AT&T wins FTS rematch; feds to save $600m

Agencies will pay one-third less for FTS 2000 switched-voice and
leased-line services, thanks to the General Services Administration's recent price
recompetition in which Sprint Corp. lost a substantial amount of its FTS 2000 business to
AT&T Corp.

AT&T's lowball prices for switched voice service will drive down the cost of an
average one-minute call on the governmentwide long-distance network from about 5 1/2 cents
to about 3 1/2 cents. That includes local access and termination charges by regional Bell
operating companies, which typically amount to about half of long-distance costs.

The price redetermination/service reallocation (PR/SR) also will bring a 30 percent to
40 percent cut in dedicated transmission prices. Overall, the government will save almost
$200 million a year during the three remaining years of the FTS 2000 contract.

Since the initial 1988 award, FTS 2000 rates have come down about 80 percent, saving
the government about $5 billion compared with the long-distance system FTS 2000 replaced.

"Savings of this magnitude and the reduced prices we have achieved are
unprecedented in the telecommunications marketplace," said GSA Administrator Roger W.

The PR/SR drew praise from Vice President Al Gore, who called it an "outstanding
example" of government doing more with less by "focusing on customer service and
using competitive principles and commonsense management."

Gore plans to give a Hammer Award to the interagency task force that carried out the
PR/SR. That panel was headed by William Wunderlich, a Treasury Department
telecommunications analyst. The Hammer Award, so named because the Defense Department once
paid an inflated price for a hammer, recognizes success under the administration's
National Performance Review.

Treasury will be the FTS 2000 customer most affected. It will move from Sprint's
Network B to AT&T's Network A so that AT&T gets 76 percent of cumulative revenue,
up from 60 percent. The shift probably won't take place until after the spring tax filing
season. GSA officials estimated the shift will cost as much as $12 million, of which
AT&T has agreed to pay up to $10 million.

Treasury telecommunications chief James J. Flyzik said his department "wants to do
what's in the best interests of the program and the government as a whole." But he
said he would have opposed the shift if it had meant splitting Treasury between the two
network providers.

"That would have very negative consequences on our Treasury communications vision
plan, which talks about integrating voice and data services. It would be a major problem
for us, and we would have resisted," Flyzik said.

IRS has been Sprint's biggest FTS 2000 customer. Sprint officials estimated that
Treasury accounted for about $100 million of the company's $219 million in FTS 2000
business since the beginning of this year.

"Because of the 3 1/2 cents per minute, there's a lot of traffic that has to be
moved to get AT&T to a 76 percent share," said Jim Payne, Sprint's assistant vice
president for FTS 2000.

Sandra Bates, head of the Interagency Management Council that advises GSA on
telecommunications issues, said the new prices will mean substantial savings for DOD and
the Social Security Administration, both big users of Network A voice services. She said
DOD will save more than $100 million and SSA more than $75 million.

Robert J. Woods, GSA's Federal Telecommunications Service commissioner, said both
suppliers were judged equal in quality, but AT&T's low prices tipped the shootout in
its favor. A 1992 recompetition had continued the original 60-40 revenue split between
AT&T and Sprint.

"Anyone who has questioned the merits of using contracts that tap commercial
market forces should be a believer now. It works. We have the low prices to prove
it," Woods said.

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