Sprint lands Federal Reserve network upgrade deal

The Federal Reserve has selected telecommunications provider Sprint to modernize the network that connects major banks to the agency, linking trillions of dollars in monetary transactions each year.

The network, called Fednet, traditionally has relied on a home-grown collection of dedicated communication lines leased from telecommunications companies and has been used to manage electronic transactions. Transactions include direct deposits or debits to individual bank accounts. They also include reconciliation of accounts as banks honor and accept checks from one another. Additionally, the Fed uses the network when issuing U.S. Treasury bonds, bills and notes.

A modernized Fednet will rely more on the public telecommunication infrastructure, allowing the Federal Reserve to avoid sinking more money into upgrading its current lines of communication, a Fed official said.

"The shared public infrastructure — the telephone companies can invest much more in it [than the Federal Reserve can invest in its current network]," said Keith Kreycik, vice president for technical service with Federal Reserve Automation Services in Richmond.

A source familiar with the procurement said the five-year modernization of Fednet carries an estimated value of $90 million. The contract was awarded quietly late last month, and Sprint began work on it this month.

Previously, the Fed had bought service and equipment from 16 hardware vendors and 29 telephone companies around the nation. "[The modernization] simplifies our management interface," said Kreycik, explaining that the Fed has only one Fednet vendor to deal with now.

Sprint's work on the contract will include services covering frame relay, intranet services, Integrated Services Digital Network services, systems integration, and encryption and network management.

The modernization especially should increase security — in the form of a data encryption standard that uses a 168-bit key, millions of times stronger than the common 56-bit key encryption. Security is critical to the Fed, which serves about 1,500 of the largest banks in the nation, processing about $1.5 trillion in transactions per day.