Telecoms identify sales targets, look to exploit competitors' weaknesses
"Both [contract] vehicles are very viable at this point." ? Don Herring, AT&T Government Solutions
After more than two years of anticipation, everyone watching the General Services Administration's telecommunications contracting now knows who the heavyweights will be for the next decade.
Three companies hold spots on Networx Universal and its companion, Networx Enterprise. Two more are on the Enterprise vehicle only. All five are figuring out how to use their positions to hold onto their existing federal business and win more.
Agencies have to choose one of the contracts for each set of requirements, so the two companies only on Enterprise ? Sprint Nextel and Level 3 Communications Inc. ? will have to be creative and aggressive to win some deals, industry observers say.
Although much of the emphasis in discussions of Networx has been on the contract's potential to enable agencies to migrate from older network technologies to IP and multiprotocol label switching, the simple bottom-line price will continue to be a key point of competition, said Frank Dzubeck, president of Washington-based Communication Networks Architects Inc.
"The issue is [to] know when to walk away from business," he said. "It's very, very difficult to walk away from a piece of business, but some of it may not be good business. The competitor may be more competitive than you would want. You may have to do certain things to comply with the deal that are not in your best interests."
"Agencies are going to be balancing pricing against the two contracts, and the range of services and range of locations," said Warren Suss, president of Suss Consulting in Jenkintown, Pa. "My bet at this point is that most agencies are going to favor the Universal vehicle."Aggressive posture
Like many other industry observers, Suss said he believes that Enterprise is less valuable for the three companies that earned places on both.
Universal is likely to be the agencies' choice for many projects because the contract requires companies to provide a much broader array of services across a wider geographic range than Enterprise does. Sprint officials pointed out, however, that Enterprise does offer a long list of optional services, and Sprint can provide the same range of coverage through Enterprise that it could have through Universal.
"You have the same products on both contracts," said Tony D'Agata, vice president of Sprint's federal government business. "I think there's a view out there that one has to buy off Universal because it has a list of capabilities that don't exist on Enterprise. That's really not the case."
In fiscal 2006, Sprint earned $324.7 million through FTS 2001, the expiring government- wide contract that Networx will replace. Sprint had 35 percent of the market share that year, second to Verizon Communications Inc.'s $417.1 million and 45 percent of the market share.
Sprint's Enterprise contract includes 18 of Enterprise's 42 optional services.
D'Agata downplayed the significance of his company's failure to win a place on Universal. "If you can buy the same things from Enterprise ? and the prices are lower ? why wouldn't you use Enterprise?" he asked. "We are in as good a position as our competitors. Their hope is to try and take business away from Sprint. My view is to hold onto the business we've got and maybe take business away from them."
Suss said Sprint is at a significant disadvantage, but that Enterprise keeps the company in the game.
"Sprint is going to be very aggressive," he said. Losing the Universal bid "was clearly a wake-up call for their management. They can make a run at keeping their base at least. The key question is whether agencies can meet their core network needs through Enterprise. We won't really know for a while because the agencies haven't all made their decisions. My bet is that most agencies will opt to use Universal for their core networks."
Diana Gowen, vice president of federal sales at Qwest Communications International Inc., said winning the Enterprise award was almost anticlimactic.
"While we were delighted to win Enterprise, it was not the same euphoria as winning Universal," she said. "This isn't about technology. We all have technology. It's not for a lack of technology that problems still exist."
Still, Enterprise will prove useful in some cases, she said. Qwest faces an additional hurdle some other firms don't because it is a lesser-known player in the federal space. But the company now is well-known enough to build on its reputation, she said.
"We've been around long enough. We have business with 55 agencies," she said. "By and large, people know who Qwest is. Now, we're not the same household name as AT&T, but then there are few corporations in America that are."
Highlighting Sprint's vulnerability, Gowen identified existing Sprint business as the first target for Qwest. "The biggest target for all three of us is any Sprint account that the customer wants to do business under the Universal contract," she said. "We're all targeting that. The next piece of the strategy is customers wanting to transform themselves, because they have already made a decision that they're making a change."
Level 3, holding only Enterprise, plans to position itself as the new kid on the block, said Jerry Hogge, senior vice president and general manager of the company's federal government group.
"We represent really the only new competitive choice in the mix," he said. "The other companies have been around a while. We represent the leading-edge newcomer."Customer contact
Don Herring, president of AT&T Government Solutions, said it's simply too soon to know how valuable Enterprise will be. "It's difficult to tell right now which contract will be used by the agencies," he said. "You hear people say Enterprise may be more cost competitive. I don't know that. We'll see. It depends on what the agencies need on an individual basis. Both vehicles are very viable at this point."
Rather than worry about how much emphasis to place on each contract, AT&T is ramping up efforts to talk to customers about the company's flexibility as a holder of both, he said.
"We'll go down two tracks. One is to try to educate people in the usual ways on our capabilities and our products and the ways we can operate, in a broad sense," he said. "But also we'll spend a lot of time with individual agencies. We have dedicated teams to each agency. The general information is important, but where things really happen are those individual agency conversations."
Verizon Communications Inc. is pursuing a similar strategy, said Susan Zeleniak, president of Verizon Federal. The company believes most agencies will use Universal for their primary purchases, but the company can offer Enterprise too.
"We intend to keep things the same on both, so it comes down to what the agencies decide," she said.
Jeff Mohan, AT&T's director of business development for Networx, said the company is expecting a rush of business later this year as the carriers complete their internal systems testing and agencies begin to sort out budgetary issues. That first wave will consist of early adopters, agencies eager to make the change from older contracts to Networx. They will find contract holders equally eager to sign them up.
"The earliest Christians met the hungriest lions," he said.Associate Editor Michael Hardy can be reached at email@example.com.