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'World's largest' telecom deal turns out to be a dud

Carolyn Duffy Marsan | Nov. 6, 2012
Originally billed as the world's largest telecommunications purchase, the U.S. government's Networx contract is turning out to be chump change for the five carriers involved in the deal. Halfway through its 10-year term, the contract has driven around $2 billion in revenue compared to projections as high as $34 billion for this stage of the program.

GSA argues that Networx is succeeding in its goal to save agencies time and money when purchasing complex telecom services.

"Last year, the Networx contract saved the federal government more than $660 million on commercial rates," Mary Davie, GSA Federal Acquisition Service acting commissioner, says in a statement. "The contract allows GSA to provide core networking services to almost every federal agency; and those agencies typically save between 30% to 60% on the cost of services. In 2012, Networx saw the highest business volume on the contract to date, leading to additional cost savings.''

As of Oct. 19, 257 of 266 agencies had transitioned off the FTS 2001 contract, and the remaining nine agencies were expected to complete their transition to Networx by December.

Some Networx vendors -- particularly Verizon and AT&T -- are faring better than their rivals. Deltek estimates that Verizon has earned 47% of Networx revenues to date, while AT&T has earned 41% and CenturyLink 12%. Sprint and Level 3 have earned less than 1% of revenues, Deltek estimates.

Verizon was the largest incumbent on the Networx predecessor FTS 2001 contract, so rivals say it isn't surprising that it is earning the most revenue.

"It was very hard for agencies to decide what to do, and the default position was for them to stick with the incumbent," Morche says. "It's the people looking to grow their revenue from the agencies who are going to be the most frustrated. Level 3 might be the most frustrated."

Even carriers like AT&T that have fared relatively well on Networx say the revenue flow has come much later than anticipated.

"Our management is like everyone else's: They wanted a return on the tremendous investment we put into Networx. They were anxious,'' admits Jeff Mohan, executive director of GSA programs for AT&T Government Solutions.

Nonetheless, Mohan is confident that Networx is finally hitting its stride and will be a successful contract for AT&T despite its late start. "I would not characterize Networx as a failure," he adds. "I would characterize it as perhaps a little late in maturing."

The carriers aren't the only ones suffering from the slow transition to Networx, argues Diana Gowen, senior vice president and general manager at CenturyLink. Gowen says agencies have been paying higher telecom bills on the older FTS 2001 contract.

"From a savings-to-the-government perspective, I would have to say this contract has been a failure, but no one on [Capitol] Hill or at [the Office of Management and Budget] has gotten concerned enough to really propel this further," Gowen says. "There are still agencies who have not made decisions, have not transitioned [to Networx] and have not disconnected'' from the more expensive FTS 2001 contract.


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