Convergence calls: 10 telecom trends to impact IT companies

Merging of data and voice means big changes ? and big opportunities<@VM>Major contracts

For systems integrators trying to serve as a telco, one surefire way to succeed is to establish a disciplined telecommunications practice inside their companies, according to Qwest's James Payne.

Henrik G. de Gyor

The migration of telcos into systems integration reflects the market for converged services, said Bob Collet of AT&T.

Olivier Douliery

"Most [agencies] are looking for a single source ? and don't want to go to different providers, " said Warren Suss, president of Suss Consulting Inc.

Olivier Douliery

MCI's Jerry Edgerton said a general spate of bankruptcies, not just MCI's, have made agencies cautious buyers.

Olivier Douliery

"If there's a local emergency, you're not going to call Donald Rumsfeld. You're going to call [public safety]." | Peter Roy, deputy chief technology office for the District of Columbia

Henrik G. de Gyor

The telecommunications industry is once again in a state of flux. Still acclimating to the flood of competition unleashed by the 1996 Telecommunications Act and licking its wounds from a scandal-tainted 2000 market crash, the industry now must grapple with how best to deliver a wide variety of services over a changing network infrastructure.

Driving opportunities in today's telecommunications market is so-called convergence. The Internet, wired and wireless, is gradually becoming the primary, low-cost way of moving not just data, but also voice and other services. For example, the Defense Department's network-centric warfare initiative increasingly relies on securely sharing mission-critical information using Internet Protocol.

This convergence has blurred the lines between telecommunications companies and systems integrators as they pursue opportunities once regarded as outside their domain. The former are branching out into network design and value-added services; the latter are chasing telecommunications contracts.

"There are traditional telcos that are becoming systems integrators and vice versa," said Lisa Crisp, vice president for government solutions at Avaya Inc. of Basking Ridge, N.J., which sells voice over IP equipment. "It broadens the playing field for companies like us."

Washington Technology talked with analysts and executives in the telecommunications industry about the changing landscape and emerging trends in the government arena, such as next-generation Internet technologies, impediments to wireless adoption and new procurement policies.

The result is 10 telecommunications trends that will impact integrators and telcos over the coming years. Which trends can your business capitalize on?

Telcos as integrators

WT's take: Telecommunications companies must branch out into other areas, but doing so in tough economic times may prove a challenge.

Several years ago, telecommunications companies wouldn't bid on contracts requiring extensive integration services. But times have changed. Telcos have moved into integration to ensure their long-term survival. It's led to a clash of the titans, said Warren Suss, president of Suss Consulting Inc., a strategic planning and market research firm in the federal technology marketplace.

[IMGCAP(2)]The migration of telcos into systems integration reflects the growing market for converged services and a desire for one-stop shopping, said Bob Collet, chief technology officer of AT&T Corp.'s government solutions unit.

AT&T stepped into the systems integrator role when it won the General Services Administration's FirstGov contract in March 2002 to build a portal for online government transactions, services and information. More recently, Qwest Communications International Inc. won a spot on the Defense Department's $877 million Global Information Grid-Bandwidth Expansion program. Teaming with Cisco, Qwest will help build the GIG-BE multiservice provisioning platform.

Some telcos already provide integration services, such as Web hosting, networking, data storage and security services. Their challenge now is to provide more services in areas in which they have less experience, such as application development, Suss said. But this will be difficult while the telecommunications industry continues to struggle for economic stability, he said.

Civilian and defense agencies take different approaches on their telecommunications contracts, said James Payne, senior vice president of Qwest's government services division. The Defense Department usually relies on telcos as its prime contractors because they offer direct systems control, whereas civilian agencies prefer using integrators, which allows them to outsource their communications contracts.

Integrators as telcos

WT's take: Contracts are there for the taking as long as integrators build their telecommunications expertise and partner with proven technology vendors.

The flip side of telcos acting as integrators is systems integrators pushing their way into areas considered to be strictly telco turf.

