MCI wins in Round Two of FTS 2001

The General Services Administration this month selected MCI WorldCom as the second contractor on the $5 billion FTS 2001 contract that will provide the federal government with long-distance services and save taxpayers billions.

FTS 2001, awarded by GSA's Federal Technology Service, could save the government about $4 billion over eight years, compared with the existing FTS 2000 long-distance contract, according to Dennis Fischer, FTS commissioner.

Fischer said MCI's pricing for an average phone call would cost about 5.5 cents a minute and will decrease to about 2 cents a minute by the end of the contract.

FTS 2001, the long-awaited update telecommunications contract for the federal government, includes long-distance voice services; Internet-based services, such as electronic commerce; data communication services from low to high speeds, such as frame relay and Asynchronous Transfer Mode; videoconferencing; and high-availability circuits for mission-critical users.

"With the award today to MCI, we think we have achieved the lowest prices in history—even lower than those in December," Fischer said Jan. 12.

Rick Slifer, director of FTS 2001 programs at MCI, said he expects data services to play a much larger role in FTS 2001 than they did in FTS 2000. "We anticipate that data will be the fastest growing part of the contract, particularly frame relay, Internet and ATM," Slifer said. "And I think GSA views it the same way."

GSA last month selected Sprint as the first FTS 2001 contractor, saying that Sprint's pricing undercut rates on the current FTS 2000 network by about 60 percent. GSA then ran a second round of bidding that resulted in the award to MCI. AT& T, which handles 72 percent of the traffic on FTS 2000, lost in both rounds. Sprint also bid for business in the second round.

Fischer said he expects agencies to begin switching over to FTS 2001 "in the next three to four months." At a meeting with industry this month, he said FTS has set aside up to $14 million from its IT Fund to assist agencies in their moves to FTS 2001.

Observers said the awards hold the potential for changing the way federal agencies use telecommunications. Warren Suss, a telecom consultant with Warren H. Suss Associates, said agencies may view their transition from AT& T as an opportunity to revamp their entire telecommunications infrastructure.

"I think agencies are going to be likely to rethink their solutions," Suss said. "As long as these agencies are going through the pain of a transition, I believe many will use this process to move their technology forward."

Fischer said FTS will be encouraging "not to use like-for-like services" when moving to the new contract.

Federal agencies were required to buy telecommunications services off the FTS 2000 contract, but the FTS 2001 contract is not mandatory.

Mary Jane McKeever, president of AT& T Government Markets, said in a statement that AT& T "regretted GSA's decision" because the company believed its bid was "fully compliant and competitively priced." AT& T said it will decide after its debriefing next week with GSA whether it would protest the decision.

AT& T remains committed to the federal marketplace and looks forward "to continuing our relationships with all of the government agencies. We'll continue to serve these agencies through existing contracts, including the FTS 2000 extension agreement," McKeever said.

But analysts said GSA's decision represented a devastating blow to AT& T. "To lose 75 to 80 percent of the federal government [telecommunications business] and not have a vehicle out there to move customers onto has got to a big blow," said analyst Bill Cunnane, senior vice president of communications technology at Wheat International Communications.

Suss said he believes AT& T Government Markets, which already has reduced its work force substantially in the past year, will shrink even more. "They may fall below the critical mass needed to maintain a presence in this marketplace," he said.

Cunnane and Suss said AT& T's best course of action might be to bid on GSA's Metropolitan Area Architecture contracts for local service. If the company is successful in winning one of those contracts, it will have the ability to bid on GSA's long-

distance business as well—provided the two FTS 2001 vendors have met their minimum revenue guarantees of $750 million each.

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FTS 2001 Services

* Long-distance, toll-free and 900 voice

* The Internet and intranet

* Data services, including Asynchronous Transfer Mode and frame relay

* Dedicated services

* Special arrangements for mission-critical users

* International communications