Bids in for Biggest
Federal Telecom Deal
By Arshad Mohammed and Roseanne Gerin
Monday, October 10, 2005
The federal government has diplomats in Paris, soldiers in Iraq and Afghanistan, rangers roaming national parks and engineers toiling at NASA mission control.
They need up-to-date telephones. They need Internet access. They need wireless service. They need satellite coverage that patches far-flung embassy missions into Foggy Bottom.
The cost will be an estimated $20 billion over the next decade, a figure that has drawn the country's leading telephone, defense and technology companies into a fierce competition for the General Services Administration's largest-ever telecommunications contract.
When the agency decides the winners of its "Networx" contract in coming months, it won't make or break any of the scores of companies involved -- a list that includes many of the most prominent Washington area firms. But any company excluded from the work will spend a decade on the outside of a project designed to provide the federal bureaucracy with its next-generation suite of communications technology.
"Anybody who wants to be in the federal telecom integration market has got to be on the Networx deal," said Diana L. Gowen, who heads Qwest Communications International Inc.'s federal government services business.
After years of preparation and millions of dollars in investment, teams led by AT&T Corp., MCI Inc., Qwest and Sprint Nextel Corp. last week submitted bids on the largest, and most lucrative, part of the contract, called Networx Universal.
A more tailored piece of the project, called Networx Enterprise, is designed to allow smaller companies to compete for part of the work. Bids for that are due Oct. 24.
Each contract could produce multiple winners, who would then be qualified to compete with each other for specific tasks and projects.
Networx Universal is stunning in its breadth.
Bidders must be able to serve more than 15,000 locations in the United States and overseas. The work will include some noncombat communications for the military and U.S. missions in roughly 190 countries. The 1,000-page request for proposals goes well beyond the traditional realm of voice, video and data transmission. It includes requirements for communications over fixed and mobile satellite dishes, Web videoconferencing, and cell phone and wireless Internet services. It would prepare the government for a world in which voice, video and data are increasingly sent over the Internet instead of phone lines.
Ultimately, it may mean providing a federal worker sitting at a desk with an Internet phone, videoconferencing, e-mail and data, all flowing over a single communications pipeline.
Reflecting the complexity of the services, each bidder has lined up partners, including companies with experience weaving disparate systems into a seamless whole. The partnerships demonstrate the reach of the project.
Sprint Nextel has paired with Lockheed Martin Corp. but has more than 40 other companies involved in its bid. AT&T has partnered with Northrop Grumman Corp., MCI with Hewlett Packard Co., and Qwest with Science Applications International Corp.
The winners will divide $525 million in guaranteed revenue for Networx Universal, and beyond that will bid for individual agency projects.
"When the winners win . . . what we really have is a license to hunt," said AT&T Government Solutions' chief engineer Henry M. Beebe, who is leading the team that prepared the company's Networx bid.
Agencies are not obliged to use only Networx providers. The losers can still seek their business, but they will be at a significant disadvantage.
Some government contracting and telecom analysts suggest that the GSA could award the contract to all four bidders if they meet its stringent requirements. That would keep the companies competing with one another over a decade.
But John C. Johnson, the GSA official overseeing the program, said that while he was keeping an open mind, he was leaning toward choosing only two or three winners -- disappointing at least one company.
"Two to three awards for Universal are anticipated and up to five awards for Enterprise," Johnson said. The GSA will decide as it evaluates the bids over the next year.
Analysts were reluctant to predict winners, but several consider Qwest unlikely to be one of them.
MCI and Sprint Nextel enjoy the benefit of incumbency. They have the current contract for government phone services, called FTS 2001, which expires next year.
"We believe Qwest is a long shot," Bank of America Securities LLC analyst David Barden wrote last week. He suggested that AT&T and MCI have the best chance of winning the Universal contract, leaving "a duel" between Sprint and Qwest for a third spot should there be one.
Beyond meeting the contract's technical requirements, each team has the daunting task of staying competitive on prices that have to be estimated a decade ahead.
"It's a price shootout," Gowen said. "The government always figures out how to get us all pretty close from a technical and management perspective. Then it becomes a price game."
Company executives would not disclose strategy or pricing but gave a sense of their sales pitches.
For AT&T, the contest is something of a grudge match, it having lost the FTS 2001 contract to MCI. Executives said AT&T spent two years and millions of dollars preparing its Networx proposal, with workers toiling in a windowless basement bunker in Northern Virginia stacked with papers and lined with boards charting the bid's progress.
Ashburn-based MCI emphasized its FTS 2001 experience and the strength it will draw from Verizon Communications Inc., the $70 billion telephone company that is in the process of buying MCI.
Sprint Nextel noted that it has served the federal government for the past 16 years on FTS 2001 and its predecessor contract. It also highlighted its expertise in wireless systems, which it expects to be a major part of Networx. The company, created from the August merger of Sprint Corp. and Nextel Communications Inc., operates two wireless networks and owns a piece of the Internet "backbone" that carries data around the world.
"I hate to even think of losing," said Tony D'Agata, vice president and general manager of government systems for Sprint Nextel. He said the company would not expect to cut staff if it loses but would instead look for new business. In contrast, AT&T Government Solutions President Louis M. Addeo noted that his company reduced its workforce after losing the FTS 2001 bid.
All four of the companies are also expected to bid on the Networx Enterprise contract, which involves a much more limited range of services in about 300 federal locations.
The GSA split up the contracts to give smaller companies a chance. It also wanted to make sure that government agencies had an opportunity to buy technology from smaller, cutting-edge firms.
The round of mergers in the telecommunications industry may influence the competition.
Verizon bid $8.5 billion for MCI, and San Antonio-based SBC Communications Inc. offered $16 billion for AT&T. The deals, which require regulatory approval, could give MCI and AT&T deeper pockets to fund their investments but could also slow decision-making as the companies complete the mergers, according to Warren Suss, president of Suss Consulting Inc., a federal telecommunications and information technology consultancy in Jenkintown, Pa.
Whichever companies win, they will have to help agencies make the transition from one provider to another, a process that was difficult when the government last bid its telecom work for FTS 2001.
Congress will watch closely.
Rep. Thomas M. Davis III (R-Va.), chairman of the House Committee on Government Reform, said the Government Accountability Office will monitor and report to him on preparations for the transition.
"It is imperative that GSA and the user agencies be prepared for the upcoming transition, so that we do not have a repeat performance of the FTS 2001 transition fiasco," Davis said.
Mohammed is a Washington Post staff writer. Gerin is a staff writer at Washington Technology.