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94–004 PDF 2004

WILL ‘‘NETWORX’’ WORK? A REVIEW OF WHETHER A CENTRALIZED GOVERNMENT TELECOM

PLAN JIBES WITH AN EVER-EVOLVING MARKET

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

FEBRUARY 26, 2004

Serial No. 108–149

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

——— ———

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

(III)

C O N T E N T S

Page

Hearing held on February 26, 2004 ....................................................................... 1

Statement of:

D’Agata, Anthony, vice president and general manager, Government Systems Division, Sprint Corp.; Quinten Johnson, regional vice president,

SBC Federal Solutions; Kevin O’Hara, president and chief operating

officer, Level 3 Communications, LLC; Jerry W. Hogge, senior vice

president, Winstar Government Solutions, LLC; David J. Page, vice

president, Federal Government sales, BellSouth Corp.; Louis M. Addeo,

president, AT&T Government Solutions; Shelley Murphy, president,

Verizon Federal Inc.; and Jerry A. Edgerton, senior vice president,

Government Markets, MCI .......................................................................... 98

Perry, Stephen A., Administrator, U.S. General Services Administration;

Sandra N. Bates, Commissioner, Federal Technology Service, U.S. General Services Administration; Linda D. Koontz, Director, Information

Management Issues, U.S. General Accounting Office; Drew Ladner,

Chief Information Officer, U.S. Department of the Treasury; and Melvin J. Bryson, Assistant Director, Administrative Office of the U.S.

Courts ............................................................................................................ 10

Letters, statements, etc., submitted for the record by:

Addeo, Louis M., president, AT&T Government Solutions, prepared statement of ........................................................................................................... 155

Bates, Sandra N., Commissioner, Federal Technology Service, U.S. General Services Administration, prepared statement of ................................ 27

Bryson, Melvin J., Assistant Director, Administrative Office of the U.S.

Courts, prepared statement of ..................................................................... 76

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 7

D’Agata, Anthony, vice president and general manager, Government Systems Division, Sprint Corp., prepared statement of .................................. 100

Davis, Chairman Tom, a Representative in Congress from the State of

Virginia, prepared statement of ................................................................... 3

Edgerton, Jerry A.,senior vice president, Government Markets, MCI, prepared statement of ........................................................................................ 174

Hogge, Jerry W., senior vice president, Winstar Government Solutions,

LLC, prepared statement of ......................................................................... 133

Johnson, Quinten, regional vice president, SBC Federal Solutions, prepared statement of ........................................................................................ 108

Koontz, Linda D., Director, Information Management Issues, U.S. General Accounting Office, prepared statement of ........................................... 51

Ladner, Drew, Chief Information Officer, U.S. Department of the Treasury, prepared statement of ........................................................................... 66

Maloney, Hon. Carolyn B., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 94

Murphy, Shelley,president, Verizon Federal Inc., prepared statement of ... 163

O’Hara, Kevin, president and chief operating officer, Level 3 Communications, LLC, prepared statement of ............................................................... 112

Page, David J., vice president, Federal Government sales, BellSouth

Corp., prepared statement of ....................................................................... 147

Perry, Stephen A., Administrator, U.S. General Services Administration,

prepared statement of ................................................................................... 13

(1)

WILL ‘‘NETWORX’’ WORK? A REVIEW OF

WHETHER A CENTRALIZED GOVERNMENT

TELECOM PLAN JIBES WITH AN EVEREVOLVING MARKET

THURSDAY, FEBRUARY 26, 2004

HOUSE OF REPRESENTATIVES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 11:20 a.m., in room

2154, Rayburn House Office Building, Hon. Tom Davis of Virginia

(chairman of the committee) presiding.

Present: Representatives Tom Davis of Virginia, Burton, Ose,

Cannon, Waxman, Maloney, Cummings, Tierney, Van Hollen, and

Norton.

Staff present: Melissa Wojciak, staff director; David Marin, deputy staff director/director of communications; Ellen Brown, legislative director and senior policy counsel; Edward Kidd, professional

staff member; John Brosnan, GAO detailee; Teresa Austin, chief

clerk; Brien Beattie, deputy clerk; Phil Barnett, minority staff director/chief counsel; Kristin Amerling, minority deputy chief counsel; Michelle Ash, minority senior legislative counsel; Mark Stephenson, minority professional staff member; Earley Green, minority chief clerk; Jean Gosa, minority assistant clerk; and Cecelia

Morton, minority office manager.

Chairman TOM DAVIS. The meeting will come to order. Good

morning, thank you everybody for your patience. We had to get

through some of those bills.

I want to welcome everybody to today’s oversight hearing on the

GSA’s proposed government-wide voice and data telecommunications program Networx. Through this hearing, we hope to gather

information from industry and other stakeholders, including GSA,

to determine whether GSA’s proposed acquisition strategy contained in its request for information issued in October will be effective in today’s ever-evolving telecommunications environment.

GSA’s Federal Technology Service [FTS], in coordination with the

Interagency Management Council, is responsible for ensuring that

Federal agencies have access to affordable telecommunications and

networking services and solutions that meet agency mission requirements. FTS has traditionally met this responsibility through

large, government-wide contracts, such as the current FTS 2001

contracts for long distance and international telecommunications

services, and the Federal wireless telecommunications contract.

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Networx would be GSA’s fourth generation government-wide

telecommunications program. We are interested in learning whether GSA’s overall acquisition strategy is likely to provide robust

competition from the entire spectrum of the marketplace. Further,

we need to example narrower but still-significant issues related to

the proposed acquisition, such as transition strategies, appropriate

contract performance period, billing requirements, and the use of

minimum revenue guarantees.

The key to success here is to make GSA take advantage of the

wealth of information that’s been made available to it in response

to the RFI and through this hearing. This knowledge, not merely

the designs of the past, should guide the structuring of a flexible

telecommunications program, based on current and future markets

and evolving government needs.

[The prepared statement of Chairman Tom Davis follows:]

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Chairman TOM DAVIS. I would now recognize the distinguished

ranking member, Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman. I am pleased to join

you today to review the administration’s preliminary observations

on how to purchase telecommunications services when the current

FTS 2001 contracts expire. As everyone knows, this committee has

historically played a role in the development of the acquisition

strategy for the Federal Government’s telecommunications needs. I

look forward to working with you, Mr. Chairman, the administration and the private sector to ensure that the Federal Government

continues to receive the best price and highest quality service to

meet those needs.

The Federal Technology Service at GSA has administered the

current Federal telecommunications program, FTS 2001, and its

predecessor, FTS 2000. While not totally without problems, the

program has been a success. The Federal Government pays between 1.5 and 2 cents per minute for long distance service, well

below the best commercial rate. Over its lifetime, the program has

saved the American taxpayer close to $2 billion by leveraging Federal buying power and encouraging continuous competition. Any future acquisition should retain these critical features. Could you

imagine what the Federal Government could do in the area of

pharmaceuticals if we used the collective buying leverage of the

Federal Government for Medicare recipients to get the best price,

so that we could get the best price, best quality and protect the

consumers from high prices, as well as the Treasury and the taxpayers?

GSA issued a request for information last October that provides

the outlines of an acquisition strategy for the new program, and

has received comments from a wide cross section of the industry.

Now is the time to examine questions about whether the proposed

strategy will address the fiscal, technological and socioeconomic

priorities of the Federal Government. Will the strategy generate

enough continuous competition to assure the best price in quality?

How will the new technologies be integrated into the program? Will

small and minority businesses have sufficient opportunities under

the proposed strategy? And what is the best way to ensure a

smooth transition from the existing to the new contracts? These are

just a few of the questions that I would like to see addressed today.

