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$4.5-Billion Contract : Federal Phone System Bidding Is Left to Big Firms

July 28, 1986|BRUCE KEPPEL | Times Staff Writer

The lure of a lucrative $4.5-billion contract to build and operate the federal government's proposed new telephone system will likely attract just "four or five" ventures when bidding begins late this year, according to the official heading the project.

Bernard J. Bennington, the General Services Administration's deputy commissioner for telecommunications services, said in an interview Friday that the number of bidders will be restrained by the limited number of long-distance carriers capable of meeting the government's expanding requirements.

"It's an oligopoly," Bennington said of the long-distance telecommunications market emerging after the breakup of the former Bell System monopoly.

The huge contract is to build and operate the Federal Telephone System, which serves 2.3 million U.S. government users and is by far the world's largest independent phone network. Wresting the U.S. government's business from American Telephone & Telegraph, which designed and operates the present network, would mark a major milestone in the development of the U.S. telecommunications industry.

So great are the stakes that the bidding is expected to attract teams including AT&T, such other long-distance carriers as MCI Communications and U.S. Sprint Communications and such major high-technology companies as Martin Marietta and Boeing.

AT&T, which presided over the integrated Bell System, created the Federal Telephone System more than 20 years ago, after the Cuban missile crisis and the assassination of President John F. Kennedy pointed up the need for a private network to knit together the sprawling government establishment, Bennington said.

But AT&T's 1984 divestiture of its local phone operations and loss of its monopoly in providing nationwide long-distance service no longer limits to a single company the capability of designing, installing and operating such a complex and extensive network. Thus, while 17 companies, including AT&T, have been helping the government develop specifications for the new network, these will likely coalesce into "four or five" bidding entities, Bennington said.

The government sought the vendors' help, he explained, in order to "align what we are seeking with where the industry is going." A revised draft of the "request for procurement," as the specifications document is called, is expected to be ready for industry review next month, but the final document on which bidding will be based is not expected to be ready before November, he said. The plan is to award a contract by the end of next year and to have the new network fully operational by 1990.

The 10-year contract has been valued at about $4.5 billion.

About 85% of the transmissions carried by the present Federal Telephone System is voice, the rest low-speed transmissions of data, Bennington said. Its more versatile and efficient replacement--an all-digital network dubbed "FTS 2000" to connote its orientation toward the next century--is to be able to carry a larger flow of data at both high and low speeds as well as video and voice transmissions.

Seattle-based Boeing confirmed Friday that it intends to bid on the contract and that it is discussing joining forces with a number of long-distance carriers, including AT&T. Boeing, better known as an aircraft and aerospace manufacturer, two years ago won a contract to build an integrated telephone and data network for the National Aeronautics and Space Administration.

Spokesmen for AT&T and MCI confirmed the talks and said they have also been discussing ventures with unspecified other parties. But both said it is too early to announce which company they will go with. And U.S. Sprint Communications--a long-distance service formed this month by merging the networks run by GTE Corp. and U.S. Telecommunications Inc.--had no comment.

In any case, William (Buck) Rogers, general manager of Boeing Computer Services in Vienna, Va., said the company expects to name its team's lineup "in the next two or three weeks."

Ironically, the seven Bell companies spun off from AT&T--including San Francisco-based Pacific Telesis--expect to work with Martin Marietta and the U.S. unit of National Telecom of Canada, rather than AT&T, in competing for the new contract.

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