How would a merger affect FTS 2001?

How would a merger affect FTS 2001?

FTS commissioner Dennis J. Fischer says that if the merger 'becomes a reality, it will affect our strategic thinking.'

By William Jackson

GCN Staff

Rumors of merger talks between FTS 2001 vendors Sprint Corp. and MCI WorldCom Inc. are raising concerns at the General Services Administration, which administers the multibillion-dollar telecommunications contracts.

'We like to have competition, and it's tremendously important to continue to have that,' said Dennis J. Fischer, commissioner of GSA's Federal Technology Service. 'If this gets serious, we would take a look to see where we stand. Two is different from one.'

But there is little the agency can do if the companies decide to join forces. 'We see nothing in our contract that talks to this issue,' Fischer said. Regulatory approval by the Justice Department and the Federal Communications Commission would still be required for such a merger, however.

Spokesmen at Sprint and MCI WorldCom declined comment about reports last month that the No. 2 and No. 3 long-distance carriers were discussing a possible merger. Conventional wisdom says MCI WorldCom, which does not have wireless phone operations, wants the assets of Sprint's personal communications spectrum holdings.

A combined Sprint and MCI WorldCom would be about half the size of AT&T Corp. in the long-distance market but could still represent enough concentration to cause regulatory concern, former FTS commissioner Robert J. Woods said.

That's big

'It's a huge deal. Right now, these two merging could create a competition problem' in the commercial world, without even taking into account the FTS 2001 program, said Woods, president of ACS Government Solutions Group Inc. of Rockville, Md. 'I don't know if the Justice Department will let them do that.'

Sprint and MCI WorldCom were awarded FTS 2001 contracts in December and January, respectively, splitting $1.5 billion in guaranteed revenue from the $5 billion, eight-year follow-on to the FTS 2000 long-haul voice and data services contracts.

Unlike the FTS 2000 contracts, which were mandatory for agencies and divided government business between AT&T and Sprint, the FTS 2001 contractors compete against each other and outside carriers for government business.

Contract provisions call for deep discounts in data transport and voice service over the lives of the contracts. The Federal Technology Service is counting on competition to drive more price cuts and innovation.

Although government users are free to go outside FTS 2001 for telecom services, FTS earns its keep by charging a fee on contracts it administers, and it has an interest in the vehicles' success.

'If this becomes a reality, it will affect our strategic thinking,' Fischer said. But he added that although there is rapid consolidation in the telecom industry, many rumored mergers never come to fruition.

A combination of the two FTS 2001 vendors would not necessarily eliminate competition for government business. Former FTS 2000 contractor AT&T in May was awarded local-service contracts in the first round of FTS' Metropolitan Area Acquisitions for New York, Chicago and San Francisco. Besides an estimated $680 million worth of local business over eight years, the contracts give AT&T the chance to compete for FTS 2001 long-distance business as early as December.

AT&T officials have said they intend to take advantage of the opportunity.

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