AT&T;, Sprint to Build Federal Phone System : Contracts for Sophisticated Telecommunications Link May Total $25 Billion Over the Next 10 Years

The U.S. government on Wednesday awarded the contracts for its most costly civilian project ever, a sophisticated telecommunications system designed to serve federal employees nationwide.

Valued overall at up to $25 billion over the next decade, the contracts went to American Telephone & Telegraph and its smaller rival, U S Sprint Communications. The $25-billion figure assumes, however, a greatly expanded use of data transmission between computers, facsimile machines and other telecommunications devices over the life of the award.

The project, known as FTS-2000, calls for providing a new long-distance system to serve the federal government through the year 2000. The system will replace the government’s existing 25-year-old setup, built and run entirely by AT&T;, with one capable of carrying conversations, computer data, video transmissions and facsimile information over the same lines--simultaneously, when necessary.

Pentagon May Participate

General Services Administration officials said that the new system would provide more advanced telecommunications services while saving the government $200 million a year.

“We are replacing an outdated, inefficient system with one that will provide federal agencies with fully modern capabilities at signiFicant savings to taxpayers,” said GSA’s acting administrator, Richard G. Austin. Under the 10-year contracts, he added, the government can renegotiate prices in the fourth and seventh years.

The contracts cover long-distance services for all civilian agencies of government, except the U.S. Postal Service. The Pentagon, which has its own communications system, may place its non-military transmissions into the new system, according to the GSA.

AT&T; will control a 60% share of the project--worth up to $15 billion--supported by its partners in the protracted bidding war: Seattle-based Boeing Co. and Computer Sciences Corp. of El Segundo. The team’s customers will include the Departments of Energy, Health and Human Services, Agriculture, Interior, State and Transportation.

Sprint ‘Elated’

U S Sprint, which will handle the 40% share worth up to $10 billion, will serve the Departments of Housing and Urban Development, Justice, Labor and Treasury.

For Sprint, which has struggled for survival in the long-distance telecommunications business in which it ranks third behind AT&T; and MCI Communications, the 40% share was particularly sweet.

“We are elated,” said Sprint’s president, William Esrey. “The announcement . . . is cause for both celebration and pride by the company and all of its employees.”

Losing out on the awards was a bidding team headed by Martin Marietta Corp. and including MCI. Martin Marietta spokesman Tom Hobson said the company asked GSA for “a detailed debriefing on this award” and that it has not ruled out a legal challenge. MCI, saying that it had priced its long-distance service “as aggressively as possible,” charged that AT&T; may have indulged in predatory pricing by bidding below cost.

The losing team’s other subcontractors were GE-RCA Americacom and McDonnell-Douglas Tymnet.

Robert B. Morris III, a telecommunications analyst for Goldman, Sachs & Co., said there were no clear-cut winners among the bidders for the federal project.

AT&T; runs the entire government network now but will run only 60% of it in the future, Morris explained. Moreover, the government will be pay about half what it now pays AT&T; for long-distance service, he added.

While characterizing AT&T;’s award as “a bittersweet victory,” Morris called Sprint’s contract “a risky venture.”

“It’s much like the movie ‘The Candidate,’ in which a guy runs for President and, before he knows it, he is president,” Morris said. “Now you’ve got to deliver. And this is not a small project. And there is not a lot of room for error” by Sprint, which had no partner in its final bid.

AT&T;’s subcontractors include not only Boeing and CSC but regional Bell telephone companies and other local phone companies. Boeing is to provide program management and information services, while CSC will develop and maintain a software system for billing. The phone companies are to provide local access to the network.

The actual value of the contracts will be determined by the government’s use of long-distance telecommunications services over the next 10 years. “This is much like your local phone bill,” explained Gary Kowalczyk, associate GSA administrator for policy analysis. “If you use it a lot you have a large bill; if you don’t use it much, you have a small bill.”

The GSA’s Austin said the new service will be phased into operation completely by 1991.

He added that the agency had taken care to safeguard the award process, even evaluating the bids in a secure private facility and having an independent advisory body supervise the evaluation process.

Concerns over GSA’s procurement process were voiced earlier this year by AT&T;, which charged that an agency engineer had leaked confidential AT&T; price information concerning bids on large electronic switches to be used in the government’s phone network. Those charges, not related to Wednesday’s award, were affirmed last May by an administrative law judge.

The government’s announcement came more than three years after the GSA first outlined its plans for the new system and asked businesses to bid on the project. The bidding and award process was extended by a year amid a series of delays. Among these was a revision by the GSA, made under pressure from Congress, allowing it to split the award between two vendors instead of giving it all to one bidder.

The contract provides for a new all-digital integrated network replacing what is already the world’s largest private telecommunications system. The current system is capable of carrying only voice and slow-speed data transmissions.

Bruce Keppel reported from Los Angeles and Robert A. Rosenblatt reported from Washington.