Low FTS 2001 revenues will put squeeze on GSA

Low FTS 2001 revenues will put squeeze on GSA

By William Jackson

GCN Staff

Revenue estimates for the General Services Administration's long-haul FTS 2001 telecommunications contracts, put at $5 billion at the time of the awards more than a year ago, have plummeted to $2.3 billion, the General Accounting Office reported this month.

The drop could directly affect whether and when new competitors can join the program.




The GAO report, GSA's Estimates of FTS 2001 Revenues Are Reasonable, said falling prices and the delay in agencies' transitions to the new contracts from the mandatory FTS 2000 contracts contributed to the lower estimates'despite the fact that service demands are increasing.

Total revenue over the eight-year contracts awarded to Sprint Corp. and MCI WorldCom Inc. in December 1998 and January 1999, respectively, still should be enough to meet guaranteed minimum payments totaling $1.5 billion. But guarantees now amount to two-thirds of projected revenue and will not be reached until the sixth year, GAO estimated.

The new revenue figures are no surprise to GSA, said Bruce Brignull, the agency's assistant commissioner for service development.

'We realized when we got the best-and-final offers that we were setting a much lower baseline on prices, and that meant the minimum revenue guarantees were a more significant part of the contract,' Brignull said.

He said the GAO study confirms that GSA still can comfortably meet its revenue obligations under current service projections.

Additional competition for government long-distance business would increase pricing pressure and might jeopardize GSA's ability to meet the revenue guarantees, however.

'A recent GSA analysis showed that with less than a 20 percent decline in total estimated program revenue, [minimum revenue guarantees] would not be satisfied until contract year eight,' the report said.

If the guarantees cannot be met during the term, 'GSA may be liable for additional payments to the contractors,' GAO said.

Lower prices from greater competition could bring benefits to agencies that would offset GSA obligations to pay off the guarantees. GAO said such benefits are difficult to quantify, but Brignull said they are real.

'Agencies are seeing significantly reduced costs for services,' he said. The government depends now more than ever on communications services, and cost reductions will let agencies expand comm use while staying within current budgets. 'So there is a benefit to the taxpayer,' Brignull said.

Agency choice

Because FTS 2001 is not mandatory, agencies have the option of going outside the program to procure long-haul services. The Federal Technology Service also has the option of letting contractors in its Metropolitan Area Acquisition local service program compete within FTS 2001.

AT&T Corp. has asked for modifications to its MAA contract to let it enter FTS 2001 [GCN, April 17, Page 70]. FTS commissioner Sandra Bates said meeting the minimum revenue guarantees is an important consideration in deciding whether to admit AT&T but will not be the deciding factor.

Enlisting the help of telecom consultant Technology Futures Inc. of Austin, Texas, GAO verified GSA's latest FTS 2001 numbers, finding that $2.3 billion is an accurate though conservative es-timate of revenues.

One reason for the low estimate is the lagging pace of transition to the new contracts. FTS originally expected that by January agencies would have largely finished cutting over to new services, but only about a third of agencies have done so.

GSA officials estimated that the delay has resulted in more than $450 million in lost revenue.

At the current rate, only about 85 percent of agencies will have moved to new contracts by the time FTS 2000 bridge agreements expire Dec. 6.

GAO cited reasons for the slow transition:

''The sluggish pace of vendor selection and transition planning

''Agency preoccupation with year 2000 fixes

''Poor communication within service provider organizations and among service providers, agencies and local exchange carriers

''Lack of transition agreements between the government and AT&T, which had about 80 percent of federal long-distance business under FTS 2000.

To speed things up, GSA entered into a transition agreement with AT&T in January to move its customer agencies to MCI WorldCom's FTS 2001 contract. A similar agreement for other agencies' transition from AT&T to Sprint is pending.

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