Martin Marietta wants to be Uncle Sam's Ma Bell. The multibillion-dollar Bethesda-based firm plans to make its largest-ever nondefense bid for the chance to be prime contractor for virtually all of the federal government's telecommunications needs over the next decade.
Encompassing everything from long-distance to high-speed data communications, the FTS 2000 contract -- which the General Services Administration values at between $4 billion and $5 billion over its 10-year life -- is the biggest nondefense-related government telecommunications procurement in history. Bidding for that contract marks Marietta's most ambitious effort yet to position itself as a "systems integration" company and not just a defense and aerospace firm.
Systems integration -- the linkage of large computer hardware, software and communications technologies into functioning services -- is the key to Marietta's emerging strategy to reduce its near-total dependence on military contracts for growth.
What makes a $4.5 billion defense contractor think it can compete with the likes of an AT&T in the telecommunications business?
"We think our experience in military systems can be leveraged over into the nondefense government side," asserted Robert Polutchko, president of Marietta's Information & Communications Systems company, which spearheads the FTS 2000 effort. "FTS 2000 is a must-win program for us."
"It's diversification by playing to your strengths," according to an investment banker close to the company. "It's the sale of large systems to a monolithic customer, similar to their defense business. It's intelligent diversification."
Indeed, the company already has a 10-year, $650 million Federal Aviation Administration systems-integration contract to help modernize the nation's air traffic control system.
But the size, scope and potential of FTS 2000 has made it the number one focus of Marietta's diversification efforts.
Currently, about 85 percent of Marietta's systems business is defense-related, said Polutchko. By the end of the decade, he expects that number to drop to 50 percent. Winning the FTS 2000 contract is vital to that goal.
Marietta's systems businesses currently account for only 10 to 12 percent of the company's estimated $4.5 billion in revenue, but Marietta is counting on both its Data Systems and Information & Communications Systems companies to be its fastest-growing business segments. Martin Marietta literature aggressively touts the company's strong base in computer systems hardware and software.
The two subsidiaries enjoyed revenue growth of nearly 50 percent last year, pushing sales over the $800 million mark.
But some of that growth, analysts point out, is misleading.
Martin Data Systems, one of the government's largest data-processing services providers and a computer software provider to industry, grossed $430 million last year. Nearly 45 percent of that, however, stemmed from the sales of its services to other groups within Marietta -- such as Martin Aerospace.
According to Alex. Brown & Sons' defense electronics analyst, Susan Pitts, "Data Systems is guaranteed an 8.5 percent profit of jobs from Martin Aerospace. The other part of Data Systems is clearly unprofitable."
Similarly, Polutchko conceded that the overwhelming share of growth in Information & Communications Systems comes from the growth in classified defense electronics programs in areas such as communications, command, control and intelligence (C3I).
"If you take the black-world classified stuff out," said Sanford C. Bernstein defense analyst David Smith, "there would be very little left" in I&CS.
Moreover, assert defense analysts, the "defense cycle" is at a point where robust growth for major defense contractors is more aspiration than expectation. Indeed, defense stocks have lagged considerably in the recent Wall Street bull market.
Those factors have given Marietta added incentive to broaden its business base.
"Big government systems that are custom made are more similar to defense systems than commercial systems," argued Pitts, who feels that FTS not only could boost Marietta's bottom line but also change its Wall Street image as a pure defense play. "I think they can easily translate their systems expertise into other large organizations."
There's another intriguing aspect to the FTS 2000. The company that wins and successfully implements the bid will, in effect, become one of the largest providers of telecommunications services in the country, with the government picking up the tab.
The company that provides one-stop telecommunications shopping for the federal government is well-positioned to provide that service to other large organizations such as banks and Fortune 500 companies.
"The cash flow represented by this contract will push the entire telecommunications industry," asserted Bernard J. Bennington, GSA's deputy commissioner for telecommunications services.
In essence, the cash flow and expertise that can be garnered from an FTS 2000 can be parlayed into the multibillion-dollar commercial telecommunications market.
Polutchko declined to project that possibility, but conceded that "the option for that makes winning the FTS 2000 bid even more appealing."
Polutchko pointed to Marietta's 57 percent "win" rate in its bids for government contracts, and said the company is prepared to respond quickly to GSA's request for a proposal, or RFP, when it is issued this summer.
Martin Marietta has taken other more tentative steps into the commercial telecommunications market. The company owns a 25 percent stake in Equatorial Communications, a seven-year-old California-based company that provides antennae and satellite capacity for companies that want to create their own private satellite data communications networks.
"Marietta has chosen the route of acquiring minority interests in other companies, and that is a good first step," said Alex. Brown's Pitts.
However, Equatorial primarily represents a window into a communications technology for Marietta as opposed to a genuine growth opportunity.
FTS 2000, on the other hand, holds out the lure of billions of dollars, and a crack at the commercial marketplace. Until the GSA formally issues the RFP, it's unclear what Marietta's chances are for the contract. In addition, AT&T and, possibly, IBM/MCI are rumored to be serious potential bidders.
What Marietta has to hope for is that GSA will buy its argument that it can be as successful with civilian agencies as it has so far been with the military.