Federal telecom game: Players, rules in constant motion

Things change quickly in the federal telecommunications marketplace. The players the rules - the entire game - have transformed into a new sport. Those who master the new competitive environment will be tomorrow's winners.

In today's federal telecommunications market even the most entrenched incumbent can be unseated by a strong aggressive competitor. A decade ago in addition to AT&T there was a small group of large defense-oriented weapons systems manufacturers and system integrators that dominated our industry. They tended to own major segments of the marketplace and do combat at the edges of their established territories. But as the market has moved to the purchase of commercial goods and services and as agencies have begun to reap the benefits of competition no incumbent can own a market position without serious challenge. The award of the Defense Information Systems Network Bandwidth Manager the brains of the next-generation Defense Department long-haul network to MCI after decades of dominance by AT&T is a striking example of how the competitive game has opened up.

It's not only the winners who are changing. It is also the way they win. There's a certain cat-and-mouse game that goes on between the government and industry. The game seems to work like this. First the government comes up with a new acquisition strategy designed to get lower prices better products or services and more competition from industry. Then industry figures out how to play the game - how to increase its margins how to extend its product life cycles and how to fend off the competition. Just when industry has figured out how to play the game according to the new rules the government changes its strategy again and we're ready for the next round.

The game can get pretty complicated. Each agency and each program plays a slightly different version. Some are playing versions that have been abandoned by other agencies years ago. And then there are the pioneers - the agencies that are experimenting with the next version. But it isn't clear whether they will succeed because success takes a long time in this marketplace.

The Navy for example has been off again on again about its telecom infrastructure upgrade plans. The Voice Video and Data program (Vivid) which is the service's bid to upgrade its base-level telecommunications has been through at least three name changes. It started as the Base Information Transfer System (BITS). Then it became the Naval Telecommunications Infrastructure Project (Navtip). Then just before the request for proposals was released the name changed again to Vivid.

As the names have changed so has the nature of the program. BITS began as a traditional DOD single-technology baseline winner-take-all deal. With the move to Navtip the Navy caught up with the multiple-award trend but it planned to do so regionally. Navtip was going to be an indefinite-delivery indefinite-quantity contract with at least two awards in each of three regions. With Vivid the Navy changed the rules again. This third and final version will result in multiple awards but Vivid aggregates demand nationally doing away with regionalization. Two or more Vivid contractors will compete against each other for Navy business at each base. The Navy is also expanding its choice of systems as well as its choice of contractors. The service has established a requirement that all Vivid bidders offer three different brands of switches. Everyone must bid Northern Telecom Inc. and Lucent Technologies Inc. and they each must select one other vendor.

Demand aggregation. Ongoing multivendor competition. Wide agency choice of services. Sound familiar? The Navy is borrowing a page from the General Services Administration's Post-FTS 2000 playbook.When you think about it we're dealing in a very small marketplace. These federal market leaders spend a good deal of time together comparing notes so it's not surprising that new acquisition strategies will spread rapidly from one part of the government to another. Today strategies migrate easily between market segments in Defense and civilian agencies that as recently as 10 years ago were almost completely isolated from each other.

A Vivid Example

On Vivid the Navy has met GSA and then raised it one. The result may be the birth of a next-generation acquisition strategy likely to be passed around to others just as elements of GSA's strategy were passed along to the Navy. In addition to the standard Section M on evaluation the Vivid RFP included a 10-page attachment that put forward the most detailed and precise past-performance standards I have ever seen. The scoring methodology included some absolute minimum criteria for the scale and content of prior contracts. The prime contractor is required to have a certain number of past contracts of a certain dollar value including the identical products - namely voice switches - and the identical services - namely dial tone - being purchased on Vivid.

Although the reasoning behind this expansion of past-performance criteria was no doubt to provide a clearer more objective basis for the award of past-performance scores the law of unintended consequences may be at work. You know the law: For every action with one major intended consequence there are at least 27 other consequences that were neither originally intended nor foreseen. Based on the new very narrow Vivid past-performance criteria two experienced capable integrators dropped out of the Vivid competition and could not be wooed back when the Navy recognized the problem and softened the RFP language. If followed by other agencies this type of rigid requirement will limit some capable aggressive competitors from expanding beyond established territories.

In the future we should expect to see a growing emphasis on acquisition strategies that promote ongoing competition and that offer users choices in terms of systems as well as in terms of support contractors or integrators who help implement operate and upgrade these systems. A few years ago we thought life was uncertain enough with the expanded use of IDIQ contracts. Now we know that IDIQ was just the beginning.

We're seeing widespread use of multiple IDIQ contracts and a growing use of blanket purchase agreements. And based on GSA's newest Post-FTS 2000 program strategy revision and its Metropolitan-Area Acquisition we're likely to see overlapping programs where the government gives itself a back door for introducing new contracts and new players before the initial contracts have completed their projected term. In the market leadership area I think we can conclude that the federal market is a very open game. If you're an incumbent don't get too comfortable. If you're looking to unseat an entrenched incumbent there's probably a way to do it. You just have to figure out how.

With all these marketplace changes and their associated risks it's easy to get discouraged. Most of the variables that made us comfortable a decade ago are changing. But one thing will not change in the foreseeable future and that is the widely shared perception that information technology in general and telecommunications in particular represents one of the government's best hopes for greater efficiency and greater effectiveness. The risks associated with doing business here are more than offset by the rewards from participation in this solid high-growth segment of the federal marketplace.

Suss is president of Warren H. Suss Associates Jenkintown Pa. which provides sales marketing proposal support strategic planning and market research for firms competing for federal IT programs.


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