Mr. Chairman, I thank you and I look forward to hearing from

our witnesses. I want to tell the witnesses that we all have a lot

of things going on, and I have a conflict. But if I’m not here, I certainly will be monitoring the testimony, my staff is here, and we’ll

be working with all of you to pursue the best policy. And I would

hope that we can keep the record open, so that if there are further

questions we want to submit for answers in writing, we’d like to

ask that for the record.

Chairman TOM DAVIS. Thank you.

Any other Members wish to make opening statements? The gentleman from Indiana, Mr. Burton.

Mr. BURTON. Mr. Chairman, I want to commend you for holding

this hearing this morning. Although the current government telecommunications contract will not expire until 2006, we need to

begin today discussing and debating how we want the contract to

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be structured. Communications and information sharing is in many

ways the life blood of our government.

If we cannot successfully communicate with our constituents or

between various Federal agencies or even each other, the business

of government will come to a screeching halt. Particularly in the

post-September 11 world, it’s extremely important that we do this

thing right.

Today’s hearing gives us an opportunity to listen to the thoughts

of the GSA, the telecommunications industry and the other stakeholders about the positives and potential negatives of GSA’s proposed contract strategy as outlined by them in their October 2003

request for information. The best solution to this important government procurement issue is going to take compromise by all the

major stakeholders, and everybody is probably not going to be completely happy with the final product. I know that from past history.

Mr. Chairman, after overseeing the process the last time this

contract was up for consideration, I learned a few valuable lessons.

At the end of the day, I hope we will be able to work together to

develop a policy that ensures robust and fair competition, contains

enough flexibility to provide new technology and innovative solutions to government’s ever-evolving information technology needs,

such as in the areas of network, Internet and cybersecurity, emergency preparedness and response, disaster recovery and continuity

of services in a crisis. Above all, that it’s affordable, efficient, well

managed and a good value for the American taxpayers.

So in closing, Mr. Chairman, I want to thank you once again for

getting the ball rolling by convening this hearing today. I sincerely

hope we can work together in an open, fair and bipartisan way to

continue moving this process forward constructively. I probably

won’t be able to listen to all the witnesses because we’re getting a

briefing on a trip we’re taking over to Iraq. But I certainly will follow this very closely, Mr. Chairman.

Chairman TOM DAVIS. Thank you, and we look forward to your

guidance on this. You have some experience in this, having gone

through it before, and I appreciate your interest. Any other Members wish to make opening statements?

Ms. NORTON. Mr. Chairman, I would like to make a statement.

Chairman TOM DAVIS. The gentlelady from the District of Columbia.

Ms. NORTON. Mr. Chairman, I’m going to the floor, but I’m going

to try to remain here to hear these witnesses. I’m impressed that

we are here dealing with perhaps the most competitive and technologically driven industry in the country, that literally changes by

the minute. We therefore, it seems to me, are in the catbird seat,

given the fact that we are surely the largest customer that any of

these players could desire.

So I will be interested to know whether the acquisition strategy

that is proposed will provide the government the opportunity to

take advantage of competition from many sources. I want to see

them all go at one another with, to a fare-thee-well. Because we

are the ones who will benefit if they have to kill each other in order

to get this contract. [Laughter.]

The technology changes every moment, the reason the technology

changes is precisely because this industry wants to stay competiVerDate 11-MAY-2000 11:25 Jul 12, 2004 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 D:\DOCS\94004.TXT HGOVREF1 PsN: HGOVREF1
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tive. It stays so competitive that it’s often difficult to keep up with

what technology one ought to have. We don’t need to have, I suppose, minute by minute state-of-the-art technology, but we certainly ought to encourage the government to keep up with the

changing technology. And we need to say to these guys, ‘‘We’re

here, let’s see what you’ve got,’’ for the best company with the lowest bid, go at it, and the more you go at it, the better off we’ll be.

Thank you very much, Mr. Chairman.

Chairman TOM DAVIS. Thank you very much.

The gentleman from Maryland.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. Chairman, I thank you for holding this hearing to collect information from stakeholders in the General Services Administration’s proposed government-wide voice and data communications

program, Networx.

It’s my hope that this hearing will serve as an opportunity for

us to explore whether GSA’s proposed acquisition strategy will

serve as the best solution in our current technologically advanced

society. The current telecommunications program, FTS 2001, will

expire in 2006. It is important that we are able to implement a new

program in a timely, effective and cost-efficient manner.

In the RFI request issued by the FTS in October 2003, the stated

goals of Networx were to assure continuity of services, achieve best

value by leveraging the government’s buying power to obtain the

lowest possible prices, while maintaining quality, provide access to

a broader range of service than currently available, and provide expanded opportunities for small businesses. It is at this hearing

where we can determine whether or not the FTS-proposed Networx

does in fact accomplish these goals, or whether it must be adapted

to further meet the concerns of all stakeholders involved. I have

four main concerns that I hope the witnesses will address today.

First, Networx must have the ability to not only offer but keep

up with new technological advances. In light of September 11 and

our continuous need to effectively address issues related to our Nation’s security, we must be sure that any new telecommunications

program we implement is capable of supporting new technologies

as they are developed.

Second, the bidding process for Networx must remain a competitive process that does not exclude either new or smaller entities

from entering the government-sponsored program. This bidding

process must also allow for companies with specialized telecommunications technology to compete in our ever-evolving technology economy.

Third, Networx must remain cost-effective in its new form. If the

program does not continue to save the government money, especially in our current budget crunch, then it will miss its most important aim.

And last, Networx must allow for an affordable and efficient

transition from the current FTS 2001 telecommunications program.

We must be guaranteed that by 2006 there will be a smooth and

non-problematic transition into the new program.

With that said, Mr. Chairman, I look forward to hearing from today’s witnesses, and once again, Mr. Chairman, I thank you.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Chairman TOM DAVIS. Thank you very much.

We have a great first panel, we have a great second panel. Let

me say in the second panel, we held a lot of them in the back room.

And this is where we could have sold tickets. We had SBC, Sprint,

Verizon, MCI, AT&T, Winstar, BellSouth and Level 3 all in the

same room, and by all accounts, it was fairly harmonious. So it’s

a historic first. [Laughter.]

On the first panel we have Steve Perry, the Administrator of the

U.S. General Services Administration; Sandra Bates, no stranger to

this committee, the Commissioner from the Federal Technology

Service, U.S. General Services Administration; Linda Koontz, the

Director of Information Management Issues from the U.S. General

Accounting Office; Drew Ladner, our Chief Information Officer at

the U.S. Department of the Treasury; and Mel Bryson, the Director

of Information Technology, Administrative Office of the U.S.

Courts.

It’s the policy of this committee that we swear witnesses in before their testimony. If you’ll rise with me and raise your right

hands.

[Witnesses sworn.]

Chairman TOM DAVIS. Thank you very much.

Commissioner Perry, we’ll start with you and then we’ll move

straight on down the line. Your total statement is in the record.

Not everybody is here to hear it, so you don’t need to go over the

time, because that’s in the record, and most of the Members will

get it off the record. Then we’ll have our questions, a lot of them

are cued to what your testimony is. So if you can take about 5 minutes, keep your testimony to 5 minutes. We have a light in front

of you. When the orange goes on, that means you have 1 minute

left, 4 minutes are up.

Steve, thanks for being with us, and thanks for doing a great job

over there.

STATEMENTS OF STEPHEN A. PERRY, ADMINISTRATOR, U.S.

GENERAL SERVICES ADMINISTRATION; SANDRA N. BATES,

COMMISSIONER, FEDERAL TECHNOLOGY SERVICE, U.S. GENERAL SERVICES ADMINISTRATION; LINDA D. KOONTZ, DIRECTOR, INFORMATION MANAGEMENT ISSUES, U.S. GENERAL ACCOUNTING OFFICE; DREW LADNER, CHIEF INFORMATION OFFICER, U.S. DEPARTMENT OF THE TREASURY;

AND MELVIN J. BRYSON, ASSISTANT DIRECTOR, ADMINISTRATIVE OFFICE OF THE U.S. COURTS

Mr. PERRY. Thanks, Mr. Chairman. I appreciate the opportunity

to testify to the committee on this very important subject.

