Kings Of The Hill

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How often does this happen? Northrop Grumman, EDS, Bearing Point, Accenture and CSC win positions on a $20 billion federal contract, all playing second fiddle to three primes that don't even technically qualify as top-ranking systems integrators. And no, the contract is not set aside for small businesses.

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

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