Telecom transition delays threaten long-distance call savings

Delays in the transition to FTS 2001, the federal government's long-distance phone service contract, may eliminate the contract's potential savings, the General Accounting Office and a key lawmaker said Thursday. "Let me be clear on this point. The [General Accounting Office] now considers the FTS 2001 program goals in jeopardy because of transition delays," Rep. Tom Davis, R-Va., chairman of the House Government Reform Committee's Subcommittee on Technology and Procurement Policy, said at a hearing he held on Thursday. The FTS 2001 contracts were awarded to MCI WorldCom Inc. in January 1999 and to Sprint Communications in December 1998. The contracts were written so that each company would have to compete for federal business, and the program is always open to new entrants. Carriers with Metropolitan Area Acquisition (MAA) contracts, local service contracts for major metropolitan areas, will be able to compete for FTS 2001 business once the transition is complete. The General Services Administration's Federal Technology Service expected the transition from FTS 2000 to FTS 2001 to take a year. However, the agency has had to award four extension contracts to make the change, dragging out the transition for an additional 30 months. "The time delay is now causing agencies that have not transitioned to incur significantly higher long-distance costs," Davis said. "GAO has estimated that some agencies will spend at least 10 cents a minute on long-distance under the extension contracts with rates continuing to rise to a potential high of $1 a minute as the last agencies transition to FTS 2001." While Davis was alarmed at the time it has taken the federal government to make the transition, he acknowledged that the transition to FTS 2001 is 95 percent complete. Even so, the costs incurred during the delay have been steep. The transition delays from December 2000 to the summer of 2001 will cost $74 million, said Sandra Bates, commissioner of the Federal Technology Service. Bates said that the transition would be completed by this summer. A GAO report, "FTS 2001: Transition Challenges Jeopardize Program Goals" (GAO-01-289), released concurrently with the hearing, cautioned that the entire competitive structure of the FTS 2001 contract was threatened by the delays. "Because delays encountered have extended this transition period, the government cannot ensure that it is receiving the best service possible," the report said. Service is being hurt in part because of the minimum revenue guarantees of $750 million each for Sprint and MCI written into the FTS 2001 contract. Both companies were expected to drop long-distance rates over the life of the contract, ending up at below 1 cent a minute. Sprint and MCI now have a shorter time to reach the minimum revenue guarantees. Telecommunications companies are eager to bid on the FTS 2001 contract. Jim Payne, senior vice president for Qwest Communications Inc., a telephone service provider that would like a slice of FTS 2001 business and a current MAA contract holder, said that "after almost three years from the expiration of the FTS 2000 [contract] there simply is not enough competition." The Federal Technology Service has not let MAA contract- holders compete for FTS 2001 business because the transition is not yet complete. Payne called for the agency to open the contract to new entrants immediately.