06/05/00; Vol. 15 No. 5
AT&T Gets More Than Dial Tone in Fed Market
By Jennifer Freer, Staff Writer
AT&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 Washington Technology’s 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."
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