debt-laden Qwest, which was rebuffed this year in its attempt to buy Virginia-based MCI Inc.

"It would be a big stamp of approval," giving the Denver telco more credibility, said Donna Jaegers, a telecommunications analyst with Janco Partners in Greenwood Village.

Qwest CEO Dick Notebaert indicated that Networx is a top priority for the Denver telco.  In a statement Tuesday, he praised the GSA's effort in the past four years to allow communications providers besides area incumbents to bid for federal projects.

"Historically, federal agencies have had few communications choices and lacked the same competitive benefits that commercial customers have enjoyed," Notebaert said.

Qwest thinks its relatively new, nationwide fiber-optic network may give it a cost advantage.  The GSA has said it anticipates multiple awards based in part on geographic capabilities.

Qwest's other partners include Akamai Technologies, Lucent Technologies and Hawaiian Telecom Services Co.

Qwest shares climbed 5 percent in early trading Tuesday, with investors also buoyed by the company's stock being upgraded from "neutral" to a "buy" by UBS Securities.  But Qwest shares closed at $4.09, down 5 cents.

Telecommunications analyst Vik Grover of Thomas Weisel Partners has said previously that he expects Broomfield-based Level 3 Communications to derive some secondary benefits from Networx.  Level 3 officials couldn't immediately be reached for comment Tuesday on which team, if any, Level 3 has joined.

The Networx contract has two distinct components.  Networx Universal targets an array of standard telecom services, and Networx Enterprise focuses on niche wireless and Internet-related communications services.

At a glance

Announced teams bidding on Networx, a $20 billion federal telecommunications contract:

  Qwest Communications, with BellSouth, Science Applications International and Bearing Point

  AT&T, with Cingular Wireless, EDS, Global Crossing and Northrop Grumman

  Sprint Nextel, with Lockheed Martin

  MCI, with Hewlett-Packard, WilTel Communications and Verizon Wireless

Note: Each team also includes additional companies.

- 5 cents