As has been pointed out, we all know that having an effective

and efficient telecommunications program in the Federal Government is very important. It’s not only important because we spend

billions of dollars to obtain these services, but it’s important because this is critical to the communication interactions, and the

data transfer of information that we have to do to support the day

to day operation of the government.

So we’re happy to be here today to talk about our plan for

transitioning from FTS 2001 to the new program that we call

Networx. The Networx contract, as has been pointed out, will be

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the fourth generation of telecommunication contract in the government that started in the mid-1960’s. Each successive contract that

has been put in place has been an improvement over the prior contract. We expect that will continue to be the case with the new

Networx contract that’s being put in place.

FTS 2001 certainly has been a success, as Mr. Waxman pointed

out. We’ve derived savings in the government of nearly $2 billion

from that program. In short, GSA telecommunications programs of

the past have in fact been successful, and as we move forward, we

believe we can build upon the lessons learned and the solid foundation that is now in place to make the new program even more successful as we move to the future.

Last October you invited us to talk to this committee about our

plans for beginning the transition process and developing a new

Networx program as well as an acquisition strategy. Since that

time, Sandy Bates and her team have benefited from numerous

meetings with the committee staff and we continue to seek your

counsel and support. Additionally, as was pointed out, we’ve had

very valuable discussions with customer agencies, and we’ve had

very valuable discussions with the telecommunications industry

and other interested parties.

The level of interest is perhaps unprecedented. The quality of

comments and the exchange of information and ideas that we’ve received to date have been very, very helpful. Through this dialog, we

are receiving many excellent ideas that we will continue to consider

and, where appropriate, incorporate into the development of the

Networx telecommunications program, as well as the formulation

of our acquisition strategy.

So Mr. Chairman and members of the committee, one of the

things I want to emphasize in my remarks is that we will assure

you that we understand the importance of the proposed government-wide telecommunications program and we are committed to

achieving implementation of the new program in a very successful

way. Before I turn the presentation over to Sandy to talk about

this in some more detail, I’d like to just highlight a few of the customer requirements that we’ve learned from our discussions with

customers and industry partners and that GSA has committed to

achieve in this acquisition.

The first is service continuity. That is, we will ensure that all

services currently provided under FTS 2001 are transitioned to the

new Networx contract without interruption.

Second is transition assistance. The Networx contract will include requirements for contractors to assist agencies in achieving

a timely, efficient transition from the current contract to the new

contract.

Then of course, best value. Networx contracts will offer telecommunications services to Federal agencies at highly competitive

prices that are at or below current levels. Additionally, agencies

can use the Networx contract to meet their telecommunications

needs without incurring the costs of developing their separate acquisitions.

And flexibility, the Networx program will give customer agencies

maximum flexibility to adapt to changes in the competitive ecoVerDate 11-MAY-2000 11:25 Jul 12, 2004 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 D:\DOCS\94004.TXT HGOVREF1 PsN: HGOVREF1
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nomic and technology environment of the telecommunications industry.

Alternative sources. Networx will provide choices to agency customers in selecting from among multiple contractors for services

that they require. That will provide for the robust competition that

you spoke of.

In the area of operations support, Networx contracts will integrate ordering, billing and inventory management to the extent

necessary to meet agency requirements. The Networx contracts additionally will be performance based.

And last but certainly not least, GSA is placing a strong emphasis on the utilization of small businesses by our Networx service

providers.

So I want to assure the committee that we understand how important this is and we’re working on it that way. We do hope that

the result of our work will be that even those agencies that have

not taken advantage of the benefits of GSA’s telecommunications

programs in the past will realize that they have the opportunity to

do so, to obtain the telecommunications services that they need, to

achieve their agency’s missions and at the same time, save money

for their agencies and of course for the American taxpayer.

Mr. Chairman, we thank you for holding this hearing. I look forward to continuing to work with you and the other members of the

committee to make this new Networx contract a reality. Thank you.

[The prepared statement of Mr. Perry follows:]

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Chairman TOM DAVIS. Thank you very much.

Ms. Bates, thanks for being with us.

Ms. BATES. Good morning, Chairman Davis and members of the

committee. Thank you for inviting me to appear before you this

morning. I have submitted a detailed written statement, so I will

now address the particular issues you raised in your letter.

Effectiveness of the strategy. I readily agree that the proposed

October strategy can be improved. We are committed to improving

it, industry has suggested items for improving it. For example,

some respondents question having separate, staggered universal

and select acquisitions. Some believe that universal could overshadow select and result in significantly fewer opportunities for select awardees. This is a fair concern.

Our challenge is to understand the tradeoff and strike an appropriate balance between the desire to be all-inclusive and the need

to foster meaningful and effective competition. And there are other

areas where industry feedback has been extremely valuable. In

each case, we are evaluating the effects of the suggested alternatives and working to develop a more refined and a more effective

approach.

Transition. Since May 2003, the IMC-led transition working

group has been planning for the Networx transition. Both FTS and

our customers are committed to a well-planned, well-executed and

effective transition at the lowest possible cost.

Contract performance periods. We have received a variety of comments. The suggestions range from 5 years to 15 years. The final

contract duration should attract meaningful competition, justify the

resource investment and minimize contract-required transitions.

Billing. We’ve clearly heard that the billing data elements contained in the RFI may be overly burdensome to industry. However,

we need to understand how we can strike the appropriate balance

between agencies’ needs for information and industry’s ability to

deliver it with their established commercial offerings.

Services and technologies needed by the government. We believe

that Networx should support the continuity of our customers’ existing network communications infrastructure. Networx must also

look beyond 2006 to the future by providing new capabilities that

will be enabled by the networks of tomorrow.

We understand that today not all agencies have selected FTS for

contracts for all of their telecommunications needs. Some may believe they can obtain better prices through their own negotiations.

For others, the prospect of transitioning complex infrastructure

from one contract to another may drive their decision. Then there

are those who may be concerned that using an FTS program will

mean loss of control over selection of technical solutions, management of their infrastructure or provider relationships.

Let me assure you, Networx will continue to build on FTS’ proven success in negotiating the best deals in the industry. We are

committed to making a transition smooth and efficient for all customers. Networx will assure flexibility, individually tailored solutions and continuous technology refreshment. For FTS success also

depends on fostering productive relationships between customers

and providers.

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Centrally managed program acquisitions. I certainly believe that

we have demonstrated the value of such an approach in the government networking arena. One example of tangible value that comes

from central management, price negotiation. I think we can all

agree that telecommunications pricing is not straightforward. For

agencies to develop individual capabilities for pricing analysis and

negotiation would be duplicative and inefficient at the least.

FTS has routinely achieved price levels well under the market,

sometimes as low as half the market rates. Agencies negotiating individual contracts cannot be assured of such aggressive pricing. Because we do our homework on behalf of all agencies, we can leverage the government’s buying power to achieve the greatest benefit.

Nevertheless, we are open to all ideas, including those that might

mean significant change. We are not afraid of finding the right answer or of finding a better answer. In fact, we want to do so and

I think our job is to do so.

We are committed to crafting a strategy that ultimately reflects

best value results and innovation to support the missions of government. Mr. Chairman, we are pleased to have delivered an initial

strategy that is already serving its purpose as the basis for productive interaction. I expect to come away from this hearing with more

good ideas. I will be happy to address your questions that you may

have.

[The prepared statement of Ms. Bates follows:]

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Chairman TOM DAVIS. Thank you very much.

Ms. Koontz.

