Telecommunications

The General Services Administration's (GSA) Federal Technology Services provides its customers with a broad range of end-to-end telecommunications services, including global voice, data, and video services, supporting both local and long-distance government telecommunications users. Its FTS2000 long-distance services reached more than 1.7 million users through two multibillion dollar 10-year contracts that were awarded to AT&T and Sprint in December 1988. Two contracts have since been awarded for the successor FTS2001 program--one to Sprint and one to MCI WorldCom. The federal government is now switching from the FTS2000 to the FTS2001 long-distance telecommunications program. This report answers the following questions: What percentage are the minimum revenue guarantees of the FTS2001 contracts? When are the minimum revenue guarantees likely to be satisfied? What sensitivities are there in each of these estimates? What factors could significantly alter them? If additional competitors were allowed to compete for the FTS2001 business, how might that competition affect the estimates provided? Would lower prices and transition costs resulting from such competition offset the impact on estimates?

GAO noted that: (1) GAO found that GSA's revenue estimation process, which relies on historical and known agency requirements for FTS 2001-offered services, produced a reasonable estimate of program revenues; (2) GAO's independent, high-level estimate, which used the most currently available traffic forecasts and pricing information, produced essentially the same estimate--$2.3 billion in revenue over the life of the FTS 2001 program, assuming all 4 of the contracts' option years are exercised; (3) during GAO's review, GAO identified a number of technical issues with regard to GSA's revenue estimation process that did not affect the integrity of its revenue estimates; (4) the MRGs--a total of $1.5 billion--represent about two-thirds of current estimated program revenues over 8 years; (5) according to the results of both GSA's and GAO's analysis, the FTS 2001 MRGs are expected to be satisfied for both contractors during fiscal year 2004; (6) three primary factors could significantly alter estimates of total program revenue and corresponding timeframes for satisfying the MRGs: (a) pricing; (b) agency demand for FTS 2001 services; and (c) transition progress; (7) additional competition could yield price reductions, cause further transition delays, and reduce demand for services from the two existing FTS 2001 contractors; (8) in turn, these factors would decrease program revenues and lengthen the time needed to satisfy the MRGs; (9) in regard to the potential benefits of reduced prices and transition costs, it is difficult to quantify the effect on estimates without knowing an added competitor's prices or the specifics of related transition costs; (10) however, two factors would have to be considered in such an analysis; (11) savings in transition costs would occur only if the new competitor was an incumbent FTS 2000 provider and only to the extent that transition costs have not yet been incurred; (12) reductions in revenues to current FTS 2001 contractors would increase the timeframe for satisfying the MRGs; and (13) if MRGs are not satisfied during the contracts' term, GSA may be liable for additional payments to the contractors.