Sprint Could Suffer From Failed WorldCom Merger

Sprint Could Suffer From Failed WorldCom Merger

Jim Payne

By Jennifer Freer, Staff Writer

The near certain death of the proposed Sprint-WorldCom merger will bolster competition in the federal telecommunications market, especially in the FTS2001 program where the two giants will battle head-to-head to provide long-distance telecommunications services to federal agencies, according to industry analysts and officials.

At least one competitor also contends that the failed merger has weakened Sprint Corp.'s ability to compete, and left the door open for his and other small companies to snatch away government business.

Sprint, which reportedly has lost a large number of top executives in recent months, is faced with rebuilding its leadership team, said Jim Payne, vice president of the Government Systems unit for Qwest Communications International Inc. of Denver. Sprint may have to rethink its government strategy, he said.

"The opportunity this creates for the competition is to redefine the marketplace," said Payne, who served as Sprint's assistant vice president for program and strategic marketing in the government systems division until he joined Qwest in August 1999. "I see a whole new generation of leadership emerging from the second tier of companies like Qwest."

Although Sprint and WorldCom have not officially called off the merger, the Justice Department effectively dealt it a mortal blow June 27 when it filed a lawsuit to block the deal.

In its filing, the Justice Department said: "The proposed merger of WorldCom and Sprint will cause significant harm to competition in many of the nation's most important telecommunications markets. By combining two of the largest telecommunications firms in these markets, the proposed acquisition would substantially lessen competition."

Sprint and WorldCom have yet to decide whether to challenge the lawsuit. "We are planning to announce mid-July how we are going to resolve that, whether we are going to court or walk away," said James Fisher, a Sprint spokesman.

WorldCom would not comment on the merger.

The planned $129 billion marriage between Sprint of Westwood, Kan., and WorldCom Inc. of Clinton, Miss., has raised concerns about reduced competition since the merger plan was first announced Oct. 5, 1999.

In the federal marketplace, much of that concern centered on FTS2001, the General Services Administration's program to provide long-distance voice, data and video services to government agencies. That contract was awarded in December 1998 to Sprint and WorldCom.

As winners of the eight-year FTS2001 contract, the two companies were expected to compete aggressively against each other for as much as $5 billion worth of telecommunications work. Although federal agencies were not required to buy solely from Sprint and WorldCom under the non-mandatory contract, the two companies were expected to garner the bulk of long-distance service work.

"The prospect of a merger clouded the issue" of competition, said Warren Suss, a telecommunications consultant in Jenkintown, Pa.

A successful merger would have created a monopoly environment in FTS2001, with one company, not two, selling long-distance telecommunications to federal agencies, said Lisa Crawford, chief executive of the Crawford Group, a Washington-based consulting firm specializing in the government market. A former executive director of state and local government for AT&T Corp. of Basking Ridge, N.J., Crawford opposes the merger.

The merger's likely failure, however, provides the government with an opportunity to restore the underlying philosophy of FTS2001, which was to use the competition between Sprint and WorldCom to get the most advanced commercial technology, Suss said.

"More competition is better," said John Okay, president of J.L. Okay Consulting, a management and technology consulting company of Oak Hill, Va. Okay, who retired in 1997 as deputy commissioner of the GSA's Federal Technology Service, helped to build the FTS2001 program strategy.

But even if the merger is called off, Sprint has become the "weak sister" in the competition, Crawford said.

"On paper, there are two contractors, but there is WorldCom, the strong contractor who is slurping up the business for FTS2001," she said. "You have AT&T taking whatever they can get. And Sprint is not a player, and without a third player, there is not real competition."

The New York Times reported July 6 that several top Sprint executives have
left the company since April. Many
left because they wanted to cash in on their stock options, according to the newspaper.

Although "quite a few" top officials have left Sprint, said a company spokesman, none have left the Government Systems Division. Most of the high-ranking people who have departed worked in the Kansas City corporate office or in the Sprint business division in Dallas, he said. Most left because they found chief executive officer-level jobs elsewhere, or for personal reasons, he added.

Crawford and Qwest's Payne contend that Sprint, in anticipation of the merger with WorldCom Inc., has not been aggressively pursuing government contracts. Nor did Sprint have a strategy in place if the merger did not succeed.

"Because they were being acquired, people didn't have an incentive on
the Sprint side to take a lot of risk or spend a lot of capital on proposals," said Crawford.

This leaves open the door for companies such as Qwest, AT&T, Verizon Communications (itself a recent merger of Bell Atlantic Corp. and GTE Corp.) and Winstar Communications Inc., all of whom are waiting to get a toehold in the federal market, said Payne.

Qwest has a very small percentage of the federal market, but wants to expand on its work for federal customers such as the departments of Defense, Energy and Treasury, and the Internal Revenue Service.

The competitive landscape is going to be redefined, with every company taking a fresh look at its government business, Payne said.

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