Payne's Qwest: Diversify Federal Agency Business

Payne's Qwest: Diversify Federal Agency Business<@VM>Qwest Communications International Inc.

James Payne

By Rick Wakeman

The government telecommunications market is in flux, and that spells opportunity for James Payne and his fledgling government division at Qwest Communications International Inc.

Founded less than one year ago, the Government Systems unit of the Denver-based Internet communications company that has made a name for itself in the IP technology arena is on a mission to expand business with civilian agencies.

With more than half its business generated by the Department of Defense, Payne is plotting ways to help agencies that struggle with issues such as increasing demand for more bandwidth to take on big electronic commerce projects.

Payne joined Qwest as senior vice president of government systems in August after heading the federal unit of Sprint. Qwest already had won a $430 million contract to supply a virtual private network to the Defense Department. And his 100-employee unit is a major subcontractor to TRW Inc., Cleveland, on the $1 billion Treasury Communications Systems effort.

Payne spoke with Washington Technology Staff Writer Nick Wakeman about other contracts in the pipeline and the $130 million in revenue his unit will receive when Qwest's acquisition of US West is completed next year.

WT: What is Qwest's strength in the government market?

Payne: Even before the MCI-Sprint merger was announced [Oct. 5], the marketplace wanted an alternative. Agencies are looking at new business models and faster ways of getting new services to market.

Our niche is our IP technology and things like Web hosting. That package is very powerful in the marketplace right now.

More than half of our business is with the Department of Defense, and we are very proud of that. But I am here to diversify our business into the civilian agencies.

WT: How do you plan to diversify your government business?

Payne: Our flagship for doing that is the Treasury Communications System contract. That contract environment is ready to explode because it has end-to-end telecommunications services, [where agencies can buy local and long-distance services through a single contractor]. We have all the [Regional Bell Operating Companies] in our building here, and we are concentrating on how to give the best attention to the end-user customer.

The message is the market is hungry for ways we can package services and bring things to market that simplify the end user's life. We believe the formula we have created here is very helpful and very attractive, and the agencies have responded.

WT: How is the US West merger going to affect what you can do in the government market?

Payne: Right now, we are restricted on what we can share with our potential acquisition. So I'm not as knowledgeable about US West as you might think. But it looks like there will be highly complementary contracts and complementary market strategies.

Customers are screaming for end-to-end solutions, [and] this is the beginning of the final footprint and image of the future telecom environment. We will be able to truly speak of end-to-end, desktop level services.

WT: How do you see the government using end-to-end services?

Payne: There are two very important trends in the federal marketplace. One is commercial off-the-shelf solutions, one of the great lessons learned from the year 2000 [fixes].

The parts of the government that were using commercial solutions were upgraded at little direct expense to the agencies but the portions with proprietary solutions and networks had to upgrade at their own expense. That has put a finer point on the whole issue of is it really necessary for us to have a government specification for simple commercial items, or isn't it better for us to buy what the best of the commercial standards are?

Second, the government wants to outsource and own as little as possible. They don't want to be responsible for the issues of maintenance, support and personnel. When you consider how difficult it is for all of us to attract technical support, the government is doubly challenged.

The best thing for them to say is, I want to manage [telecommunications] with service levels. We'll agree what the deliverables are in terms of quantitative things, but I don't want to manage head count, equipment and all that.

WT: What major projects are you following as a potential bidder?

Payne: The whole industry is looking at the National Capital Region Metropolitan Area Network contract [worth $500 million over 10 years for voice, video and data services for the Department of Defense in Washington] and the FAA Telecommunications Infrastructure [worth $1.9 billion over 10 years for the FAA communications backbone].

The Social Security Administration is looking at all the services they offer, and there is [also] the Navy-Marine Corps Intranet [worth more than $2 billion].

I'm trying to decide, like everyone else, what kind of role I am going to play.

The Navy-Marine Corps Intranet is a very large opportunity, and it goes right to the heart of what Qwest does. We have a very definite image in the IP area, and it is a very large bandwidth opportunity.

The Metropolitan Area Acquisitions [a series of contracts for local telecommunications services in most cities] is a US West issue.

They have several MAAs in their regions. After the stockholders' vote, I'll be refining my strategy.

WT: What is your strategy for going to market? Is Qwest mostly a prime contractor or a major subcontractor?

Payne: In all of business, there has to be a diversified portfolio. You can't choose just one. You have to be able to go to the [General Services Administration] schedules. You have to be able to be a prime and to be a sub. I will choose the formula very carefully across all three.

Customers have preferences, and that goes beyond preferences for vendors. Customers have preferred contract vehicles. They have preferred contractual methods. Some want to do business by using purchase orders because that is their culture. Some want to do customized requests for proposals.

The challenge that Qwest has is we have to carefully pick the vehicles that optimize our strengths. I'm not going to bid in a buckshot fashion because it will dilute my resources. Business: Provides broadband Internet-based data, voice and image communications for government and commercial customers.

Location: Denver

Founded: 1994

Employees: More than 9,000

Revenue, Quarter ending Sept. 30: $1.02 billion

Net Earnings, Quarter ending Sept. 30: $19.8 million

Ticker: QWST on Nasdaq

Qwest Communications Government Systems,

A division of Qwest
Communications International

Location: Arlington, Va.

Chief: James Payne, senior vice president

Employees: 100

Major customers: Departments of Defense, Treasury

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