Kings Of The Hill

So who are the latest kings of the proverbial federal mountain? Telecommunications companies. The Networx Universal contract stands as the perfect example of how the role of telcos is expanding. AT&T, Qwest and Verizon are leading teams in providing federal agencies the full spectrum of telecom services, including traditional communications transport and IP-based, optical and wireless network services, as well as IT management, and application and security support. Teleconferencing, storage, design and engineering, and intrusion detection and prevention are only a few of the 39 mandatory services included with the contract.

And there are other examples. Motorola acquired Symbol in January this year, expanding its range of capabilities in mobile computing, advanced data capture, radio frequency identification (RFID) and the wireless infrastructure—all areas in high demand by government. And with the acquisition of Cybertrust, Verizon became the self-proclaimed No. 1 provider of managed security services to business and government customers around the globe.

"We were purely a vendor when we sold nothing but the network itself," says Susan Zeleniak, vice president of Verizon Federal. "But it's been a rapid change, and I think the growth has largely been based on the performance. We demonstrate capability and can deliver."

Analyzing the finances of the telecom companies is tricky, due to the flurry of acquisitions and mergers that took place over the last year. That illustrates not only a consolidation of the market, but also the seriousness of these companies to expand their reach. Verizon, for example, reported 27 percent total revenue growth in 2006 from 2005, with $88.1 billion in reported revenue in 2006. This included 133 percent revenue growth in its Verizon Business division. Of course, much of that can reasonably be attributed to the acquisition of MCI and other smaller businesses, such as the aforementioned Cybertrust. Sprint reported 42 percent growth with $41 billion in 2006 revenue, thanks in part to the merger with Nextel. Also, AT&T reported 44 percent growth thanks to the BellSouth and Cingular Wireless acquisitions. Motorola reported 22 percent growth in net sales, with its Networks and Enterprise segments experiencing growth across all regions in the private networks market made up of public safety, government, utility, transportation and worldwide enterprises. The Symbol acquisition didn't hit the books until 2007.

"These companies now see themselves as broad systems integrators," says David Kriegman, president of Herndon, Va.-based Command Federal, a subsidiary of Command Information. "Is it appropriate? Sure, why not? Given what's happening in the market, it's a natural transition. They're not regulated monopolies, so they have to find ways to expand," he adds.

"Telecom is key to the heart of all system applications, especially with the convergence of voice, video and data, and information that would normally communicate between computers now moves over IP. Throw in the fact that wireless is here, and those networks become the backbone. It's not about writing software anymore. The telcos woke up and realized they're key to every major solution."

Next: Then Vs. Now Then Vs. Now
Telecommunications companies have, of course, long served the government market. Networx replaces the expiring FTS 2001 contract, which provides worldwide telecommunications solutions, including voice, data, wireless and video, and that replaced FTS2000. So telecom contracts are nothing new to the space. What has changed is the role that telcos play on those contracts, as government customers demand more from their networks.

"This is no longer just telecom," says Jeff Mohan, director of the Networx Program Office with AT&T Government Solutions. "In the case of Networx, there's a strong emphasis on security, managed services and hosting, applications support and wireless. It provides an entire mission or organizational solution to an agency. There's both pull and push for an expansion of services. We come up with better technology, and customers come up with requirements they didn't have yesterday."

Traditionally, a systems integrator designs a solution for a government agency, layering the various components on a network: security, storage, wireless and applications. They remain very successful at that, Mohan says, but as the technology advances, agencies can buy turnkey solutions that integrate all or most of those layers at the network level—expanding what can rightfully be defined as telecommunications.

And as the keepers of the network, telcos are ready and willing to take on the challenge. In addition to Networx, AT&T deployed and monitors a Cisco-based customer voice portal infrastructure at the Internal Revenue Service (IRS) that incorporates customized scripting to make routing more efficient and improve reporting capabilities of user behavior. The platform supports 26 call centers with 8,000 IRS agents, who process more than 130 million calls annually. In another example, Sprint Nextel won a contract worth $49 million to provide services to federal employees with sight, hearing and speech impairments. The company will provide specially trained operators and technology, including a service that allows deaf users to communicate in sign language using a Web camera or videophone.

"You're seeing more converged services being transported over the same mechanism," says Tony D'Agata, vice president of federal business at Sprint Nextel. "We look to provide those types of services. If there are areas that support them—managed network and security, hosting, call centers, access capabilities, mobile devices, routers, wireless applications—we consider those part of our sweet spot. It makes sense for us to take a leadership role."

As they do exactly that, telcos take on a strange position in the channel.

"We view telecom companies as a few different entities," says Tom Gillman, director of federal channels at Juniper Networks. "One is customer, because we sell a lot to them in support of their core networks; another is partner, because we team with them for opportunities and, more recently, federal systems integrator." Juniper actually moved telcos into the official SI group a year and a half ago. "To us, they are the equivalent of a Lockheed Martin or General Dynamics," Gillman says.

So where does that leave solution providers? The answer is, oftentimes filling in the gaps. The expansion of network services across government brings an increase in core infrastructure components and applications. What telcos can't, or opt not to do, they pass on to partners—from desktop, server and data center management, to IT staff augmentation and business application development.

For example, if government seeks a speech application for a customer for a call center, Verizon Federal's Zeleniak says, Verizon may enable the network and manage the connection to the customer computers, but a partner would develop the integrated speech capabilities.

"There are things they do and we don't," Zeleniak says. "Yes, there is definitely crossover, and it's coming to a point where our position causes some to view us as competitors at times, but usually it's complementary." The amount of telecom work associated with a particular contract typically determines whether the telco will seek to prime an opportunity, she says. If more focus is placed upon management of the core infrastructure, for example, a systems integrator is probably more suited to lead, with telcos subcontracting network access and services.

To Kriegman, the growing influence of telcos is an advantage, particularly given Command Federal's focus on IPv6 solutions. The company recently hired two veterans of the telecom industry: Art Johnson, who worked at General Services Association (GSA) as well as Lucent Technologies and AT&T among others, and Royce Kincaid, who supported the $500 million New York City Mobile Wireless Network project for public safety with Northrop Grumman and designed, deployed and implemented the first fiber optic installations in the U.S. in the early 1980s.

"Telecom companies are all looking to put more on the network," Kincaid says. "We design applications to run on the network over the new protocol—taking capabilities to the edge that help traffic go up. It's a natural partnership. A network is still a network. They need ways to differentiate themselves."

Next: Ensuring 'Best Value' Ensuring 'Best Value'
One fact remains: Telecommunications companies are vendors. And while they may have the unusual ability to wear a number of hats, they peddle their own products and services just like any other vendor. That leaves solution providers that target the government market with an advantage. Given that federal agencies are required to evaluate solutions according to "best value," or the combination of required functionality with the most competitive price, a portfolio of products and services to choose from allows channel companies to give the government customer something telcos can't: options.

"As a solution provider, we're not tied to one service or offering to satisfy the government requirements," says Ken Miller, president of Globecomm Systems. The Hauppauge, N.Y.-based solution provider is a subcontractor to AT&T on the Satellite Services-II (SATCOM-II) contract that provides satellite design, engineering and maintenance support to federal agencies. It was also awarded a contract from Harris to provide operations and maintenance services under the Federal Aviation Administration Telecommunications Infrastructure program, which involves the upgrade of 42 sites with new satellite communications equipment.

"The role of the telecom companies is to provide general communications," Miller says. "They may say they can be solution providers, too, but they're limiting themselves to their own capabilities. It can sometimes be [like] getting a square peg into a round hole."