Telecom in the red
According to internal General Services Administration documents, FTS 2000, the mandatory contract for federal voice and data services, was the only contract of six long-distance telecommunications contracts to make money in the first 11 months of fiscal 1998.
The FTS 2000 long-distance program made a profit of $25.2 million from nearly $700 million in revenue during the 11-month period. But the other five contracts— which are not mandatory and cover services such as international direct dialing, wireless communications, wire and cabling, Internet access and technical support— had negligible revenue and lost a total of $1.4 million.
Although all but one of the contracts were estimated to be worth hundreds of millions of dollars over their life cycles, only one— the Federal Wireless Telecommunications Services contract held by GTE Government Systems Corp.— pulled in more than $1 million in the first 11 months of fiscal 1998.
The Commerce, Internet, Electronic Mail Access (CINEMA) acquisition, which is for governmentwide e-mail, Internet access and electronic commerce services, and the Wire and Cable Services contracts showed the most striking lack of revenue.
CINEMA, awarded in April 1997 to Advantis and BTG Inc., and the Wire and Cable Services contracts, awarded in December to GTE, Engineering and Professional Services Inc. and Government Telecommunications Inc., were estimated to be worth up to $300 million and $2.6 billion, respectively, but neither had produced any revenue for fiscal 1998 as of Aug. 31.
AT&T's International Direct Distance Dialing (ID3) contract, awarded in July 1997, produced revenue of $17,000 in the same 11-month period. The Technical and Management Support contracts, awarded in September 1997 to six vendors, reported revenue of $208,000. GTE's Federal Wireless contract produced $2.4 million in revenue.
Bob Suda, chief financial officer at FTS, said figures for the end of the fiscal year were not available as of late last week. But he said the final figures, which will include September revenue, would indicate that every program in the FTS arsenal broke even— the organization's ultimate goal— or showed a profit.
"That's the way the business runs," Suda said. "It normalizes itself over the course of September business. September is a large revenue-generating month."
Former FTS Deputy Commissioner John Okay, now senior vice president at Federal Sources Inc., said he believes FTS telecommunications program managers have failed to make the transition from the mandatory-use environment in which they have operated for the past 10 years to the era of procurement reform.
Okay said FTS contracts now compete with other governmentwide acquisition contracts, and FTS employees— who are not used to marketing their services to potential customers— have not been able to win much business.
Warren Suss, a telecommunications consultant with Warren H. Suss Associates, said FTS acquisitions often failed to reflect accepted commercial practices and do not address users' requirements. "In the old days, these acquisitions could include any oddball requirements, and industry had to offer them, and agencies had to use them," Suss said. "Now, industry doesn't have to bid, and agencies can get these services in other ways. In this new environment, GSA has to start doing things differently."
Ron Hack, director of systems and telecommunications management at the Commerce Department, said some of the failure could be blamed on bad timing.
For example, he said most agencies had already awarded their own Internet-access contracts by the time FTS awarded the CINEMA contracts. But he said the Federal Wireless contract and the ID3 contract suffered from billing and customer service problems. He said the Interagency Management Council, a group of federal telecommunications executives chaired by Hack, planned to discuss how to improve these contracts.
Jim Kane, vice president of business solutions at GTE Government, said officials at his company earlier this year recognized that most agencies do not want to buy wireless service on a nationwide basis. "There was a unanimous opinion that the way the contract was structured did not reflect the buying preference," Kane said. "That changed [in June] when we did a fairly major modification to the contract that allows a more localized buying model."
A GTE spokesman said orders have been steadily increasing on the Wire and Cable Services contracts "in the last few months," and he chalked up the low revenue as of August to the typical slow start experienced on most indefinite-delivery, indefinite-quantity contracts.