MCI takes 2nd FTS 2001 pact

The General Services Administration this month awarded its second and final FTS 2001
long-distance networking contract to MCI WorldCom Inc. of Jackson, Miss. The contract will
slash voice rates to less than 1 cent per minute in its final year.

“We think we achieved the lowest prices in history, even lower than what we talked
about in December” when Sprint Corp. won the first-round contract, said Dennis J.
Fischer, commissioner of GSA’s Federal Technology Service.

Although MCI WorldCom and Sprint will split $1.5 billion in guaranteed revenues, they
must compete against each other for government business worth an estimated $5 billion
under the eight-year contracts.

“Winning was the easy part,” said Jerry Edgerton, MCI WorldCom senior vice
president for government markets.

FTS 2001 replaces the FTS 2000 contracts held by Sprint and AT&T Corp. that expired
last month. Agencies are operating under two-year FTS 2000 extensions and can change
providers at any time during that period.

Fischer said he expects the first agency cutovers to FTS 2001 within four months.

AT&T, which has held 72 percent of FTS 2000 long-distance business, bid
unsuccessfully in both rounds for the nonmandatory new contracts. AT&T could still
compete for federal business but would have to counter active marketing on behalf of
Sprint and MCI WorldCom by the Federal Technology Service, which will earn administration
fees for FTS 2001.

GSA Administrator David J. Barram said serious outside competition is unlikely,
however. “It seems to me it would be hard for somebody to come in and undercut our
prices,” he said.

MCI WorldCom’s prices are on average 10 percent lower than those bid by Sprint,
Fischer said, but differences in specific rates, service packages and technologies will
keep the two contractors competitive. They can lower their prices further if they choose,
he said.

MCI WorldCom voice service will start at 4 cents per minute and drop over the life of
the contract to less than 1 cent in the final year. The cost over eight years will average
about 2 cents per minute, Fischer said.

MCI’s data transmission rates will start 30 percent lower than current FTS 2000
rates. For instance, a leased T1 circuit will start at $500 per month, Fischer said.

Overall, MCI WorldCom bid an average of 65 percent less than current prices and could
deliver savings of more than $4 billion over the life of its contract. Fischer said
competition between the two contractors could drive prices even lower.

“We looked out eight years at what would be taking place in networking
technology,” Edgerton said, predicting that data will overtake voice in bandwidth
demand by next year. “Voice will be riding on a backbone, the needs of which are
driven by data.”

He said MCI WorldCom wants to raise capacity and lower costs by sending voice traffic
over asynchronous transfer mode networks and optical fiber rather than electrical
switches. The company also hopes to save by taking more control over customer access to
its networks.

“We still don’t control 50 percent of our costs” in access and egress
charges imposed by local exchange carriers, Edgerton said.

Because MCI WorldCom is a local as well as a long-distance carrier, it plans to take
advantage of contract provisions that will let it offer agencies local service after a
one-year waiting period.  

About the Author

William Jackson is a Maryland-based freelance writer.

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