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'World's largest' telecom deal turns out to be a dud

U.S. government's Networx program is billions below its projected revenues, years behind schedule

By , Network World
November 05, 2012 06:09 AM ET

Network World - Originally billed as the world's largest telecommunications purchase, the U.S. government's Networx contract is turning out to be chump change for the five carriers involved in the deal. Halfway through its 10-year term, the contract has driven around $2 billion in revenue compared to projections as high as $34 billion for this stage of the program.

Networx is an umbrella program that allows federal agencies to buy voice, data and video services from five carriers: AT&T, Verizon, CenturyLink (formerly Qwest), Sprint and Level 3. Created by the General Services Administration (GSA), Networx has a 10-year ceiling of $68.2 billion in revenue. However, due to delayed purchasing by agency customers, Networx total revenue through September 2012 is at $2.18 billion, GSA concedes. [See chart]

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"There's no question that Networx is not living up to GSA's expectations," says Ray Bjorklund, vice president and chief knowledge officer with Deltek, a Herndon, Va., consultancy. "It's not configured in a flexible way. It's harder to accommodate new services and new ways of buying than it should be. And the transition to Networx is many years behind schedule and still isn't done."

Networx "has not been successful," agrees Bob Woods, a former commissioner of GSA's Federal Telecommunications Service who runs Topside Consulting in Vienna, Va. "The ceiling number was artificially high to start with. It shouldn't have been $68 billion; $30 billion would have been plenty. They made the contract so complicated that the transition became impossible to do in a graceful amount of time. Agencies have taken forever to get there."

Experts say Networx has failed to reach its revenue goals because it is too complicated, causing transition from the predecessor contract to fall several years behind schedule. On Sept. 28, the GSA released a report indicating that U.S. agencies disconnected 99% of their services from the previous telecom services contract, which was called FTS 2001. This milestone should have been reached in 2009, according to original GSA estimates.

"We're years behind schedule," says Edward Morche, senior vice president, general manager of the government markets group at Level 3 Communications. "While the FTS 2001 disconnects are 99% complete, only 70% of the revenue from FTS 2001 has transitioned to Networx. You can read through the tea leaves. If everyone was happy with Networx -- if it was easy and provided value -- agencies would have moved 100% of the revenue over. What we're seeing is other contracting vehicles being used."

Networx offers 48 services from toll-free voice to Web hosting, but these services are not bundled to allow agencies to easily buy end-to-end solutions. Also, Networx doesn't offer cutting-edge cloud and wireless solutions because the contract was written in 2005, before these technologies emerged.

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