Mergers reshape telecom landscape in government

Mergers reshape telecom landscape in government

The spat of recently announced telecommunications mergers will reduce the number of carriers in the government market but will let the surviving companies offer more comprehensive services to federal users, telecom analysts said.

After the wave of acquisitions is completed over the next few years, the telecom market will become 'an industry of giants, offering everything to everyone: voice, television, wireline and wireless,' said Jeff Kagan, an independent telecom analyst. The industry transformation will end with four or five companies left to compete, he said.

Verizon Communications Inc. of New York plans to acquire MCI Inc. of Ashburn, Va., for $6.7 billion in cash, equity and a special dividend payment, killing a rival bid from Qwest Communications International Inc. of Denver.

The announcement follows on the heels of last month's announcement that SBC Communications Inc. of San Antonio will buy AT&T Corp. for $16 billion and the December agreement by Sprint Corp. to acquire Nextel Communications Inc. of Reston, Va., for $35 billion.

The two latest deals 'will propel SBC and Verizon into the mainstream of federal network deals, as opposed to building their own strategies as they were doing before,' when they had to construct their own long-distance calling solutions, said Warren Suss of Suss Consulting Inc. Suss' Jenkintown, Pa., company specializes in federal telecom strategy and research.

After the mergers, SBC and Verizon will control long-distance and last-mile assets and will be able to offer government clients more 'tightly woven, end-to-end, keyboard-to-keyboard solutions,' Suss said.

They also will be able to integrate support systems and other network tools that will 'simplify things for federal customers,' he said.

The Verizon-MCI deal 'strengthens the long-term visibility of MCI's global network, which is a critical component of government communications systems,' including those at the Defense and Homeland Security departments, Verizon said in a statement.

The mergers will not affect the General Service Administration's strategy for the Networx contract, telecom analysts said. Networx is the 10-year follow-on to FTS 2001 that could be worth upward of $20 billion. The FTS 2001 contracts held by MCI and Sprint expire next year.

GSA has anticipated mergers in its procurement strategy for Networx, Suss said.

The SBC-AT&T transaction and the Verizon-MCI deal are still subject to regulatory approval, which won't likely be granted for at least a year. Until then, the companies will 'be careful not to jump the gun and rattle the regulatory approval process,' Suss said.

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