Sprint, Level 3 lose out on contracts as U.S. communications overhaul is delayed

July 10, 2011

Level 3 Communications and Sprint Nextel are losing business to their bigger rivals as U.S. agencies face delays in the federal government’s largest-ever telecommunications overhaul.

U.S. agencies were supposed to have moved all $1.2 billion in annual telecommunications spending to the $68 billion Networx program by June 2010. Agencies have yet to move work valued at $684 million, or 57 percent of the total, to Networx from its higher-priced predecessor, known as FTS2001, according to the U.S. General Services Administration.

Agencies have spent at least $290 million on “bridge” and “crossover” contracts since 2007 to keep phone connections active while they finish the transition, now in its fifth year. Verizon Communications and AT&T have won 83 percent of the stopgap work, records show. The delayed transition means fewer contract opportunities for Level 3, which is on the Networx contract though not part of the predecessor FTS2001.

“The first word that comes to mind for me is ‘frustration,’ ” said Edward Morche, senior vice president for federal markets at Level 3. “The fact that we’re halfway through the contract but 60 percent of the spend hasn’t moved, I just don’t know how we can look at that and feel satisfied.”

The transition

Twenty-three of 26 agencies are still disconnecting services from the old contract and moving them to Networx. The program was awarded by the GSA in 2007 as two 10-year contracts for agencies to update their telephone systems and install newer technologies such as Web-based voice calls, wireless networking, high-speed Internet and online conferencing.


Networx’s two 10-year indefinite-delivery, indefinite-quantity contracts cover different services. “Universal” allows agencies to buy a wider array of services, including long-distance phone lines and secure e-mail. “Enterprise’’ mainly provides “next generation,” or Internet-based, services.

Contracting officers considering a move to Networx must sift through “tens of thousands” of contract line-item numbers that specify a service and price, Bill White, Sprint’s senior vice president of federal sales, said in a May 11 interview.

That has made planning Networx purchases more difficult for government buyers with no engineering experience, he said.

The overlap

Universal and Enterprise have substantial overlap, sharing 44 of 50 services, according to a 2008 Office of Management and Budget memorandum. That prompted most agencies to use Universal, limiting orders for Sprint and Level 3.

GSA, for instance, awarded the Universal contract to Verizon, AT&T and Qwest Communications International, a unit of CenturyLink, in March 2007. Universal was awarded with a $48 billion ceiling and $525 million in guaranteed orders.

The three companies also won spots on Enterprise, awarded two months later to Level 3 and Sprint with a $20 billion ceiling and $50 million in guaranteed orders.

Sprint is the fifth-largest U.S. telecommunications company by market value.

As of June 28, 88 percent of the 5.1 million telephone service connections on FTS2001 government-wide had been disconnected and moved to Networx. The annual value of those items, which can range from individual calling cards for military members to large data networks, is $1.2 billion. Of that amount, 43 percent, or $516 million has been transitioned to Networx.

“The things that had a lesser price tag on them were transitioned, but those things that were expensive and complex were not,” Diana Gowen, senior vice president and general manager for Qwest Government Services, said in a March 24 telephone interview.

The agencies with the lowest percentage of disconnected services are the Labor Department with 64 percent, the Treasury Department with 56 percent and the federal judiciary with 46 percent, according to a May 31 transition report.

The judiciary, which is working with AT&T, has three separate networks and has migrated two, which make up about half of the circuits, spokesman Richard Carelli said in an e-mail.

The courts’ transition should be completed by September, he said.

The Labor Department said all of its transition orders are with vendors, spokeswoman Gloria Della said in an e-mail.

“Orders of any difficulty take significantly longer and often involve manual intervention at the vendor,’’ Della said.

Treasury spokesman Matthew Anderson did not respond to e-mailed requests for comment.

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