The Office of Management and Budget yesterday abruptly halted the $4.2 billion procurement of a new federal long-distance telephone system pending a budgetary review.
The OMB order delays further efforts of AT&T competitors to take a bigger share of lucrative federal phone business.
"You are to take no further action toward the award of a contract pending the completion of a broader executive branch review," OMB Director David A. Stockman said in a letter to Ray Kline, acting administrator of the General Services Administration.
On Wednesday, the GSA briefed 74 companies in a conference packed with hundreds of executives on procedures for the 10-year contract for new long-distance voice and data service.
"The OMB staff had a preview of what was presented last Wednesday, and I'm not aware of any great concern that was expressed at that time," GSA spokesman Patrick McKelvey said. "When we find out what their concerns are, we'll certainly address them."
The GSA had planned to award the contract in 1987, with service starting in 1989. The federal government currently runs up a long-distance phone bill of $450 million annually.
"This planned procurement has not yet been reviewed and approved from a policy or budgetary perspective by the OMB," Stockman wrote Kline. "We have several fundamental questions about this proposal. . . . "
Stockman questioned "what the technological and economic assumptions underlying the strategy are, whether a central service should carry data as well as voice traffic, what current or proposed standards would apply, and whether and under what circumstances agencies would be required to use such services.
"It is premature to begin a procurement of this magnitude, which could define the structure of federal telecommunications for the next 20 years, without a thorough policy and budgetary review by OMB, the user agencies and the Department of Justice," Stockman wrote.
"We don't necessarily regard their plan as a bad one," said a spokesman for the OMB. "They just got a little ahead of themselves." Nevertheless, the spokesman could not confirm whether the OMB will ask the GSA to trim or change its proposal.
A Justice Department official who was not aware of the letter said that under general antitrust laws, "there is nothing involving the award of a contract to one bidder that is by itself anti-competitive" in the GSA procurement. The GSA had planned to make one award but said no one company could handle the job and would have to subcontract some of the work for the new system.
American Telephone & Telegraph Co., which currently holds 88 percent of the government's long-distance business, had no comment on the letter.
"If it's true, we are disappointed," said a spokesman for MCI Communications Corp. MCI and other AT&T competitors now save the government about 12 percent in long-distance costs, according to the GSA. "It's not as though the government doesn't have a history of going to alternative carriers," the spokesman said.