MCI rings up $1B+ telecom pact

MCI WorldCom has captured a potential billion-dollar-plus contract to supply telecommunications products and services to U.S. troops worldwide, according to a source familiar with the program.

Under the Army and Air Force Exchange Service (AAFES) Pay Phone program, MCI will provide pay phones, calling cards and other telecommunications services to bases in the United States and wherever troops are deployed overseas. MCI knocked off incumbent AT&T to win the contract, which sources say could be worth $1 billion to $2 billion over 10 years.

Diana Gowen, executive director of DOD and national information infrastructure programs at MCI WorldCom Government Markets, said the award represents a huge boost to the company. "We ousted AT&T from a 14-year foothold," she said.

Gowen said AAFES estimated that the contract will be worth at least $1 billion, but additional services not available through the previous contract could double that figure. "The biggest potential [for increased revenue] is probably being able to sell Internet service through AAFES," she said.

Mike Croy, a branch manager at MCI, said the contract may require a significant up-front investment from MCI to replace nearly 18,000 pay phones worldwide. Croy said it is unclear how many of the existing phones have "smart phone" capability that would allow MCI to remotely monitor the amount of money in each device instead of manually checking each phone. He said MCI will have to replace any phone that does not have this capability.

An AAFES spokesman would not confirm last week that MCI had won the contract and said the organization would announce the award today.

The AAFES spokesman said officials designed the contract to take advantage of new telecommunications technologies that have arisen since the last award to AT&T. "It's a whole new world out there," he said. "It seemed smart to resolicit the contract to see what was out there."

The contract offers services unavailable through the existing deal with AT&T. Bidders also were required to offer an inmate phone system at Fort Leavenworth, Kan., voice mail, prepaid phone cards in vending machines, residential service for customers in foreign locations, Internet access and other features. The solicitation also stipulated that the contract would cover emerging technologies such as cable television, smart cards and electronic commerce.

AT&T still claims a large pay phone business with the Navy through an existing contract in its commercial division. But winning the AAFES bid provides MCI's government division with another key piece of business formerly held by AT&T.

Last month MCI won a portion of the FTS 2001 contract to serve all federal agencies. Sprint also won an FTS 2001 contract, while AT&T, an incumbent on the FTS 2000 contract, ended up without any part of the business.

A former AT&T Government Markets insider last week said the five-year contract will be "very profitable because it's essentially just voice telephone service."

Some industry observers expressed concern that perhaps MCI was biting off more than it could chew with the two recent awards. "One interesting question is 'How will MCI do FTS 2001 from scratch and this [AAFES] contract at the same time?' " one source said. "How will they gear up that fast in two bits of business in which they have no activity to date?"

Warren Suss, a telecommunications analyst who specializes in the federal market, called MCI's capture of the AAFES contract "another in a series of crushing defeats for AT&T. Pretty soon they are going to fall below a critical mass in the federal market."

Bob Woods, president and chief operating officer at Federal Sources Inc., said the award to MCI raises questions about AT&T's commitment to the federal market. "They don't seem to have the bidding mentality [that] MCI and Sprint have," he said. "Maybe they are beginning to play this as a game not to lose instead of a game to win."

A spokeswoman for Bell Atlantic Federal said company officials had no knowledge of the award but were "exploring getting on a team" to participate in the program.