Harris Corp., for example, beat out incumbent WorldCom Inc. and Lockheed Martin Corp. to win the Federal Aviation Administration's $3.5 billion telecommunications infrastructure contract in July 2002. For the project, the Melbourne, Fla., company compiled a diversified team of local and long-distance providers as subcontractors. Similarly, EDS Corp. is leading the $8.8 billion Navy-Marine Corps Intranet program to provide a broad range of network services, including integrated video, voice and data communications, to 360,000 desktops throughout the United States and other locations.

But telco officials warn that integrators can expect a tough time if they advance further into their territory, where the complex tax, regulatory and technical issues could prove difficult to manage.

"They wouldn't stand a chance in competing with us, because we're already there," said Jerry Edgerton, MCI Inc.'s senior vice president of government markets.

For systems integrators who want to keep trying, one surefire way to succeed is to establish a disciplined telecommunications practice inside their companies, Payne said.

Voice Over IP

WT's take: Companies should include provisions for VoIP when responding to any telecommunications ? or networking related request for proposal.

Voice over Internet Protocol is becoming a check-box technology in government RFPs. Agencies may not have imminent plans for VoIP, but they are asking that solutions include the capability as an upgrade. The Treasury Department, for example, asked that contractors be able to support future requirements for converged technologies such as VoIP in its Communications Enterprise program, for which proposals are due June 18.

"The easier we make it for customers to migrate to VoIP, the more roundly adopted the technology will be," said Ed Carney, vice president and general manager for government systems at Cisco Systems Inc. of San Jose, Calif.

For now, VoIP is popping up in what one analyst called "pockets of warm reception." Agencies are trying out the technology and using it to solve very specific business challenges, such as pulling together remote offices under a single telecommunications infrastructure.

A so-called green field deployment, in which an agency adopts VoIP as part of a new network deployment, may be the most efficient way of integrating the technology, but such deployments are few and far between, Avaya's Crisp said.

The Commerce Department launched a green field VoIP network based on Cisco equipment when it spent more than $11 million to rewire its Washington headquarters.

The short-term opportunities, according to Crisp, arise when agencies want to use VoIP in certain parts of their traditional telecommunications infrastructure, whether to bridge call centers or enable teleworking by giving employees an IP-based phone number that follows them home.

"The federal government is becoming one of our largest customers," she said.

Networx

WT's take: As the government tries to figure out the best way to procure converged services, expect unusual, multitiered contract proposals for the Networx telecommunications contract.

The largest federal telecommunications procurement ever will redefine the marketplace for governmentwide voice and data services for years to come in usage and pricing, experts said.

[IMGCAP(3)]Dozens of telcos and systems integrators are planning to bid on the 10-year, $10 billion Networx contract, which will replace the FTS2001 telecommunications contract set to expire in 2006.

The General Services Administration continues to mull its strategy for the project and the contract's configuration. The agency is putting the final touches on its revised Networx strategy, which it plans to issue at a public meeting within the next few months, said Mary Alice Johnson, a GSA spokeswoman. GSA will issue the draft RFP in the fall.

Still to be decided is whether GSA should adopt a two-part acquisition strategy in which the agency awards one contract tailored for large telcos with national infrastructures, and another tailored for smaller carriers and systems integrators that can provide fewer services or services in limited geographical areas.

"The members of the user community will drive the decision, because most federal agencies don't have the staff, the desire or the expertise" to piece together a system from various components, Suss said. "Most are looking for a single source ... and don't want to go to different providers."

As the government continues to use its buying power in critical mass to satisfy its telecommunications needs, companies can expect to see other big contracts combining voice and data services, such as the Agriculture Department's Universal Telecommunication Network project, which will provide the fundamental network infrastructure for the agency to better serve its customers.


The return of MCI

WT's take: Allegations of wrongdoing and a high-profile bankruptcy may have tarnished the company's image, but experts said MCI will be a formidable competitor for government contracts.

[IMGCAP(4)]MCI Inc., one of the dominant telcos in the government marketplace, delivers a combination of managed services, e-government applications, systems integration, international services and voice and data services to federal agencies. Formerly called WorldCom Inc., it emerged from bankruptcy in April. The company filed for Chapter 11 bankruptcy protection after government investigators discovered that it covered up huge losses with fraudulent accounting.

