$20B Networx deal to drive federal telecom market in 2008
Carriers are preparing for a flood of buying activity under the federal government’s massive Networx telecommunications program in 2008.
Networx is the largest telecommunications deal in the world. It will provide domestic and international voice, data, video and wireless services to 135 federal agencies for the next decade.
The U.S. General Services Administration awarded the 10-year, $20 billion Networx program in two parts earlier this year.
Related story: Carriers mobilize for $24B in military telecom contracts.
Networx Universal, a comprehensive program that covers everything from legacy frame-relay and ATM to cutting-edge VPNs and VoIP, was awarded to AT&T, Qwest Communications and Verizon Business last March.
Networx Enterprise, which offers emerging IP and wireless services, was awarded in May to AT&T, Level 3 Communications, Qwest, Sprint Nextel and Verizon Business.
“The benefit of Networx is that it provides virtually everything that someone would want from a telecom perspective, and now an agency can to go one place and get all those things,” says Jeff Mohan, AT&T’s program director for Networx. “Security, hosting, long distance and toll-free — all in one place.”
The winning service providers started taking orders on Networx Universal this fall, and they are wrapping up acceptance testing and will be ready to take orders under Networx Enterprise in January.
“There will be a lot of [Networx] competitions happening in the first three to six months of next year,” says Susan Zeleniak, vice president of Verizon Federal. “There could end up being a dozen statements of work issued early next year.”
“Once we get through the continuing resolutions and other appropriations battles, the pace should pick up on Networx,” says Ray Bjorklund, senior vice president of FedSources, a market research firm that tracks military telecom spending. “It’s been a slow start.”
So far, only one federal agency — the U.S. Department of the Treasury — has placed a major order under Networx Universal. AT&T won that $1 billion award in September. The Treasury Network (TNet) will be a secure MPLS network spanning 1,000 locations and supporting more than 100,000 employees of the Treasury Department’s 12 bureaus, which include the U.S. Internal Revenue Service and the U.S. Mint.
Homeland Security getting ready
The U.S. Department of Homeland Security has issued an RFP under Networx Universal to build a single, unified network to replace the separate networks run by the various security agencies that were combined to form the DHS in 2003. The DHS OneNet contract is expected to be awarded during the first quarter of 2008. The DHS spends around $560 million per year on telecommunications services, Bjorklund says.
“The DHS award will be significant,” says Don Herring, president of AT&T Government Solutions. “It will be big, it’s strategic for the agency, and it’s early in the process of Networx. . . . DHS needs collaboration, but it’s got to be in a secure environment.”
Qwest has received smaller task orders under the Networx Universal contract from the Railroad Retirement Board and the National Labor Relations Board. The Railroad Retirement Board deal, worth $3.5 million, involves replacing a frame-relay network with MPLS services at 60 offices nationwide.
The Railroad Retirement Board’s project is the kind of transformational network upgrade the Networx program was designed to accomplish, says Diana Gowen, senior vice president and general manager of Qwest Government Services. “They looked at the power of Networx, and they said, ‘We want a wide-area network where we can converge voice and data. We have employees that are at 60 locations around the United States, and we want a virtual call center so that those employees, when they are not doing other things, can handle calls that come in from all our retirees,'” she explains. “You couldn’t do that kind of thing without the power of Networx.”
Other agencies expected to upgrade their networks through the Networx program include the U.S. Department of Veterans Affairs and the U.S. Social Security Administration. The U.S. Department of Defense is expected to make billion-dollar awards for its voice and data services through the Networx program next year.
“Of the big, cabinet-level agencies, half of them will make a purchasing decision on Networx in 2008,” Gowen predicts. She adds that smaller agencies may not focus on Networx until 2009. “The incumbent contractors have been extended until 2010, so a lot of smaller agencies feel that they have enough buffer that they don’t have to make decisions right away,” she says. “The Department of Labor is in the midst of an MPLS deployment right now. The Nuclear Regulatory Commission is converting from frame relay to MPLS. They feel like they need to get those transitions under their belts before moving to Networx.”
It’s unclear whether federal agencies will prefer buying telecom services under Networx Universal or Networx Enterprise. Both contracts allow agencies to put their requirements out to bid among multiple carriers. “It’s going to be a very competitive environment,” Verizon Federal’s Zeleniak says. “There’s a lot of pressure on the agencies to get it done. We see a very, very busy first six to eight months of the year. That’s what we’re gearing up for.”
One benefit for federal telecom buyers is that both Networx Universal and Networx Enterprise offer better pricing than the previous contract, known as FTS 2001. “Networx offers a broader portfolio than existing telecom vehicles. The price points are lower, so hopefully that will help [agencies]. You gain efficiencies by moving to new technologies and new contracts,’’ AT&T’s Mohan says.
AT&T’s Herring predicts agencies will embrace network transformation plans in 2008 despite budgetary constraints. “Next year is going to be interesting,” he says. “We’ve got Networx rolling, but that’s balanced by continuing [budget] resolutions, the war in Iraq and the change in administration. The good news is that we think there is going to continue to be an insatiable appetite for technology. Agencies want to move to the next level in security and collaboration.”
Feds focus on security
Carriers say federal CIOs have one primary concern when it comes to upgrading their networks: security. “It’s sort of like real estate, which is all about location, location, location. With federal networks, it’s security, security, security,” Zeleniak says. “Agencies are very focused on security in all aspects of their IT operations — how they secure networks, how they security laptops, how they secure information.”
“Security is paramount,” Herring agrees. “And it’s going to continue to be paramount in the world we live in, not just from a Defense Department standpoint but also for the privacy of American citizens, for business operations and continuity. Those are the things we talk constantly about.”
The trend is driving demand for a range of security services, including managed firewalls, antivirus products, mobile device management, intrusion detection, encryption, identity management, incident reporting and risk assessments. “The inquiries about security are 10 times what they were two years ago,” Zeleniak says. “Every statement of work includes security requirements. Three or four years ago, those requirements weren’t in there at all.”
Charles Lee, CTO for Verizon Federal, says sales of the carrier’s managed security services are double what they were a year ago. “We are in an explosive threat environment, and federal agencies are very much aware of that,” he says. “The nature of the threat has changed from the leisure activity of college kids to state-sponsored attacks.”
