Qwest, AT&T, Verizon win key contract
WASHINGTON — Dealing a significant blow to Sprint Nextel, the government on Thursday awarded the largest-ever federal telecommunications contract — a 10-year deal worth up to $48 billion — to its rivals AT&T, Qwest Communications and Verizon.
The three contract winners will split $525 million, but beyond that they will have to compete with each other for the business of dozens of federal agencies needing to enhance the quality and security of voice, video and data technologies, the General Services Administration announced.
Among the products federal agencies will choose from are Internet-based voice and video systems, wireless and satellite communications services and updated network infrastructure.
Several major departments, including Homeland Security and Treasury, have already signed onto the contract, though no specific deals are anticipated before summer.
While AT&T Inc., Qwest Communications International Inc. and Verizon Communications Inc. gained an important and deep-pocketed client, the announcement was a serious loss to Sprint Nextel Corp., analysts said, not least because the Reston, Va.-based company has been providing telecom services to the federal government for nearly 20 years.
Earlier this year, Sprint announced thousands of job cuts amid service troubles, a dwindling customer base and difficulty assimilating Nextel Communications, which it acquired in December 2004. Sprint shares are down roughly 20 percent from a year ago and the company is forecasting near-flat operating revenue and earnings this year.
“It’s terrible for Sprint,” said technology consultant Warren Suss of Jenkintown, Pa. “The federal government was Sprint’s first major customer since the company started.”
While current GSA officials would not say why Sprint lost out, Bob Woods, a former official at the agency who now works as a consultant, surmised that Sprint could not meet the low prices of its competitors. Woods estimated that Sprint could lose roughly $200 million to $250 million annually in existing government business.
Executives from Sprint plan to meet with GSA officials next week to discuss why their contract proposal fell short, and the company will decide afterward whether to file a protest, spokeswoman Sukhi Sahni said in an e-mail.
For the winners, Thursday’s announcement was perhaps most significant for Qwest, the smallest among them. Suss said Qwest can now leverage its government business to gain more corporate clients.
Qwest senior vice president Diana Gowen conceded that the Denver-based company has its work cut out for it going up against AT&T and Verizon, but said Qwest’s smaller size would make it more agile. “If you want to make it the David and Goliath story, we’ll be the David and slay the dragon,” she said.
Don Herring, president of AT&T’s government business, said getting on the contract is “a really important first step,” adding that it will be several months before the companies start bidding on specific agency projects.
Industry analysts said they expect the federal government to spend at least $20 billion over the life of the so-called Networx Universal contract, which is capped at $48 billion.
The two previous 10-year government-wide telecom contracts had two main providers. The first went to Sprint and AT&T. The second to Sprint and MCI Worldcom, since acquired by Verizon.
There is a consolation prize on the table for Sprint and other telecom providers. GSA is planning in May to award a second telecommunications contract called Networx Enterprise — worth up to $20 billion — that contains fewer mandatory requirements and services in select areas across the nation. In a statement, Sprint said it expected to win the second contract.