But MCI never really went away. Under the protection of the bankruptcy court, MCI continued to deliver services on time for federal contracts while generating revenue. The company also had the security of long-term government contracts to ensure its survival during its financial problems and reorganization, Edgerton said.

But the bankruptcy has fostered a more cautious attitude among federal clients, as agencies now look for carrier diversity and even to systems integrators to deliver telecommunications services instead of putting all their eggs in one basket with one company, Suss said.

"The bankruptcy has eroded carrier control of the marketplace," he said.

Edgerton countered by pointing out that MCI's bankruptcy did not prompt changes in the government procurement system and that agencies are leery from a general spate of company bankruptcies across most industries.

Industry professionals said MCI has a good chance of winning two major competitions in which it is the incumbent contractor: the FTS2001 contract to be reissued as Networx in 2006, and the Postal Services Managed Network Services deal to be reissued as the Universal Computing Connectivity contract. The company plans to bid on both as a prime contractor, Edgerton said.

Internet Protocol version 6

WT's take: Networking companies that are eyeing Defense Department contracts will need IPv6 partners. Beyond that, adoption of the Internet standard will likely be slow but steady.

If technologies such as radio frequency identification take off as the Defense Department intends, everything from cargo containers to land mines will require their own, unique IP addresses. However, the Internet, which runs on a standard called Internet Protocol 4, can't handle that load. Enter the next-generation Internet, running Internet Protocol 6, or IPv6.

Last year, then-Defense Department Chief Information Officer John Stenbit instructed the department to transition to IPv6 by 2009. The new standard promises to better support high-bandwidth, secure applications while remaining compatible with IPv4.

Network equipment providers, such as Cisco and Juniper Networks Inc. of Sunnyvale, Calif., have begun adding IPv6 support into their products, and service providers are offering IPv6 Internet service to government customers. But analysts said it will take time before agencies feel the need to convert.

In January, the Commerce Department's National Telecommunications and Information Administration issued a request for information about IPv6. It received more than 20 responses from companies such as Cisco Systems Inc. of San Jose, Calif., and Juniper, MCI, Motorola Inc., Sprint Corp. and Verio Inc., an Englewood, Colo., subsidiary of Japan's NTT Communications Corp.

Cody Christman, director of product engineering at Verio, said agencies are testing IPv6 but don't yet see a compelling reason to change. Verio was one of the first companies to offer commercial IPv6 service across its national network. "What they might not understand is it's not a forklift upgrade," Christman said. "Upgrading our backbone cost us nothing."

Analysts said the move to IPv6 is important for government agencies, but except for the Defense Department, they're likely to take a cautious approach to adopting the new standard.

Cutting out the carriers

WT's take: Government-owned networks are attractive to some and could spell new opportunities for telcos and integrators, but local government budgets remain tight and legal challenges may loom.

[IMGCAP(5)]Recently, local governments have found reason to consider building their own telecommunications networks instead of relying on Baby Bells and other local carriers to provide high-speed services. Some want to save money and gain better visibility of their network operations, others simply want to provide constituents with better access to broadband services than local carriers are providing.

In Utah, 18 cities have been grappling with a plan to build a municipally owned, fiber-optic network that would serve about 250,000 homes and 34,500 businesses in and around Salt Lake City. The network, called Utopia, has met opposition from Baby Bells and local politicians, who worry about paying for a fiber-optic network with public money.

Still, government-owned networks are beginning to pop up around the country, from local school districts to the District of Columbia.

"The fiber-optic industry overbuilt its infrastructure," said Ray Bjorklund, senior vice president at McLean, Va., research firm Federal Sources Inc. "Now they have unused fiber and want to sell it."

The District of Columbia is spending $93 million to build a metropolitan fiber-optic network that will handle voice and data communications for 300 agencies, including government offices, fire and police departments and schools. The move is expected to save the city $10 million per year over its current leased infrastructure.

But even if local governments begin building their own telecommunications infrastructures, there are opportunities for telcos and integrators to help with them. For its part, Washington intends to own and manage its network while contractors handle other chores. MCI Inc. will provide the connectivity between DC-NET and the public-switch telephone network, while Science Applications International Corp. will handle the network's physical layer.