Ms. KOONTZ. Mr. Chairman, members of the committee, I am

pleased to participate in this hearing on the General Services Administration’s next generation telecommunications acquisition program, known as Networx. As you know, GSA’s planning for this

program is taking place within an environment of tremendous

change in the telecommunications industry, in underlying services

and technology, and potentially in the regulatory environment.

In this context, the Networx initiative can be viewed as a significant opportunity for the Federal Government to flexibly acquire

and apply innovative telecommunications services offered by industry to improve agency missions. However, GSA will have to overcome significant challenges if the full potential of the Networx program is to be realized.

The first of these challenges is ensuring that an adequate inventory of information about existing telecommunications services is

available to give planners an informed understanding of government-wide requirements. The ongoing research we are doing for

you, Mr. Chairman, on private sector best practices in telecommunications acquisition and management, have indicated that

leading organizations view a baseline inventory as an essential

first step to telecommunications requirements analysis and subsequent sourcing decisions. Quite simply, before you can chart a

course for the future, you have to know where you are.

Second, establishing specific measures of success to aid acquisition decisionmaking and effective program management. Again, our

work on private sector best practices highlights the need to establish outcome-oriented program goals on which to base acquisition

planning decisions, and corresponding measures to assess over time

whether the goals are being met by the program.

Third, structuring and scheduling the contracts to ensure timely

delivery of competitively priced telecommunications services that

meet agency mission needs. The varying views of industry representatives commenting on the request for information raised fundamental questions about the soundness of the proposed acquisition approach. For example, some raised concerns about the broad

service and geographic requirements of the universal contracts and

the effect that could have on competition. Further, others raised

questions about the timing of the awards. It appears that agencies

could be asked to make decisions regarding their use of universal

service contracts before information is available regarding select

leading edge services and solutions that might be more suitable for

their needs. The process of sorting out these varying views is a difficult one. However, proceeding with a better understanding of requirements, goals and measures should help GSA in its efforts to

structure the contracts. Further, it will be important for GSA to

continue to solicit and implement stakeholder feedback.

Last, ensuring a smooth transition from the current contracts by

initiating appropriate implementation planning actions. Three

years ago, we testified before you on the transition difficulties experienced with the FTS 2001 program. To avoid a repeat of these

problems, GSA will need to establish strong program management

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and ensure that agencies have detailed inventories needed for transition.

In our recent conversations with GSA, they agreed with these

challenges and shared with us their plans to develop baseline inventories and measures of success, prepare for the transition and

continue to work toward a final acquisition strategy. While these

statements are very encouraging, leadership from GSA and commitment from stakeholders in resolving these issues will be essential in establishing efficient, cost effective and secure telecommunications services.

Actions taken and decisions reached in the coming months to

more fully define the Networx program will significantly influence

the telecommunications choices Federal agencies will have for the

next several years. Unless GSA follows through to resolve the challenges outlined today, the potential of Networx may well not be realized.

That concludes my statement, and I’d be happy to answer any

questions at the appropriate time.

[The prepared statement of Ms. Koontz follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Ladner, welcome.

Mr. LADNER. Good to be here again, Mr. Chairman.

Mr. Chairman and members of the committee, I thank you for

the opportunity to appear today to discuss GSA’s government-wide

telecommunications program, Networx. The continued leadership of

the chairman and the members of the committee is vital if we are

to steward taxpayer dollars wisely not only at the Treasury Department, but across the Federal Government.

I serve as the Chief Information Officer of the Treasury Department. As CIO, I provide oversight, management, budgetary approval, and policy direction for all of the information technology

programs within the Treasury Department and across its bureaus.

I have operational responsibility for shared services across all of

our Treasury bureaus, including for the Treasury communications

system, one of the largest secure networks in the civilian government.

Let me start by suggesting a list of principles that the Treasury

Department seeks to have inform its acquisition of telecommunications services. Reflected throughout my submitted testimony,

they include but are not limited to: identifying and adopting innovation, listening to the market laws of supply and demand, relying

on marketplace innovation wherever possible, avoiding the creation

or promotion of proprietary standards, simplifying business structures, processes and systems, embracing data, IP and managed

services, compensating based on performance and results, affording

maximum flexibility while keeping costs low, supporting the execution of Treasury’s shared service philosophy, and expecting technological obsolescence and therefore not owning assets.

The Treasury Department is committed to acquiring from the

private sector the latest in telecommunications innovations, whether in product, process, or otherwise. Because the private sector has

the incentive to invest in research and development, the expectation is that the private sector consistently will provide the most attractive offerings in terms of cost and performance.

Today’s question is, how does Networx fare in all of this? Early

signs are that Networx will constitute a significant improvement

over FTS 2001. It appears that Networx will be much more market-driven, in contrast to its more technology-driven predecessor,

FTS 2001. As a general rule, at the Treasury Department we believe that the government should rely on performance-based results-oriented specifications, rather than trying to dictate solutions

through how to design technology specifications.

Moreover, this underscores an essential philosophical approach

to acquiring Networx services, whether the customer is in the public sector or private sector, government agencies should strive to

ensure that the customer is provided with the best, most cost-effective services available.

This raises a larger point. As CIO, I need to be able to manage

the supply chain, both downstream from our shared service platform into Treasury bureaus, as well as upstream into Treasury’s

suppliers. Treasury currently depends exclusively on no one carrier, and manages risks by being carrier neutral. Avoiding sole

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panies across a large telecommunications contract. Doing so is critical for several reasons.

First, it is financially advantageous and ensures that competitive

forces provide incentive for contractors to price at market levels.

Second, in the event of inevitable technological change or obsolescence, a customer can make necessary adjustments quickly and

cost effectively. Third, if under-performance provides operational

rationale to switch vendors, a government agency is in the better

position to do so.

In summary, the key to a successful Networx contract will be to

consolidate purchasing power in a flexible, performance-based contract that nimbly accommodates innovation when superior pricefor-performance can be achieved. Remaining innovative in our telecommunications programs is essential to national security. Among

other reasons, the application of new products and processes leads

to even more advances, thanks to the vibrant entrepreneurial spirit

of our country and in the small to medium-size businesses that

drive 80 percent of our economy.

Again, I am grateful to you, Mr. Chairman, and the committee,

for demonstrating leadership in exploring the best ways to acquire

telecommunications services, and for the opportunity to discuss this

further today. I’d be happy to respond to any form of questions.

[The prepared statement of Mr. Ladner follows:]

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Chairman TOM DAVIS. Thank you, Drew.

Mr. Bryson.

Mr. BRYSON. Thank you, Chairman Davis, members of the committee. We also appreciate the invitation to appear before you

today.

My position is equivalent to the chief information officer with the

courts system. Our office provides and manages national voice and

data services for more than 750 courthouses and offices throughout

the country, including the 50 States, Puerto Rico, the U.S. Virgin

Islands, Guam, and the Mariana Islands. Those communications

services are critical for our own internal communication, as well as

for those who are now getting into the government aspect of the

court system, which is our electronic case filing, and those who look

for information on what the courts are doing through our public access systems.

The Federal Technology Service contract series has been an essential tool in providing the U.S. courts with a comprehensive set

of integrated, cost effective and highly reliable voice and data services for more than a decade. We at the Administrative Office are

committed to working with the General Services Administration

and others, including this committee, to develop a successful followon solution for our wide ranging and ever growing needs for telecommunications services.

The judiciary’s experience with the FTS contract series has

shown us that such a contract vehicle offers clear advantages in

terms of prices as well as significant reductions in overhead for

contract management. The FTS contracts also greatly facilitate our

engineering tasks by reducing the need to coordinate infrastructure

changes with but one vendor team that knows our needs.

