Telecom Bidders Jockey for New Business

By Jennifer Freer, Staff Writer



Eight companies will be battling for awards to provide local and other telecommunications services to federal agencies in at least 17 major cities, kicking off the second phase of the General Services Administration's Metropolitan Area Acquisition program.

One or more winners will be chosen this month to provide a host of telecommunications services to Buffalo, N.Y.; decisions for Cincinnati and Los Angeles are expected in March, GSA officials said.

In April or May, GSA plans to select one or more of the eight companies to provide telecommunications services to seven cities: Atlanta, Baltimore, Cleveland, Indianapolis, Miami, Minneapolis and St. Louis. Awards for Boston, Dallas, Denver, Philadelphia and New Orleans will be decided in July or August. And contracts for Boise, Idaho, and Albuquerque, N.M., will be awarded in September, GSA officials said.

The MAA program, a set of first-of-their-kind competitive awards for local service, will choose contractors in these cities to provide circuit-switched voice and data services as well as dedicated transmission to federal agencies. The MAA awards are estimated to be worth $150 million to $200 million per city, but that number will vary according to the market size.

For the telecommunications companies competing for the MAA awards ? Ameritech Corp., AT&T Corp., Bell Atlantic Corp., BellSouth Corp., Pacific Bell, Southwestern Bell, US West Inc. and WinStar Communications Inc. ? the benefits of winning include the potential to reap millions of dollars in revenue, build an infrastructure in a city where they lack a strong presence, and a chance to offer long-distance service as local and long-distance telecom services merge.

"The MAA contracts are a picture of the future," said Tom Childs, vice president and general manager of US West Federal Services, a subsidiary of US West Inc. "It means we continue to provide services that we win, and it's an opportunity to sell other services in the future."

The GSA has prequalified the eight bidders to offer services to the 17 cities. Under the MAA program, any of these companies can submit proposals to supply services to those cities, and GSA decides whether to select one or more of these companies to provide the services.

If more than one company is chosen, those companies then must compete for service awards from individual government agencies in the city. Thus far, there have been no multiple contract awards under the MAA program.

Last year, GSA launched the first round of the MAA competition to provide services in three cities: Chicago, New York and San Francisco. In May 1999, AT&T walked away with three contracts estimated to be worth more than $750 million over eight years.

The MAA program is designed to slash telecommunications costs at federal agencies nationwide and strengthen the government's telecommunications offerings through competition.

GSA officials said companies are pursuing the contracts with passion. "The MAA contracts are changing prices and cost dynamics in the government market," said Margaret Binns, assistant commissioner for regional services at the GSA's Federal Technology Service.

"Companies are very actively pursuing this business," added Anthony Franzonello, an analyst with Federal Sources Inc., a market research company in McLean, Va. "It's an inroad to federal government and prestige."

Perhaps most important to the bidders is the potential of carving out a larger portion of the government market, government and industry officials said.

"The government spends a lot of money on telecommunications. First, the government is a good customer to have. Plus, it's a lot of money and market share," said Binns.

"The government is a core business that we have enjoyed," said Childs. Denver-based US West Inc., which posted revenue of $12.4 billion in 1998, currently provides local phone service to government agencies spanning 14-states: Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming.

But all of those services eventually will be up for grabs in keeping with provisions of the Telecommunications Act of 1996.

"It's a business we'd like to have in the future, because it's the last mile of local business and serves as a stepping stone into future long-distance business, which allows us to strive for new customers," Childs said.

The 20 cities GSA designated to participate in the MAA program were chosen based on factors such as the population of federal government employees, the presence of multiple companies ready to offer telecommunications service, and the state's regulatory process.

In each city, the winning company or companies can choose to build their own infrastructure at their own cost, resell local Bell companies' services, or offer the government telecommunications services through a combination of the two.

AT&T is providing services to Chicago, New York and San Francisco by building infrastructure and reselling local services.

"There are advantages for the companies that choose to build their own infrastructure," Binns said. "The company has more control over the equipment and pricing. Plus, the company is probably looking to be the first in its own city because there is less risk involved with a customer base and a contract."

The government already is reaping financial benefits from the MAA program, according to Binns. For example, the government is harvesting 60 percent to 70 percent cost reductions in New York, Chicago and San Francisco, she said.

The more successful a company is in local service, the more opportunity it opens up to provide bundled services, said John Doherty, vice president of AT&T government markets. AT&T, Basking Ridge, N.J., posted revenue of $53.2 billion in 1998.

"This is the first time at the federal level that local service has opened up contracts," Doherty said. "We are seeing a significant reduction in costs," and the government is seeing an increase in its telecommunications offerings, he said.

At the same time, contractors are getting a larger shot at government telecommunications business. That is because GSA designed a crossover provision between its MAA and FTS 2001 programs. FTS 2001 is a major contract for domestic and international long-distance voice and data services, dedicated transmission and videoconferencing that replaces FTS 2000, the 10-year contract held by AT&T and Sprint Corp.

After a one-year "forbearance" period, during which a contracts cannot be changed, contractors can add optional services. An FTS 2001 awardee could add local service; an MAA awardee could add long-distance service, assuming regulatory approval.

Indeed, GSA is now reviewing a proposal from AT&T to offer service under the FTS 2001 contract, which was awarded to Sprint and MCIWorldCom in December 1998.

"[GSA] foresaw local and long-distance telecommunications merging and wanted to have the flexibility to evolve as the telecom market evolved," Binns said. Bidders for MAA ContractsDate Qualified

AmeritechAug. 28, 1998

WinStarSept. 10, 1998

Bell AtlanticSept. 22, 1998

Pacific BellDec. 17, 1998

Southwestern BellJan. 7, 1999

AT&T Jan. 27, 1999

US WestJune 4, 1999

BellSouthDec. 8, 1999


Source: General Services Administration