Sprint Wins 'Consolation Prize' Telecom Contract

Sprint Nextel won approval yesterday to compete on a government contract worth $20 billion over the next 10 years, two months after it was excluded from participating in a much larger telecommunications contract.

The "Networx" contract would update the government's technology infrastructure, adding wireless Internet and stronger security measures across 135 agencies in 24,000 buildings in 200 countries. In March, Sprint was shut out of the more significant part of the contract, known as Networx Universal, which is worth up to $48 billion and is the largest government telecommunications project in history. The winners of that round -- Verizon, AT&T and Qwest -- were also chosen for the $20 billion portion, called Networx Enterprise. Level 3 Communications of Colorado also won a slot on that contract.

Analysts said yesterday's award was Sprint's last chance to keep the federal government as a customer. But the Reston company is not guaranteed that business, particularly after losing out on the larger deal.

"This is considered a consolation prize," said Patrick Comack, an analyst with Zachary Investment Research in Miami. "It doesn't change the fact that they missed the big one. This [part of the contract] is a minnow compared to the whale."

Competition was less rigorous for the smaller portion of the contract, said John C. Johnson of the General Services Administration, which oversees Networx. Companies are required to offer a reduced number of services in fewer geographic areas, meant to give smaller companies a chance to bid for government work.

Sprint, whose federal government contracts total about $1 billion annually, has also been losing ground to rivals in the wireless business, and its stock has suffered.

"After losing the Universal award, Sprint had a real attitude adjustment and went after it aggressively," said Warren Suss of Suss Consulting, a Pennsylvania telecom research firm.

Sprint, which manages Internet and phone networks for about 120 agencies under a previous contract, hopes to hang on to that business, said Tony D'Agata, vice president of the company's federal government division. Sprint offered more competitive prices to entice its current agency customers to stay, he said. The company also plans to offer a new high-speed wireless technology, WiMax, starting next year.

Analysts, however, expect that most agencies will buy most of their telecommunications services from the Universal contract winners because those offerings will be more powerful and wider-ranging. Agencies, which can each select which provider to purchase from, can mix services as they see fit.

"Agencies are getting into a very long-term contract, and they'll want the widest range of services available and widest number of locations," Suss said. "In that case, Sprint will still be left out of the game."