The Federal Judiciary was the first major FTS customer to complete the transition from FTS 2000 to the follow-on FTS 2001 contract. That orderly transition was facilitated by our own internal,

accurate inventory of the courts’ national voice and data services.

Our independent inventory streamlined the complex process of preparing, submitting, tracking, and verifying tens of thousands of

separate orders for lines, individual phone calling cards, and other

specialized telecommunications services as we made this complicated transition.

Our transition experience demonstrates the importance of accurate and integrated management systems. Unfortunately, consolidation of telecommunications vendors over the past few years has

not been accompanied by a smooth integration of their separate

legacy systems for processing orders, managing circuits and

changes, and ensuring billing systems are automatically updated

and accurate. In numerous cases, our ability to quickly and efficiently change, add or delete services was hampered by these inefficient vendor tracking systems, or by overly complex and poorly integrated vendor ordering and billing systems.

We are working closely with GSA on the transition to make sure

that we address all of those issues. If the transition involves the

need to move to multiple new contracts and forces us to make the

change to new vendors, the effort will be much more complex and

difficult. Ultimately, this will take longer and involve much higher

indirect costs to each agency.

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As I say, we’re making a significant investment in working with

GSA to make sure that this follow-on contract meets all of our

needs. The things that we think we need from the new contract include these: continuous high quality service; integrated end-to-end

processes to order, install, inventory and bill services; flexibility to

provide both local and long distance voice and data services; and

finally, flexibility in choosing central or local billing and management options.

The Judiciary prefers a single Networx contract that covers the

full range of telecommunications solutions. This approach avoids

the additional costs associated with the need to research, compete,

award, and manage multiple contracts for the myriad parts of our

nationwide network infrastructure.

We also strongly prefer a long term non-mandatory solution to

assure the best possible pricing for all services. In short, we need

to ensure that an efficient and effective vehicle for continued service to the courts is available to replace the expiring FTS 2001 contract.

Again, we thank you for the invitation to appear today, and as

with the others, we’d be happy to answer any questions that you

might have.

[The prepared statement of Mr. Bryson follows:]

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Chairman TOM DAVIS. Thank you very much.

I have a bunch of questions. Let me start, Ms. Bates, I’m going

to start with you. I think you noted that the current program in

its 6th year, referring to the first page of your testimony, exemplifies best value and you talk about how the FTS 2001 and cross-over

contracts have been modified 229 times for the benefit of all agencies, and have grown from an acquisition offering 24 core services

and so on.

I guess my point is, it’s great to modify it and all that, but when

you go back to the original bit and who you select, and then you

put all these modifications in, isn’t it possible, and these are evolving needs, that maybe somebody who lost the original bid might

have been better over time in these areas? And aren’t we better off

with a flexible schedule-type contract, where you can bring in people who might not have been the best value on the original bid, but

in time have developed new capabilities and allow them to come

into the process, as opposed to amending existing bids with existing

contractors? Do you understand what I’m saying? That wasn’t in

my script.

Ms. BATES. I understand. We’ll just talk through it.

First off, I think it is a positive that the contracts have been

modified. They are not being modified to correct flaws or

insufficiencies at all. But rather, improved processes and recognize

that, and then add the new technologies.

If you’ll recall, too, in our strategy of FTS 2001, we allowed for

crossover from, with the anticipation of companies in the local markets emerging and really promoting public policy in 1996 of telecom

reform. I’m happy to report that companies have crossed over in

that, so that as an example, the unsuccessful offeror in FTS 2001

did cross over into FTS 2001, as well as Verizon recently crossed

over into FTS 2001.

So I think with that strategy, we have allowed for continuous

competition of the players that are providing all those services,

plus with the initial competition and all those mods, we have continued robust and aggressive price management, where the companies, if you’ll recall, bid the full 8-year pricing, declining prices, the

best in the world, and continue to do that.

So I think that the strategy that we adopted and were trying to

take those good pieces of the strategy and incorporate those into a

Networx-type environment. So I think we have the optimum solution today.

Chairman TOM DAVIS. I guess because technology changes so

rapidly in this area, and new companies come on with capabilities

that weren’t envisioned at the beginning of the contract and everything else, it seems, and what the process is, I’m not set on. But

you just want to make sure that we are flexible throughout, and

that we are constantly shopping for the best value, the best technology.

Ms. BATES. Right.

Chairman TOM DAVIS. The best technologies, the lowest costs.

And also to encourage agencies to come in. About half the agencies

use this right now. I’m not saying it’s a cure-all, but if you have

enough flexibility and you use your buying power and everything

else you have, we ought to be getting higher participation.

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Ms. BATES. I agree with you. I think most of our customers, we

provide service today to every agency. It’s just not their total service. Of course, our goal is to have a program that is robust enough

that it will be so attractive that people will want to use this more.

I think it’s also important to note that today on Schedule 70,

there are many services, telecommunications services offered, there

are line items, there’s over 200. It’s about 70 companies. So I think

that when we talk about whether we have a fully negotiated contract versus a schedule contract, it’s not either-or. And that’s what

we got when we asked the industry.

So I think we’re in agreement.

Chairman TOM DAVIS. It’s a question of how you best get there.

Let me just ask another question. I’m off the script. But cooperative purchasing, something in the government act we allow for the

group 70 schedule, as you noted. Any thought of using, I haven’t

talked to the companies about this, either, so if they come up out

of their chair, allowing State and local governments to use this?

Ms. BATES. Well, as you know, FTS was instrumental in cooperative working with you early on, with cooperative purchasing.

Chairman TOM DAVIS. Absolutely. You were way ahead of us on

that. I’ll ask everybody to comment on this question, too. But go

ahead.

Ms. BATES. I think that the concept is there. There’s nothing in

our current thinking that would prohibit it. I think in the area of

telecommunications networking that it’s so complex, with the margin so thin on pricing, kind of figuring out and keeping dual sets

of, I think it would be a good idea. I was going down the line of——

Chairman TOM DAVIS. We’re going to hear from industry on that,

too.

Ms. BATES. But the cooperative purchasing, in terms of letting

State and local governments in, we are all for.

Chairman TOM DAVIS. Steve, any thoughts on that?

Mr. PERRY. I would just add that, as you know, a lot of people,

either at the State and local level or Federal level or in the industry had concerns as to whether or not enabling State and local governments and others to purchase on the Federal Government

schedule would have bad ramifications. I think though that what

we’re seeing, now that we’ve stepped into that with IT, that those

fears are not being realized. Small businesses are participating,

Main Street companies who were providing for their States before

and weren’t on GSA schedules, many of them have become GSA

schedule holders.

So both the States are benefiting and the industry companies are

benefiting. So I think the continued success that we’re seeing on IT

Schedule 70 may inform us as to how well we could apply the same

thing to telecommunications.

Chairman TOM DAVIS. Right. The thing I like about cooperative

purchasing, and my time is up, but the fact that you’re cutting out

a lot of the middle stuff that raises your ratio, the bid protests are

gone, all the lawyers are out of it, and that’s a good thing. And the

fact that a lot of the marketing and strategies that went into

pumping stuff up that was so expensive for people coming up with

responses to RFPs and proposals, it’s really consolidated. That’s a

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good thing. It saves money for both the government and for our

contractors on that.

I’ll ask the second panel how they’d react to that. Go ahead.

Ms. BATES. We have left it in scope, in today’s contract, and we

will have it in scope tomorrow, with the hope that they would be

approved. So we have everything in place, ready to go once we get

the nod.

Chairman TOM DAVIS. Well, I think a lot of it will depend on industry response to this. We’re not eager in bringing, if industry’s

not interested in doing this, of bringing it in. And I want to get

their response as well. But the reality is that the marketing mechanisms they have to use to try to get into State and local governments are expensive. It is a Wild West in terms of its predictability

and so on. I’ll be interested in hearing their reactions, I’ll kind of

give them a heads-up that the question is coming.

