Phone Cos Eye Largest US Government Telecom Contract Ever

NEW YORK -(Dow Jones)- Four major telephone companies are eagerly eyeing a long-term government contract worth as much as US$48 billion, making it the largest telecom contract ever.

AT&T, Verizon Communications, Sprint Nextel and Qwest Communications are in the running for the massive contract, which will be awarded by the U.S. General Services Administration sometime this month.

A spokesmen for the GSA declined to comment on when the contract would be awarded.

The GSA's Networx Universal program will give the winning companies a 10-year contract to provide telecommunications and networking services such as voice, video and data to all federal agencies. Under the previous contract, Sprint and MCI Inc., which was acquired by Verizon, provided services to the government.

At least two companies will be chosen, although all four could participate in the contract. Winning the contract only gets the company the chance to work with the different federal agencies - once in the program, they will still need to compete with the other survivors to win business.

The maximum that the government can spend is $48 billion, but industry experts and the GSA believe the agencies will likely spend around $20 billion.

While Sprint, Reston, Va., and New York-based Verizon are the incumbents, some believe newcomers AT&T and Qwest could be the biggest potential winners. Bank of America analyst David Barden said AT&T is "best positioned to secure a major piece of the Universal contract."

The San Antonio company has spent "millions of dollars" on the bidding process, according to Don Herring, president of AT&T's Government Solutions business. "This won't be the only contract that agencies purchase telecom through, but it's the biggest and most important one," he said. The unit has 3,000 employees in the D.C. area serving the federal government.

Analysts believes Qwest has the most to gain. In a note, Barden said a significant win could be a "game changer" for the company, but that is unlikely to happen.

The Denver company is serious about winning a contract, and in 2005 tapped AT&T and MCI veteran Diana Gowen to head up its government services. "Qwest is delighted to be one of the contenders and we fully expect to receive a contract," she said.

Gowen disputed the notion that Qwest was a newcomer to government work, and cited NASA as one federal agency with which the company already works.

Sprint, meanwhile, has worked under the Networx program for 18 years and argues it has the closest relationship with the various federal agencies.

Tony D'Agata, who heads up the government services business at Sprint, said there is an advantage in having worked with the government for so long. "There's a certain level of comfort if you've been performing well and your network is reliable," he said.

Verizon is the other company currently doing work under the prior program and is looking to win its fair share of the new contract. "Obviously, it's very important," said Susan Zeleniak, vice president of Verizon Federal. She touted Verizon's high marks in past performance as an advantage.

The company has been working on the bidding process for three years. In September, Verizon opened a government network operations and security center in Northern Virginia to handle the communication needs of the federal government.

In the best-case scenario, Bank of America's Barden estimates that a win would add 5 cents a share for AT&T, 11 cents a share for Verizon, 10 cents a share for Sprint, and 28 cents a share for Qwest. If Sprint loses its position as an incumbent vendor, the impact would be 2 cents a share.

Each company leads a team of information technology services, hardware and communications sub-contractors. Notably, AT&T has teamed with Electronic Data Systems and Northrup Grumman; Qwest has joined with Akamai Technologies and Alcatel-Lucent; Sprint has formed a partnership with Lockheed Martin; and Verizon has added Hewlett-Packard.

Around May, the GSA plans to award another contract called Networx Enterprise. The program, worth up to $20 billion over 10 years, focuses on emerging Internet protocol technology and wireless services. A larger pool of bidders including smaller communications companies such as Level 3 Communications are expected to participate.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(Corey Boles contributed to this report.)

(END) Dow Jones Newswires"

Posted to the site on 16th March 2007

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