Qwest Challenges GSA's Stance on Competition

Qwest Challenges GSA's Stance on Competition<@VM>Milestones of A Controversy

James Payne

In protesting a General Services Administration contract extension to its competitors, Qwest Communications International Inc. wants the agency to open the playing field so more companies can pursue government telecommunications business.

Denver-based Qwest cried foul when GSA granted an extension Dec. 6 of the FTS2000 telecommunications contract to AT&T Corp. and Sprint Corp. AT&T of Basking Ridge, N.J., was given another 12 months, while Sprint of Westwood, Kan., received a six-month extension.

The extension allows federal agencies to buy long-distance and other telephone services through the FTS2000 contract while they transition to FTS2001, the successor to FTS2000.

But Qwest contends that GSA, rather than extending the AT&T and Sprint contracts, should have allowed Qwest and other qualified telecommunication companies to compete for the work to be performed under the contract extension.

The extension, according to Qwest, impedes competition among telecom providers for the government's long-distance business, violating the guiding principles established by Congress for FTS2001.

"We're really in the protest to explore [GSA's] role," said James Payne, senior vice president of Qwest's government systems division. Why isn't GSA "taking a more proactive role to manage competition?"

Qwest officials filed the protest with GSA Dec. 15. An administrative hearing was held Jan. 8. The GSA hearing officer at the meeting urged the agency to meet with Qwest to discuss ways to resolve the conflict, Payne said.

The hearing officer is expected to issue a written decision before the end of January, barring any negotiated settlement between GSA and Qwest.

"None of these actions preclude my options to take it to the General Accounting Office or to court," Payne said.

Congress, in fact, may scrutinize GSA's handling of the FTS2000 extension.

Rep. Tom Davis, R-Va., "has been very concerned by news that winning FTS vendors and the government have run behind schedule in conversion of contracts from FTS2000 to FTS2001. Qwest's protest is understandable, to say the least, in that GSA appears to have dropped the ball on the contract negotiations for the extension of the bridge," said his spokesman, Dave Marin.

Marin said Davis also would support a General Accounting Office review of the bridge extension and how it was handled.

"As of now, there is simply too much evidence that mismanagement of these contracts is going to cost taxpayers in the long run," Marin said.

GSA finds itself between the proverbial rock and a hard place. The agency selected Sprint in December 1998 and WorldCom Inc. of Clinton, Miss., in January 1999 for the FTS2001 contract, which, as the successor to FTS2000, would provide federal agencies with expanded and upgraded telecommunication services.

But many federal agencies did not make the transition from the FTS2000 contract, which was to expire in December 1998, as quickly as anticipated. So GSA has granted two extensions, allowing agencies to continue buying from AT&T and Sprint until they are ready to shift to the new contract.

The second extension, issued in early December, prompted the Qwest protest.

The most recent estimate of the value of FTS2001 set the contract's price tag at about $2.3 billion over its eight-year life, according to Frank Lalley, the assistant commissioner for service delivery at GSA's Federal Technology Service.

But the contract sets a guaranteed minimum for the two winning companies, Sprint and WorldCom, of a combined $1.5 billion. The companies must compete with each other ? and with other qualified telecommunications companies ? for the approximately $800 million that remains.

Qwest's stake in possible FTS2001 business revolves around its status as a holder of four Metropolitan Area Acquisition contracts, which allow the company to provide local telecom services in designated metropolitan areas. While FTS2000 was a mandatory contract for all federal agencies, FTS2001 is not.

Consequently, under FTS2001 agencies are free to use other contracts, such as MAAs, to purchase long-distance telecommunications services once GSA allows open competition. Qwest contends that federal agencies needing a bridge from FTS2000 to FTS2001 should have had the option of using MAA providers.

The delay in transitioning from FTS2000 to FTS2001 has stalled the GSA's stated intent to end forbearance, blocking the MAA contractors from expanding their product offerings and competing directly with FTS2001 contract holders.

The one-year forbearance period has passed for most MAA contracts, but GSA has not yet provided the guidelines for MAA vendors to propose contract modifications and expansion of services.

The minimum revenue guarantee to Sprint and WorldCom could be another factor contributing to the delay in ending the forbearance period, said industry observers. If federal agencies begin buying telecommunication services from Qwest and other MAA contractors, then Sprint and WorldCom might have trouble reaching the combined minimum target of $1.5 billion.

This would put GSA in the position of having to pay the two companies even if they weren't providing service.

Thus, Payne said the continuing delays are raising questions of whether GSA really intends to allow smaller, nontraditional players to compete for federal telecom business.

GSA has argued the transition from FTS2000 to FTS2001 has been much more difficult than anticipated for a variety of reasons, such as federal resources being diverted to address year 2000 concerns, the Verizon strike in 2000, the lack of planning by agencies for upgrading their voice and data networks, and the failure on the part of Sprint and WorldCom to execute changes.

These factors combined made it necessary to extend the FTS2000 contracts, officials argued, because GSA could not take the chance of interrupting telephone service at those agencies who have not yet made the transition.

At the same time, GSA officials downplayed the significance of the recent contract extension to AT&T and Sprint, pointing out that it involves a relatively small sum of money.

"Our program [the FTS2000, FTS2001 and MAA contracts] is about $700 million a year, and the extension contracts sum to about $50 million, with about $40 million to AT&T, $10 million to Sprint," Lalley said.

The GSA response to Qwest's protest also minimized the effect of the contract extension, stating that 82 percent of 51,000 federal sites have been successfully transitioned. "When orders-in-process are factored in, the figure is closer to 95 percent," the response said.

AT&T has been a major beneficiary of the transition delays. It is realizing a revenue stream from the contract extension that would be finished if the transition from the old contract to the new one were complete, said industry analyst Warren Suss, president of Suss Consulting Inc. of Jenkintown, Pa.

AT&T also holds several MAA contracts, which Suss said fits the company's delay strategy. "AT&T's salespeople have been encouraging agencies to believe they may not need to transition [to FTS2001] ... that the forbearance period will be over soon, and agencies, if they just hang in there long enough, will be able to continue," he said.

Because AT&T did not win the FTS2001 contract, it's in the company's interest for the transition to go slowly, said Dennis Fischer, former commissioner of GSA's Federal Technology Service during the period when FTS2001 was awarded, and now vice president for governmental solutions with Visa USA.

"I believe the AT&T strategy had been to delay the FTS2000 transition, then pressure the government to bring them in to the FTS2001 after winning [some] MAAs," Fischer said. AT&T officials, however, deny they have been dragging their feet on the transition.

"Our position is, and always has been, we support an open market with full and open competition, and AT&T is prepared ... to serve the end-user agencies and offer end-to-end services," said John Doherty, vice president, AT&T government markets.
Milestones of A Controversy
December 1988
AT&T and Sprint awarded FTS2000 contract

December 1998FTS2000 contracts extended for up to two years

December 1998
Sprint awarded FTS2001 contract

January 1999
MCI (now WorldCom) awarded FTS2001 contract

Dec. 6, 2000
FTS2000 extended to AT&T for 12 months; extended to Sprint for six months

Dec. 15, 2000
Qwest files protest of extensions with GSA

Jan. 8, 2001
Protest hearing held with GSA and Qwest

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