Ms. Norton.

Ms. NORTON. Thank you, Mr. Chairman.

This idea in this program is of special interest since the District

of Columbia has profited from being on the GSA program. I appreciate strongly the efficiencies that must take place in hammering

such a huge contract as this. It can’t be handled in the way the

ordinary government contract is. I agree with what the chairman

has said about some of those efficiencies.

I also think that competition and product innovation in this industry is unique. I indicated that in my opening comments, so that

I’m trying not to do a cookie cutter approach to how I look at this

contract, that is to say, not that you are. But that we are looking

at what I regard as a virtually unique industry in our country and

in the world. And here we are, a unique party, the Federal Government, able to maximize competition the way no other contracting

party could.

So I’ve got to ask, I want to ask some questions about our role

vis-a-vis where the industry is. Now, there’s a huge flux in this industry, precisely because it is so innovative. If there were only

three bidders to the universal contract, what would happen if

something happened to one of those vendors?

Ms. BATES. There could be more. But if there were only three

that could, that were successful in terms of meeting the government’s requirements and best value and low cost, and something

happened to one, I think certainly that would be a shame, and

would reduce our options and flexibility. But we would still have

two companies in place in universal that could continue to compete.

We would also then have, if we were to pursue exactly the strategy

laid out in the RFI, which is under modification, we would also

have multiple companies in network select that could satisfy some

or all of the requirements and fill the void.

So I think we’re trying to position ourselves, knowing that this

is an industry that by all accounts has not settled out yet, and

we’re expecting to see further mergers, acquisitions and new entrants. We want to be as open to that, yet steel ourselves against

having something happen that would affect us drastically.

Ms. NORTON. I don’t know why we wouldn’t want to minimize

risk and maximize competition. I don’t know why we should take

any risks here, particularly given the multiple companies in the

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field, and particularly given the fact that we may be talking about

one industry, but there are so many different categories of what

they do, wireless, long distance, Internet—we could go on for some

time.

Why not open the door to more competition, given—I mean, what

do we have to lose by opening the door to more competition, particularly given the fact that many of these companies are much better in providing certain kinds of services, I don’t know, Internet

versus long distance or whatever, than others. Why not say, ‘‘Y’all

come’’? And why wouldn’t the result be lower cost to the government, and better product innovation as well?

Ms. BATES. I can only address it. Certainly those comments, your

thoughts, were also some of the thoughts submitted in response to

the RFI, that centered around why don’t we just have one competition and do it by categories or levels. And this is under consideration. We are looking at that hard, and going at that, because

many of the industry respondents did recommend that a further refining, and like I said in my statement, one contract versus two,

and perhaps different ways to grouping, to play to the specialization of certain segments.

Ms. NORTON. I would really like to see, all of us out here in this

IT world know good and well that we have the right and we look

for who does what best and at a lower cost in these related but

highly different categories of service. I must say, I put a great

value on the efficiencies you brought to this contract. I don’t want

to lose any of that.

But for the life of me, I can’t see why allowing these guys to go

at one another with these very different kinds of service, opening

the door to some who may not have been in it all before, that really

bothers me. As we look to companies that, and this happens in government work so often, that somebody who has a leg up continues

to get the contract.

Well, you know, that might work in some kinds of industries. But

in this industry, where the competition has been such that somebody can and does run ahead of somebody else because of a product

innovation, so who was good yesterday has been surpassed tomorrow, why shouldn’t we say, ‘‘OK, let’s look at these individual services, let’s open the competition, because we are the biggest player

in the universe, we’re going to drive you so hard, we’re going to

drive down our costs even more than we’ve gotten.’’

I must tell you, I think there’s lots more, lots more to be wrung

out of this than you’ve been able to do. I’m looking for ways to do

it. Therefore, I must say I’m very pleased to hear you say that you

are open to looking at the various categories, wireless, Internet and

the rest. And that would mean, of course, that there would be

newer companies, companies that may have specialties in one way

or another.

Let me ask you about the notion of where the company has to

be geographically. There are large bidders and smaller bidders that

don’t provide, for example, long distance service everywhere. Is this

a primary factor in choosing such a vendor?

Ms. BATES. The strategy as stated in the RFI required continuity

of service, which would mean service to every place that it is being

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sal. In Networx Select, that requirement was relaxed and respondents would bid wherever they provided the service.

In response to the comments that we received from the RFI, we

are deeply probing that requirement on two fronts. One, we are

probing with our customers to determine the impact, if that wasn’t

as specified, and to learn more about that. With regard to the industry, we are probing to see, when we say continuity, what are

they hearing. If we were not to have the requirement for continuity, I’m not saying we’d relax it, but if we weren’t, who would be

left behind?

There is an implication that the person that would be left behind

would be Joe in the treetop. Well, I don’t know if it’s just a few

people or if it’s major sections of our country that serve the population and the government agencies. So I think that the time we’re

spending now to really further understand that requirement and

probe deeply to get at the facts will help us arrive at whatever the

right solution is as we move forward.

Ms. NORTON. That could not be more important. One size does

not fit all, and if there are efficiencies in non-universal service that

don’t hurt anybody, and you’re looking closely at that, that’s the

way to go at it. Let us find out what the underlying facts are.

The assumption that everybody needs everything, when you consider where the government is located, is the point I’m raising. I’m

very pleased if you’re looking closely to see whether or not that’s

necessary.

Ms. BATES. Thank you.

Chairman TOM DAVIS. Thank you very much, Ms. Norton.

Mr. PERRY. Mr. Chairman, if I could just add to that answer,

please.

Chairman TOM DAVIS. Sure.

Mr. PERRY. I would echo Sandy’s comments and yours, Congresswoman Norton, that robust competition is really a hallmark of this.

We are not trying to do anything else, other than to drive toward

robust competition. That’s part of what has driven the low cost of

what we’ve done so far, and it also, as you point out, is what drives

technological innovation, all these companies working against each

other to move things forward. And we’ve benefited from that.

We would propose to continue to do that in the new contract,

while at the same time making sure that we do all the things necessary to provide for reliable service. That’s the other part of that

equation. It can’t be fragmented to the point that we could have a

disruption. So we take your point, and I just wanted to emphasize

the fact that robust competition is indeed what we would hope to

achieve.

Chairman TOM DAVIS. Thank you very much.

The gentleman from Utah, Mr. Cannon.

Mr. CANNON. Thank you, Mr. Chairman.

Just following on this line of questioning, can you for the whole

panel, particularly for the GSA members here, can you give me a

sense of what you think the right number of awardees under

Networx would be? On the one hand, as has been said by Representative Eleanor Holmes Norton, you have an issue with redundancy, and also network security. Yet if you have too many people,

the price suffers.

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Have we given any thought to what the number of awardees

ought to be?

Ms. BATES. It’s very difficult to say, particularly with this industry, as things change. The Networx Universal, as described in the

RFI, which was kind of the straw man for comment, had requirements such as continuity, which we were discussing a moment ago.

I would think that there are many companies that can provide that

universal service, perhaps they wouldn’t be able to provide it necessarily predominantly by themselves. But through partnering

arrangements——

Mr. CANNON. Let me just ask, have you focused on, we have

some major companies, and a lot of minor companies that can provide services. Have you looked at, it would seem to me you’d want

more than one, that means two or more. But maybe you don’t want

as many as five or six. Has there been some focus on what you’re

looking at for just the number of major contractors?

Ms. BATES. We have not decided yet on a number. We’ve not gotten that far. If you’ll recall, in our strategy for 2001, when we completed it and went out with the RFP, we said there would be a

maximum of two awardees, and obviously a minimum of one but

a maximum of two. We’ve not reached that point yet. And we’ve not

even reached a point yet where we would put a limit, because we’re

not talking about, as your point, 200 companies.

