AT&T outbids GTE for DOD pact

It is hard to outdo a local telephone company in its own market but AT&T Government Markets did exactly that when it beat GTE Hawaiian Telephone Co. for a 10-year contract to develop and operate an advanced digital network to serve 70 000 Defense Department users in Hawaii.

Although billed by the Defense Information Systems Agency as a "best-value" competition industry sources said AT&T underbid GTE with its $291 million offer for the Defense Information Systems Network Hawaii Information Transfer System (HITS) valued by analysts at $500 million. In late January AT&T captured the DISN Transmission Services-Continental United States contract with a bid that came in at about one-half the price of competing offers from MCI and Sprint.

DISA did not comment directly on the pricing for the HITS contract but in a statement the agency said it "will obtain previously unattainable economies for DOD and authorized agencies located throughout Hawaii."AT&T configured its bid around a digital network that subcontractor Oceanic Communications Inc. an arm of the local cable TV company owned by Time Warner Cable Co. installed on Oahu. Oahu is home to the majority of the HITS users.

Industry analysts said HITS will be the largest and most sophisticated network in the country based on a fiber-optic backbone installed by a cable TV company.

Commands headquartered on Oahu include the Commander-in-Chief Pacific as well as the headquarters of the Army Navy and Air Force Pacific commands. Other major users include a Marine brigade and an Army infantry division.

Going State-of-the-Art

Dick Lombardi president of AT&T Government Markets said the company was "extremely pleased with the win. We are going to provide DOD with a state-of-the-art digital network that will serve as a gateway to the Pacific." AT&T plans to bid on the upcoming DISN-Pacific Transmission contract which will link the Hawaii-based commands with their subordinate units in Guam Japan and Korea as well as with small users and installations throughout the theater.

Lombardi declined to comment on AT&T's pricing strategy except to note that the company also views HITS as a best-value contract. He did put the total value of the first five years of the contract at $132.5 million adding "It's hard to determine the actual value since there are a lot of variables here.... There is no specified maximum value." The total life of the contract if all options are exercised is 10 years.

Lombardi said AT&T plans to serve HITS users on other islands - primarily the Navy's Pacific Missile Test Range facility on Kauai and an Air Force scientific facility and the Maui Supercomputer facility on Maui - by either digital microwave or submarine cable. AT&T home-ports a cable ship in Oahu which could easily lay any cable needed for HITS Lombardi indicated.

Roger Ponder vice president of communications and business development for Oceanic Communications said his company already provides services to the other islands and expects that "we will provide service to the outer islands based on the [HITS] contract requirements." Oceanic has already installed a Sonet fiber-optic ring on Oahu with bandwidth running from OC-3 to OC-48. "Our network already reaches all the way around Oahu and we're already serving a number of government customers " Ponder said.

Asked if AT&T intended to acquire any circuits from GTE Lombardi answered "If it makes economic sense and GTE can provide the service why not?"

DISA said that HITS will provide users with Integrated Services Digital Network digital and analog dedicated transmission services. HITS also will provide users with new services and employ emerging technologies like broadband ISDN and Asynchronous Transfer Mode technology.

The federal agency added that the contract will ensure that regional leased telecommunication services interface to DISN commercial domestic and international long-distance networks public-switched networks the Government Emergency Telecommunications Service the Defense Satellite Communications System and other strategic and tactical networks.

Analysts said HITS also will provide DOD with the experience and a network infrastructure to challenge GTE for commercial customers in Hawaii. Warren Suss a Pennsylvania-based telecommunications analyst said that in his view the AT&T Government Markets group bid aggressively on HITS "because there is an overall [AT&T] corporate commitment to local services.... The federal business is their beachhead in the local services battle."

Lombardi said providing commercial services was a possibility but the company intends to focus first on DOD. "For the next 18 months we're going to concentrate on building the HITS network " Lombardi said. "After that we'll evaluate the opportunity to leverage our investment in the infrastructure."

GTE Hawaii Telephone declined to say whether it planned to protest the award. A spokesman said the company was "considering its options." Suss said that in his view "GTE owned the [DOD] business [in Hawaii] so long that they were just not prepared for this level of aggressive competition.