"If these governments think they're going to take on network management, it may be a skill set they don't have," Bjorklund said.

Managed services

WT's take: By offering managed services, traditional telcos add significant value. But thanks to deregulation and the Internet, nearly anyone can offer agencies networking services.

Analysts have called managed services the wave of the future in the government market. By outsourcing everything from virtual private networking to simple network management, agencies can save money and control their spending. In addition, they keep themselves on the cusp of evolving technology because the service provider takes care of upgrades.

"Having a network-based offering that is built and managed by MCI helps agencies futureproof their networks," said Michael Marcellin, MCI's senior director for data services. The company recently inked a deal with security vendor VeriSign Inc. to include a variety of security solutions, such as strong authentication, in its managed offerings.

But again, telcos aren't the only companies managing government networks. Because the Internet gives outside businesses a secure link to agency infrastructures, integrators and other solution providers are growing their businesses by assuming much of the network management burden.

DigitalNet Holdings Inc., Herndon, Va., delivers a variety of managed network services, including VoIP and data storage. In April, the company won a $7.6 million deal with the FBI to help manage its Enterprise Operations Center.

Not all government networks are open for business, so to speak. The Defense Information Systems Agencies continues to build and run its own networks to support Defense Department operations. But most agencies are moving toward a managed services model, analysts said.

Price pressure

WT's take: Telcos and integrators will have to prove their "value propositions" and demonstrate that cut-rate prices aren't always a good thing.

Price will still be the deciding factor in the government's procurement of telecommunications services. But agencies that have created a rigid fixed-price structure may be shooting themselves in the foot by sacrificing quality and the flexibility to adopt emerging technologies, industry professionals said.

The government's myopic focus on cost -- and industry's willingness to comply -- is driving down corporate returns and value for investors, Payne said. "Some costs are way below what they should be, and the decision needs to be made as to whether price will continue to go way down or whether the market will be returned to a level of sanity," he said.

Wireless spectrum struggles

WT's take: Efforts to arm first responders with wireless devices are picking up steam, but questions over acquiring the necessary radio spectrum may hinder adoption.

Gary Grube, vice president and chief technology officer at Motorola Inc. of Schaumburg, Ill., preaches the importance of reliable, broadband wireless applications for public safety workers. But he also laments the roadblocks to achieving that end.

"We need reliable spectrum in the 700-megahertz band," Grube said.

It's a behind-the-scenes struggle that, according to experts, could hold up adoption of proven wireless communications solutions at the state and local levels.

Many public safety systems operate in the 800 MHz radio spectrum, along with personal devices such as cell phones. By using adjacent spectrum, experts said agencies could expand their systems to be more interoperable and handle richer data. In addition, the lower frequency bands, as opposed to the 2-GHz to 5-GHz bands where Wi-Fi networks operate, can better penetrate buildings and travel long distances.

In Washington, Motorola and Flarion Technologies Inc. of Bedminster, N.J., recently flipped the switch on a wireless network pilot that gives public safety officials access to broadband data, voice and video anywhere in the city, including the subway system. The city has a special license to operate in the 700-MHz spectrum.

"If there's a local emergency, you're not going to call Donald Rumsfeld. You're going to call [public safety]," said Peter Roy, deputy chief technology office for the District of Columbia. "We need that spectrum."

Interestingly, four years before Sept. 11, 2001, Congress had already allocated spectrum in the 700-MHz band for public safety. But it gave the remaining 700-MHz public television stations ? about 5 percent of all U.S. stations ? until at least 2006 to clear out. Grube said he's worried even that deadline won't be met nationwide.

Staff Writers Brad Grimes and Roseanne Gerin can be reached at bgrimes@postnewsweektech.com and rgerin@postnewsweektech.com.
FTS Networx

Agency: General Services Administration

Value: $10 billion over 10 years starting in 2006

Status: Draft RFP expected in September

Purpose: Telecommunications services including circuit-switched network, frame-and-cell-switched network, Internet service, dedicated network, combined network, virtual private network, conferencing, managed security, applications and business operations, remote and user services, access and wireless and satellite services. The contract will replace the FTS2001 contract, which expires in 2006. It also may have two parts, one for national telecom services and a second for more specialized services.

