Networx casts big shadow

Contract isn't mandatory, but few telecom services options exist

Mike Cook, of Hughes Network Systems LLC, said smaller companies benefit from being partners and subcontractors that orbit around the prime contractors.

Rick Steele

The Networx contract for telecommunications
services, like its predecessor, FTS
2001, is not mandatory for agencies' use,
but it may as well be.

Analysts and other industry observers
say that for agencies' fundamental network
and telecommunications needs, there are
not many alternatives.

Niche contracts exist for specialty services,
such as satellite communications, and
agencies can purchase some network services
and hardware through General
Services Administration schedule contracts.
Agencies also can negotiate their
own stand-alone contracts with providers if
they wish.

"There are a lot of costs and risks associated
with that," Warren Suss, president of
Suss Consulting in Jenkintown, Pa., said of
the latter option. "And it's not likely they'd
end up with anything better than Networx."

Contracts bear costs for oversight and
administration, which are minimized when
they're paid once on a governmentwide
contract, Suss said. Agencies have little reason
to undertake those costs themselves
and hire extra employees when Networx is
available instead.

"It would be difficult for users to make a
change, and I don't believe there's a big
incentive," he said.

Smaller companies benefit from being
part of the teams of partners and subcontractors
that orbit around the prime contractors,
said Mike Cook, senior vice president
for North America at Hughes
Network Systems LLC, of Germantown,
Md. But they also are wise to cultivate their
own prime contracting relationships
through other contracts or partnerships for
times when agencies need the more specialized
offerings.

GSA's forthcoming Satcom II contract,
for example, will specialize in satellite services,
making it a potential rival to Networx
for agencies that need only those services.

"We market directly to the federal government.
We have our own contract vehicles," Cook said. "So as we're
out and about talking to people,
when we get to a point
where an agency has an interest
or need for the services we
provide, we have to discuss
what is the appropriate contract
vehicle."

For niche players, the key is
to offer the customers choices.
"We are trying to establish as
many contract vehicles as we
can to allow the agencies to
make their life easy," Cook said.

CAUTIOUSLY OPTIMISTIC

For Sprint Nextel Corp., the
sole losing bidder on Networx
Universal, the question is particularly
acute. Tony D'Agata,
vice president of Sprint's federal
government business, said
Networx is going to be the preferred
vehicle for the services it
provides.

Although Sprint is still hopeful
of getting a spot on the less-expansive
Networx Enterprise
contract, which GSA will award
in May, he said there are other
possibilities. D'Agata emphasized
that much of Sprint's federal
business is not through
FTS 2001 and may not be
affected by the loss of Networx
Universal.

"Depending on the
agency, there [are] a
number of ways one
might choose to buy off
of other vehicles," he
said. "Some agencies
might feel their requirements
are so unique that
they would like to have
their own solicitation." The
Defense Department, in particular,
has not used FTS 2001 as
extensively as the civilian side of
government, he said.

"Wire line services will continue
to be purchased off of
FTS 2001 and Networx,"
D'Agata said. "Wireless, which
is a growth area, is a lot more
disparate."

POLITICAL CHESS GAME

It is possible that a serious
rival to Networx will emerge
during the contract's lifetime,
said Joe Shilgalis, vice president
of telecom infrastructure firm
Tellabs Inc., based in Naperville,
Ill.

The Treasury Department,
after a couple of years of wrangling,
bowed in late 2006 to
pressure from GSA and
Congress to kill the Treasury
Communications Enterprise
contract and fold its requirements
into Networx. That led
some to speculate that there is
no room for Networx competitors.
Shilgalis said that is true,
but it may not stay that way.
"A lot of it has to do with the
position of the GSA folks, what
their political backing is," he
said. "In the short term, the
next three to four years, I don't
see any effort to do that. In
three or four years, there's
always the potential for an
agency to say, 'Networx isn't fulfilling
my needs in the way I
require,'" and create something
new.

Agencies that are already satisfied
with services through FTS
2001 will probably slide easily
to Networx, he said.
"For those that haven't
relied on FTS, it's an open
field on the way they're
going to go," Shilgalis said.
"The GSA team is out
there very aggressively
pushing [Networx], and
it's going to bring to the
forefront of everyone's
mind that this is an option.
We're in the initial steps of a
very long process."

"What happened with TCE
provides a poster child for the
problems agencies can run into
when they try to do their own
thing," Suss said. "It's not just a
question of cost, it's a question
of the political backlash they're
likely to run into. If there's one
thing agencies like to avoid, it's
acrimonious hearings on the
Hill."

Associate editor Michael Hardy
can be reached at mhardy@1105govinfo.com.

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