Federal telecom sector shines brighter lately

Industry officials plan to hire more people, chase more contracts

Once a tough sell, now the federal market is the place to be, said Patrick O'Malley, president of Sprint Business.

"I can tell you we have a very healthy hiring situation. We're looking to hire more than 150 ... qualified people in our government business." | Christopher Rooney, president of AT&T Government Solutions

This is not a pleasant time to be in the telecommunications industry.

? In August 2001, the Chicago outplacement firm Challenger, Gray & Christmas reported the industry had shed 175,000 jobs;

? By October, Sprint Communications Corp. had cut 6,000 positions;

? In December, Qwest Communications International Inc. sliced 7,000;

? AT&T Corp., which eliminated 5,100 positions in 2001, cut another 5,000 positions in January;

? In March, Verizon Communications Inc. cut 10,000 jobs;

? WorldCom Inc. announced April 3 it was releasing 3,700 workers.

But the federal telecom market is worlds away from the dismal commercial sector, according to company executives, who report plans to hire more people while pursuing new high-dollar contracts.

"I can tell you we have a very healthy hiring situation. We're looking to hire more than 150 ... qualified people in our government business," said Christopher Rooney, who in February was appointed president of AT&T Government Solutions.

Tony D'Agata, vice president and general manager of Sprint's government systems division, said the federal market has been a little less affected by the ups and downs of the economy.

"Although Sprint ... grew our top line 10 percent last year, we grew our federal business by a greater [rate]," he said.

Rex Mitchell, a telecommunications analyst with BB&T Capital Markets in Richmond, Va., said it is not surprising that the federal sector looks good these days. The government is the largest telecom spender in the world, Mitchell said, and a very profitable customer because of its complex needs, geographic reach and interest in advanced solutions in areas such as network and system security.

For example, WorldCom of Clinton, Miss., landed the 10-year, $450 million Defense Research and Engineering Network contract April 4. It will provide long-haul communications services for the Defense Department's high-performance computing modernization program.

"The government piece has been a very essential, important piece for us," Jerry Edgerton, WorldCom senior vice president for government markets, told Washington Technology. He characterized the government sector as "absolutely critical" to the company in 2001.

Many other lucrative projects are looming.

The Federal Aviation Administration is expected to award this summer its 15-year, $1.9 billion FAA Telecommunications Infrastructure contract. In summer 2003, the FAA should award its Broad Information Technology Services II contract, worth $1.25 billion over five years. The two programs represent a complete overhaul of the FAA's telecommunications equipment, network and services.

The Air Force has more than two dozen Base Telecommunications System contracts in the works. They will be used to restructure the telecom systems at bases around the country. The Defense Information Systems Agency is expected to announce this month the winner of the Next Generation Engineering II contract, a five-year, $610 million project which covers a range of systems engineering and integration initiatives, including telecom.

Overall, the federal government is expected to spend $13.5 billion in telecommunications-related programs in fiscal 2003. And those numbers do not yet reflect the impact of homeland security initiatives.

Besides the big price tags, the government market also is attractive to telecom companies because agencies are trying to operate more like businesses do, said Patrick O'Malley, president of Sprint Business, the parent group for the company's government services division.

Telecom executives said the government has become a trendsetter in the communications arena.

"At one time the government space was more difficult to sell into. Today it has become the place to be, because a lot of new applications that are going to be compelling in the private sector are being adopted in the public sector as well," O'Malley said.

"Of all our customers, [government customers are] the ones who lead the market not just in technology, but they were the first to start using secure networks and firewalls, [and they] were vanguards in how people purchase things," said Joe Cascio, vice president of strategic planning and business integration for Verizon of New York. "They're not just valuable in terms of size of the segment but also in terms of market direction."

Cascio pointed to the Transportation Safety Administration, the newly created agency responsible for homeland security initiatives affecting transportation systems.

"If you take the fact that TSA is now outsourcing everything in terms of telecom ? if that doesn't tell you something about the leading edge ..." Cascio said rhetorically.

Qwest, based in Denver, is another company having a hard time in the overall telecommunications market, thanks to headaches such as an investigation by the Securities and Exchange Commission. The company's stock has fallen nearly 50 percent since Dec. 31, 2001.

But Jim Payne, senior vice president of Qwest's government business, said his unit continues to add staff and pursue new business. The company's federal sales have tripled in the past three years, increasing from $100 million in 1998 to $300 million in 2001.

"I've never sensed any ambivalence" about pursuing government accounts, Payne said.

The stability of the federal marketplace may benefit the telecoms, but it won't necessarily translate into better play on Wall Street. Unlike some systems integrators, telecom businesses can't specialize in government contracts, and it's easy for analysts to overlook these units' contributions.

The Sprint government division, for instance, may generate revenue of almost $700 million, D'Agata said, but within a company with $28 billion in revenue, "analysts aren't necessarily going to give special recognition to Sprint because it plays in the government space."

WorldCom's Edgerton said experience in the government telecom sector is likely to prove career-enhancing for some time.

"Nobody wanted to be in the government business, because all the glamour was on the other side with [the celebrities and] the golf tournaments," Edgerton said. "Now it's nice to have unique skills. ... I think the question is, are you more valuable providing a solid business base vs. scrambling in this morass in the commercial world?"

"The world has changed completely from two years ago," said Warren Suss, president of consulting firm Suss Consulting, Jenkintown, Pa. "When the dot-com boom was hot, the commercial side of the house was selling systems and services like hot cakes and the federal guys were the drab, low-margin, long lead time, unexciting, low-glamour end of the business. ... Now the government [units] are the fair-haired boys and girls, and in many cases are the ones who are helping their companies make their numbers."

Or, as Sprint's O'Malley put it: "The federal space is the new gold rush."

Staff Writer Patience Wait can be reached at pwait@postnewsweektech.com.

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