Potential bidders: Sprint Corp. and MCI Inc. are the incumbents. Other companies expressing an interest in playing some kind of role include AT&T Corp., BellSouth Corp., Booz Allen Hamilton Inc., CACI International Inc., Cexec Inc., Computer Sciences Corp., EDS Corp., EPS Corp., Hewlett-Packard Co., IBM Corp., NCI Information Systems Inc., Northrop Grumman Corp., Qwest Communications International Inc., Science Applications International Corp., Unisys Corp. and Verizon Communications Inc.

Treasury Communications Enterprise

Agency: Treasury Department, Internal Revenue Service

Value: $1 billion over three years with seven one-year options

Status: RFP released in May, proposals due June 18. Award expected in September.

Purpose: Treasury Communications Enterprise will provide a wide area network for the agency in the form of a performance-based, vendor-managed services contract for Treasury and its bureaus at about 850 locations that are supported by the former Treasury Communications Systems contract. The new contract will include planning, design, transition, implementation, operation, maintenance and management of the contractor-owned WAN.

Potential bidders: Northrop Grumman is the incumbent. Other interested companies include Avaya Communications Inc., BearingPoint Inc., Dynamics Research Corp., General Dynamics Corp., Harris Corp., Lucent Technologies Inc., McDonald Bradley Inc., Nortel Networks Corp., Qwest, Raytheon Co., Titan Corp. and XO Communications Inc.

Universal Computing Connectivity

Agency: U.S. Postal Service

Value: $3 billion over six years with four one-year options

Status: RFP released in January. Award expected in August.

Purpose: The Universal Computing Connectivity contract will provide services and equipment for Postal Service facilities and business applications. The Postal Service wants to integrate all communication networks into a single network, which will serve about 14,530 networked facilities and possibly up to 20,000 facilities.

Potential bidders: MCI holds the incumbent contract called the Managed Network Services contract. Other possible bidders include CSC, Lockheed Martin Corp., Northrop Grumman and Sprint.

Universal Telecommunications Network

Agency: Agriculture Department

Value: $400 million; length unknown

Status: RFP issued Feb. 17; award expected in June.

Purpose: The Agriculture Department wants to use the contract to centrally manage its telecommunications infrastructure, eliminating unnecessary redundancies and standardizing services across the department.

Potential bidders: AT&T, Avaya, Booz Allen Hamilton, CACI, Indus Corp., Information Systems Support Inc, Lucent, Qwest, SAIC, Sprint, Titan, Unisys, Universal Systems & Technology Inc., Verizon, Wam!Net Government Services Inc. and XO.

Justice United Telecommunications Network

Agency: Justice Department

Value: TBD

Status: Award expected in June.

Purpose: The Justice Uniform Network will replace the Justice Consolidated Network that connects the department's offices. JUTNet will create a single network for voice and data communications and provide interoperability across department components, such as the FBI, U.S. attorneys offices and Federal Bureau of Prisons. The department wants JUTNet to be a managed service contract.

Potential bidders: The contract is only open to FTS2001 contract holders: AT&T, MCI, Sprint, Qwest

Global Information Grid Bandwidth Expansion Program

Agency: vDefense Information Systems Agency

Value: $3 billion over 8 years

Status: Several parts have been awarded, including a contract for overall management won by SAIC. An RFP for the storage component is expected in June or July.

Purpose: GIG-BE will be a worldwide, switched-optical network to serve Defense Department users around the world. Services include voice, video, data, and imagery.

Bidders: Unavailable

Joint Tactical Radio System

Agency: Defense Department

Value: $6 billion

Status: awarded in phases

Purpose: The program is a defensewide effort to create interoperable software radios. Boeing Co. holds the integrator contract to develop and deliver the first cluster of JTRS radios for the Army. The Air Force is selecting the vendor for its portion of JTRS.

Potential bidders: Lockheed Martin and Boeing are leading competing teams on the Air Force JTRS contract.

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