Mr. CANNON. But you will hopefully consider that and come up

with some sort of a list?

Ms. BATES. Yes, sir.

Mr. CANNON. Thank you very much. Do you have a sense of how

we will be introducing the government Voice Over Internet Protocol

in this procurement or in other contexts? What are you thinking

about that now?

Ms. BATES. Well, clearly, we are like everyone else realizing that

Voice Over IP is the technology for the future, and that all of the

network services, as we move on into the 2010, 2012 timeframe,

will be IP-based, including Voice Over IP. So it plays heavily in our

technical specifications and our concept of operations, reflected

throughout our work to date.

The challenge ahead of us is that, when we award the contracts,

we need to be able to do two things: satisfy the existing requirements and provide a lighted pathway as people move toward the

new technology. It is not going to be 1 day everybody moves. Some

people, the early adopters, are moving now. Others may not be.

The industry is in the same way. They don’t just start and drop

everything. So it’s a continuum. But I can assure you that

Networx, both universal and select, in whatever strategy we end up

with, will cover that in spades.

Mr. CANNON. Thank you.

Mr. Perry, in particular I’m interested in telework and how we’re

dealing with that. If we talk about DSL, how that fits in and

whether you’re considering any telework-related items in the

Networx solicitation. In particular, is DSL expected to be a component of the Networx Universal, will that be like a distinct service,

particularly about how telework is going to be for people working

at home or in some other place, and how that will be brought into

consideration.

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Mr. PERRY. Well, we do support teleworking now, of the type you

described, where the person may be teleworking from their home

with a DSL line. And we obviously have telework centers where

people drive to and agencies or the government provides the facility

there. But that would continue to be supported.

It will be driven, obviously, to some large extent, by individual

agencies, to the extent they’d want to utilize it. But it is available

and will continue to be.

Mr. CANNON. And DSL is going to play a part of that, as you look

into the future?

Mr. PERRY. Yes.

Mr. CANNON. As you’re looking at all these new kinds of technologies that are coming in, can you talk a little bit about how

those are going to fit in, even those that may not be currently

available in the commercial market?

Mr. PERRY. I’m sorry?

Mr. CANNON. How are new technologies, how are you dealing

with the new technologies, some of which are not even available

today, but which we can anticipate?

Mr. PERRY. Right. Again, to some extent, what we’ve done in FTS

2001, we talked about the 229 modifications that were made in the

original contract. Many of those were made to adopt or adapt to

new technologies that emerged subsequent to the contract. That

will be the case here as well. Whatever those emerging technologies

are that we don’t even know about today, as they become available

they will be incorporated into the contracts.

Mr. CANNON. Thank you, Mr. Chairman. I see my time has expired. I yield back.

Chairman TOM DAVIS. The gentlelady from New York, Mrs.

Maloney.

Mrs. MALONEY. Thank you very much. Mr. Perry, you mentioned

that the goal is robust competition, as was the goal for FTS 2001.

And I think one of the easiest ways to understand how to maximize

service and a good product and cost is to really understand what

happened in FTS 2000 and 2001. The chairman, in his opening remarks, mentioned that there were 229 modifications to FTS 2001.

I’d like a breakdown on how much that cost. You can competitively

bid something, but then if there are so many modifications, whether it’s a change in the contract for new expenses or new technology,

if I recall, I believe that new technology in FTS 2000 and 2001 was

supposed to have been competitively bid in a new way. I don’t

think it was supposed to have been a modification.

So my question is, I’d like to know how much we spent on 2001

contracts, and how much we added onto them with ‘‘modifications’’

and whether those modifications were cost overruns, or we really

didn’t think we had to do that in our original contract, and how

much of it was new technology. As I recall, 2001 was new technology and was to be competitively bid, was it not, in the last contract?

And again, you probably don’t have these numbers, but I think

that’s something that would be important for the committee to understand, why did we have 229 with modifications, and for what

reason? It could turn out that the 229 modifications cost more than

the original contract. I would just like to look at those numbers.

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Mr. PERRY. Sure. We will provide that to you.

I will tell you though, that we talk about those 229 modifications

with some pride, because these were not cost overruns or cost increases, generally speaking. These modifications were enhancements, and many times, cost reductions. So we’ll be happy to provide that information to you.

Mrs. MALONEY. Do you know how much the 229 modifications

cost the American taxpayer?

Mr. PERRY. I don’t know the answer to that question.

Mrs. MALONEY. That’s what I’d be looking at.

And also, I think that our country has changed dramatically

since the last contract and the No. 1 concern for many of us is security and safety. And I want to know if this new contract has a category in it that looks toward a Pentagon attack or a September 11

attack. What are these new technologies that these companies may

have that would make the service more secure and reliable in

times of a tragedy or a terrorist attack? Is that part of the new contract?

Mr. PERRY. Yes, it will be. There is a feature referred to as ‘‘embedded security features.’’ And to go back to the modifications,

some of the modifications that were made under FTS 2001 were for

an enhanced security by means that weren’t available previously,

but became available and became more desirable after September

11.

In fact, some agencies of the government, as you would understand, the Defense Department and some others, have not used the

FTS 2001 contracts because of concerns on security matters. So we

are in the Networx contract addressing those more and more.

Mrs. MALONEY. And since you said security was built into 2001,

and when they attacked the World Trade Center Towers, it was

primarily government offices. There was some private sector, but

we had the SEC there, and we had a lot of Assembly offices there.

There were a lot of government offices there. How did the FTS

2000, 2001 respond to the attacks on September 11? I know we

were out of power for a while. Was that part of your contract? Were

you down at the September 11 site with FTS 2000 and 2001?

Mr. PERRY. Yes. And Sandy may add some details here, but there

was a facility there at the site that was destroyed. We used the

providers under this contract to reestablish operations. We didn’t

do it overnight, but we did it very quickly. The response was generally reviewed as being very good.

Ms. BATES. I can only add that after the attack, service was restored to the areas as soon as it could be under FTS 2001, as well

as the metropolitan area, the MAAs, the local contracts. We had a

robust program working with our brothers in the Public Building

Service of helping agencies relocate to other office space, and making sure that they had service at that time.

In addition, many agencies used backups in other parts of the

country for their data services, and we had service into there. So

I think the companies on both the 2001 and MAA served well in

such a disaster, including the restoration of service to the Pentagon.

Mrs. MALONEY. My time is up. Thank you.

[The prepared statement of Hon. Carolyn B. Maloney follows:]

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Chairman TOM DAVIS. Thank you very much.

Let me just ask a couple more questions of this panel before we

move on. I think I’ll start this with Mr. Perry.

We continue to hear expressed a concern that GSA is committed

to the centrally managed program outlined in the RFI, and that it’s

unlikely to change the basic framework as the program goes forward. Will you go forward with a program that’s designed based on

the information received from industry, agency stakeholders and

others, even if it differs fundamentally from that currently set forth

in the RFI?

Mr. PERRY. Yes, absolutely. What we will do in the final analysis

is do what meets the needs of our customer agencies, and the capabilities of the industry. At the same time, we believe that our history has shown us, as we’ve been talking here, about leveraging the

volume of purchases that the Federal Government represents. The

way to do that is through pooling those resources together, not by

fragmenting them to the nth degree.

So as a thought about this, we believe that our going-in approach

ought to be, how can we work as a Federal Government in a collaborative way to understand what our inventories are, understand

what our requirements are, understand what the industry capabilities are, and first, begin with the premise that we will try to fashion a solution that provides the best value to the government as

a whole?

Certainly there are some agencies which would have reasons to

operate separately. And we would accommodate that, if they don’t

use the FTS contracts, they are welcome to use other GSA acquisition vehicles, including schedules, or they obviously have the choice

of doing it independently. But I think logic would say that a starting point would be for us to collaborate to the greatest extent feasible.

