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

Carolyn Duffy Marsan | Nov. 6, 2012
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.

Topside Consulting's Woods says that the pricing is good on Networx, but that GSA did not do enough to help agencies transition to the complex contract. So some agencies chose other contracting vehicles because Networx is not mandatory. "People got frustrated with its difficulty and went somewhere else," Woods says.

Another issue that slowed Networx transition was that GSA and the agencies lacked an accurate inventory of network services purchased under the predecessor contract.

"Say we got 10,000 telephone numbers to transition to Networx. We couldn't just do that out of the gate because of the inventory challenges. We had to check that all of the numbers belonged to the agency and weren't a dry cleaner or somebody's home," Mohan says. "Things that sound like they would be easy to transition aren't."

Carriers are urging GSA to change Networx to make it easier for agencies to use when buying complex services to drive up revenues for the second half of the contract.

"For me, it's the next five years that are really going to [show] the success of Networx," says Susan Zeleniak, senior vice president of Verizon Public Sector. "Up until now, mostly what's been done is transition old services to the new contract. ... The big change is going to be from now on how successful we are at doing non-standard services like security, hosting, engineering and design."

Zeleniak would like to see cutting-edge network services such as identity management, cloud-based infrastructure and wireline/wireless integration offered through the mega-deal.

"GSA needs to make it more flexible to add services, not just buying a line or buying minutes. People want to buy infrastructure as a service, security as a service, SAP migration as a service. If we could offer more of those services, this contract could achieve significantly more revenue," Zeleniak says. "We want to bundle communications capabilities in a services model, rather than a line item model."

Industry experts say Networx will probably produce around $10 billion in revenue by the end of 2017. While not the huge sums originally predicted by GSA, the $10 billion mark would at least make the contract profitable for many of the carriers.

"I think Networx has hit its stride," Mohan says. "We are seeing agencies buying advanced technologies at attractive price points. We are seeing agencies using Networx services to move into their next phase of transformations. This is what everyone has anticipated. The only thing that has been a drawback is that it is late."


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