GAO: Keep FTS exclusive

The General Accounting Office warned last week that opening the government's

long-distance business to further competition might cut into revenues promised

to FTS 2001 contract holders Sprint and MCI WorldCom — and might possibly

make the government liable for the difference.

In an analysis of market factors affecting the contract, GAO said that more

competition — specifically from allowing companies holding local phone service

contracts to provide long-distance service — would make it harder to meet

the terms of the original contract. Under FTS 2001, Sprint and MCI are guaranteed

$1.5 billion in revenue.

Other factors that could affect the guarantee include changes in agency

demand for FTS 2001 services and further delays in the transition of agencies

from FTS 2000 to the new contract.

The guarantees to the two companies are a Catch-22 of sorts, officials said.

"[General Services Administration] is a victim of its own success," said

Kevin Conway, who is assistant director of GAO and helped put together the

report. "They offered the guarantees in order to get lower prices, but because

the prices are so low, barring any significant growth, it will be a challenge

to meet the guaranteed revenues."

The GAO study was requested by House Government Reform Committee Chairman

Dan Burton (R-Ind.), who has been pressing GSA since last July on how and

whether it can permit other companies — and local service providers in particular

— to offer long-distance services under the contract.

FTS 2000 contractor AT&T holds three Metropolitan Area Acquisition (MAA)

contracts for local service. Burton has been criticized for his close ties

to AT&T, a major contributor to his political campaigns.

With two contractors and a third player decreasing revenues even more, the

chances of FTS 2001 opening up to additional vendors is not likely. Had

the report been more favorable toward opening competition, AT&T likely would

have been allowed to offer long-distance services through its MAA contracts.

For AT&T, "further competition would slash prices, which is good for agencies

and taxpayers," an AT&T spokeswoman said. "It would also spur innovation."