Telcos regroup for 2006

Verizon and AT&T, the end products of two major mergers in the telecommunications industry, have turned their sights inward to create new companies with their respective merger partners.

That process includes melding government operations. In each merger — AT&T with SBC and MCI with Verizon — a company known mostly for providing wired services to specific geographic areas is combining with a company specializing in long-distance services.

Although the two Regional Bell Operating Companies — Verizon and SBC — initiated the mergers, the combined companies have put the existing long-distance federal groups in charge of federal business. Warren Suss, president of Suss Consulting, said the decision suggests that government customers won’t see much immediate change.

“The customers for legacy AT&T and legacy MCI will see the same faces, the same technologies and the same systems,” he said. “I don’t think there will be much difference at all in the near term. Further out, the answer depends to a significant degree on corporate decisions in terms of the broader commercial marketplace. There’s enormous potential in both companies to integrate the long-haul and local services.”

The companies, however, might disagree with Suss’ prediction. Both are working to build on the strengths that the component firms bring to the table, officials at each company said.

Verizon means business
Verizon created a division called Verizon Business to serve federal, state and local agencies in addition to other enterprise customers. Verizon Federal, a division within Verizon Business, covers the government.

Jerry Edgerton, who ran the federal business for MCI before the merger, remains in that position. Susan Zeleniak, who led MCI’s civilian networks business, is also staying with the company.

“We have probably the easiest integration job of all,” Edgerton said. “We are not trying to divide up the rest of the country” as other business units must do.

Verizon has experience in broadband services and wireless services, which increases the company’s presence with federal accounts when combined with MCI’s existing strengths, Edgerton said.

“The compatibility and the fit have been remarkable,” he said. “We hit the road running. We’ve basically increased our federal presence by 50 percent.”

The federal division employs more than 1,000 people, and the original MCI is the primary component, augmented by Verizon’s enterprise services division.

“What we have now are all of the ingredients for what enterprise networks and agencywide networks are going to look like,” Edgerton said. “We have the right blend, the right talent and the right attitude. It will be interesting to see what the combined power can do in the marketplace.”

Alex Coleman, group president of government and education at Verizon Business, oversees state and local government and education. He agrees that the integration of the companies has gone smoothly.

“I’ve been through several of these mergers through the past few years,” he said. In this case, “the assets, the skill sets and the people have blended quite nicely. There wasn’t a lot of overlap.”

In the state and local government area, he said, the merger expands the company’s offerings. Local governments are looking for disaster recovery, wireless communications and migrations from existing networks to IP, he added.

“If you look at what the opportunity consists of vs. the portfolio we now have, we think it matches up nicely,” Coleman said. “State government is looking for a lot of the same things, but with a really key focus on security and on homeland security issues.”

Coleman and Edgerton run their operations separately but closely linked, Coleman said. They share a team of resources devoted to application development.

SBC opens states to AT&T
In terms of numbers, the merger with SBC added little to AT&T Government Services, said Lou Addeo, president of the division. AT&T added 90 employees from SBC’s government divisions to the company’s 4,000 employees. Addeo said 54 employees came to his department and the rest went to other AT&T operations that are less directly connected to the government business.

The impact could be significantly greater than the numbers suggest, he said. SBC had a significant presence in 13 states, with contracts that are now AT&T’s responsibility.

“Their management is solid, and we’re integrating that into the management team,” he said. “They have customer relationships in regions where we may not have been as strong, so it’s a gain for us.”

Few technology synergies exist between the two companies, at least in government business, Addeo said. But the combined company gains in its market reach.

“SBC has more regional presence and footprint, we’re more federal in our orientation, so there’s a value there immediately,” he said. “We have more of a [Washington, D.C.-area] presence, but they have some contracts we can take advantage of immediately. They have some customer relationships that we don’t have and can take advantage of.”