AT&T Gets More Than Dial Tone in Fed Market

By Jennifer Freer, Staff WriterAT&T Corp. may have lost the federal government's prized FTS2001 long-distance contract, but the company is not giving up all of its federal long-distance work, at least not any time soon.In early April, AT&T announced that the General Services Administration extended the company's contract with the Internal Revenue Service for its toll-free call center modernization project. The three-year, $65 million deal begins in December, under which AT&T will provide advanced call services, call routing and voice menus, said Mary Jane McKeever, president of AT&T Government Markets.McKeever also said that some of NASA's telecom traffic is staying with AT&T, and suggested the company could obtain some other agency business as well, but she would not elaborate.AT&T and Sprint provided federal agencies with long-distance services under the FTS2000 contract with GSA's Federal Technology Service. But AT&T suffered a serious blow in early 1999 when it lost the FTS2001 contract, which has a value of $5 billion over eight years, to Sprint Corp. and WorldCom Inc.Consequently, some analysts view the recent contract extension with IRS as a possible first step by AT&T toward retaining some of the FTS2001 work it stands to lose when FTS2000 expires at the end of this year.AT&T could snag some other agency business from FTS2001 in addition to the IRS contract, said Lisa Crawford, chief executive officer of The Crawford Group, a Washington-based strategic marketing consulting firm specializing in the government market."There is nothing illegal, immoral or unethical about [AT&T's] action," Crawford said. Unlike FTS2000, "FTS2001 is not a mandatory contract, so the agencies are free to negotiate the best deal they can get. It's in the government's best interest to assure they get their needs met at the lowest price."Officials at GSA and the IRS would not comment on AT&T's new contract with the IRS, but Sprint and WorldCom officials said they are not worried about AT&T slicing business away from FTS2001.Sprint officials explained the IRS is "engaged in an aggressive modernization program" for all its systems that provide taxpayers support, said Peter von der Linde, vice president of sales support for Sprint. The agency believes that the transition to FTS2001 would slow down the modernization effort, he said."It's an understandable decision to delay transition for those parts of the telecommunications system that affect modernization," von der Linde said. "It's important to note that the IRS made the decision to transition everything else, all administrative voice and data networks. Once the modernization is complete, all the parties are going to step back and reassess the situation."The IRS' contract extension to AT&T is something the IRS needed to do to ensure it could satisfy its business commitments, said Rick Slifer, director of government markets for WorldCom, which recently eliminated the MCI portion of its name."We will continue to work with the IRS to identify the networking needed to support its mission, including toll-free, Internet and other advanced applications of data networking," Slifer said. "The IRS is the only agency to be granted such an extension and to WorldCom's knowledge, the only one that will."Sprint and WorldCom may not be concerned now, but the IRS 800 center is the second largest 800 application in the world, second only to the Social Security Administration, according to Crawford. That means it may be a larger piece of the government business than AT&T's competitors thought.AT&T, Sprint and WorldCom are the top three largest telecommunications companies in the United States, and each holds a significant piece of the federal telecom market. AT&T of Basking Ridge, N.J., was ranked No. 6 in Top 100 federal systems integrators this year with $1.2 billion in revenue from prime contracts. Sprint of Westwood, Kan., was No. 19 with $300 million in federal prime contracts; WorldCom of Clinton, Miss., was No. 46 with $114 million. A merger of the No. 2 and No. 3 telecom companies, WorldCom and Sprint, would form a company worth an estimated $129 billion. The deal was expected to be finalized the middle of this year, but recent news reports have suggested that the government's regulatory bodies may not approve WorldCom's acquisition of Sprint. Reviews by the Justice Department and the Federal Communications Commission still are pending. Industry opinion about a merger is mixed. Some industry analysts opposing the merger said combining the telecom giants could result in reduced competition in the marketplace. Crawford is one of those who oppose the merger, stating that it would harm competition in the government arena as well. Consequently, the planned merger actually might bolster AT&T's efforts to pick up additional FTS2001 work, Crawford said, because AT&T's continued presence in the market would provide needed competition after the merger.Sprint, for example, has no economic interest in pursuing a federal contract if the company believes it is going to be acquired by WorldCom, because there would be no need to waste proposal dollars, she said. If the merger of Sprint and WorldCom goes through, a huge amount of the market will be concentrated in two players, she said."If you end up with a duopoly in the government sector, then agencies will not benefit," Crawford said.While WorldCom was not part of the FTS2000 contract, "MCI was always the third strong party that could snatch business" when the contract expired, she said. "The third competitive force is necessary to drive competition in the government market."