Chairman TOM DAVIS. OK. Ms. Koontz, let me ask you, you note

in your statement that the proposed FTS Networx procurement

represents the third in a series of major, centralized telecommunications procurements undertaken by GSA on behalf of Federal

agencies. What are your thoughts on the viability of using a centralized telecommunications acquisition to meet the government’s

telecommunications service needs?

Ms. KOONTZ. We think that the concept of a centrally managed

program still has merit and is still viable. You don’t have to look

a whole lot further than the FTS 2001 program itself to see that

there is a demand among agencies for a centrally managed program where they are willing to pay a fee to GSA in order to have

GSA acquire and manage these services.

I would add to that, in addition, in our research that we’ve done

of private sector best practices that centralization has a couple of

benefits. One, you get to leverage your requirements across your

organization, or in this case, across multiple agencies. And in addition, you get to leverage your telecommunications expertise, which

is often a scarce resource in short supply. So the centralization can

also be an appropriate human capital strategy as well.

Chairman TOM DAVIS. OK. Mr. Ladner, Treasury is no stranger

to the pain of contract transition that we hear mentioned so often

in this. Having gone through to some extent under FTS 2000 and

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again at the inception of 2001 of the contract, based on your experiences, are there specific actions you can identify that GSA should

be taking now to make future contract transitions less stressful to

their government agencies? And I’ll ask Mr. Bryson the same thing.

Mr. LADNER. Mr. Bryson actually mentioned a few things in his

testimony that address this. I think to add to that, we believe that

it’s critical for any contract to embed innovation. And one of the aspects which seems to change quickest, which we need to remain

most aligned with in the private sector, is in the area of billing.

So as we look to transition off our current contract of TCS, which

expires in September 2005, what we are trying to look at and work

with FTS most specifically on is in the area of billing. How can we

ensure that as we find and address business problems at the operating level, we ensure that those can be managed in the transition

process appropriately.

To add to what Ms. Koontz said, we believe as well that a centrally managed program is very, very helpful, and there are a lot

of benefits to that. Whether one looks at what’s happening in the

private sector or public sector, IT government reform is pushing

more and more organizations to centralize.

But again, being able to solve business problems and then take

how we’re solving those business problems and introduce those

learnings and those technologies in at the central level is critical.

And again, being able to transition what we’re already doing in

that regard from TCS to say, a Networx contract, would be crucial.

Chairman TOM DAVIS. OK. Mr. Bryson, you might reiterate a

couple of things you said just to get it in this part of the record.

Mr. BRYSON. I would, yes. Of the moneys that we spent on telecommunications, about half of them are spent on the national infrastructure, and about half of them are spent actually at the local

level for services. We’re very much in favor, as I said, of a national

contract that allows us to get the kind of savings that the size of

the government can generate for all of those services.

So to the extent we have a contract that allows courts or other

offices out in smaller locations, away from the major cities, to have

better prices for cellular, local dial tone, those kinds of things, we

think that is helpful.

As we move to the new contract, we really would like to have

GSA and the companies that we deal with look at their interface.

It would be nice to have an electronic way to transmit orders, track

them, have them implemented, and then get billing back in a timely way, so that the services that we ask for, that we contract for,

we know are there, they’re done correctly, and that we’re being

billed correctly for them.

This is a huge juggernaut that we’re dealing with here, we have

multiple companies. If you’re dealing with the small companies

around the country as well who have to then bill back through the

main providers, it is a serious concern keeping all that straight. All

that of course goes through GSA as well, so you’ve got an interesting dilemma in how you make sure that all that information is correct, that what we’re paying in our billing cycles is correct for what

we’re getting. We think that is an area that really needs to be focused on, the infrastructure that supports this contract needs to be

looked at very carefully and improved to really serve us well.

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Mr. LADNER. Let me just add, while it’s more of a steady state

issue, and has a lot of ramifications for what we’re transitioning to,

and that is, the area of portfolio management, Clinger-Cohen holds

that we steward resources well across the Department. So what

we’ve been working hard at is figuring out what we’ve got, to figure

out how we’re doing.

With regard to network services, that’s no exception. So what

we’ve been trying to do at Treasury is to understand better in as

close to real time as possible how we’re doing on the network side,

and then help our business owners understand how telecommunications services are supporting, achieving mission critical objectives.

So having the right kinds of interfaces to get the information

that we need from carriers, from FTS, so we can figure out what’s

going on, is absolutely critical for our portfolio management initiative.

Chairman TOM DAVIS. Thank you very much.

Does anyone else on the panel want to add anything? We’ll keep

the record open for a couple of weeks if Members have questions

they want to forward. I know Mr. Waxman, I think, will have a

couple. And based on the review of some of the comments, we may

have a couple followups. But I appreciate your patience, appreciate

your being here today.

We’ll dismiss this panel, move to the second panel and take

about a 3-minute recess. Thank you very much.

[Recess.]

Chairman TOM DAVIS. The committee will come to order.

Just please rise with me and I’ll introduce you if we could swear

everybody in. Anthony D’Agata, the vice president and general

manager from Government Systems Division at Sprint; Quinten

Johnson, regional vice president, SBC Federal Solutions; Kevin

O’Hara, president and chief operating officer, Level 3 Communications; Jerry Hogge, the senior VP for Winstar; David Page, vice

president, Federal Systems, BellSouth; Louis Addeo, the president

of AT&T Government Solutions; Shelley Murphy, president, Federal Marks, Verizon, and Jerry Edgerton, senior vice president,

Government Markets, MCI.

Please raise your right hands.

[Witnesses sworn.]

Chairman TOM DAVIS. Thank you. Thank you for your patience.

Your total testimony is in the record. I figure if everybody takes

the allotted time or a minimum of 40 minutes, working out before

we get to questions. But you don’t have to take it all if you don’t

want to. But if we can keep on schedule, we all get out of here.

I’ll remind you, your presence is really important, and as you heard

from the previous panel, your comments are really important in

shaping this thing.

So we want to make sure—again your total testimony is in the

record, I’ll just re-emphasize that—but we want to make sure you

get your major points across because it’s important not just that

this committee hear them, but that GSA understands how you underline your important points; take that into account.

We drew out of a hat to see who goes first. This is such a distinguished body, we didn’t want to rank one company over another in

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the telecom arena. You can understand—[laughter]—so I’m going

to start on the left, Mr. D’Agata, with you, and move on down.

Thank you.

STATEMENTS OF ANTHONY D’AGATA, VICE PRESIDENT AND

GENERAL MANAGER, GOVERNMENT SYSTEMS DIVISION,

SPRINT CORP.; QUINTEN JOHNSON, REGIONAL VICE PRESIDENT, SBC FEDERAL SOLUTIONS; KEVIN O’HARA, PRESIDENT AND CHIEF OPERATING OFFICER, LEVEL 3 COMMUNICATIONS, LLC; JERRY W. HOGGE, SENIOR VICE PRESIDENT, WINSTAR GOVERNMENT SOLUTIONS, LLC; DAVID J.

PAGE, VICE PRESIDENT, FEDERAL GOVERNMENT SALES,

BELLSOUTH CORP.; LOUIS M. ADDEO, PRESIDENT, AT&T

GOVERNMENT SOLUTIONS; SHELLEY MURPHY, PRESIDENT,

VERIZON FEDERAL INC.; AND JERRY A. EDGERTON, SENIOR

VICE PRESIDENT, GOVERNMENT MARKETS, MCI

Mr. D’AGATA. Good morning, Mr. Chairman and members of the

committee. My name is Tony D’Agata, I’m vice president and general manager of Sprint’s Government Systems Division.

I would like to express my appreciation for the opportunity to

share with you this morning Sprint’s views on Networx, the followon program to FTS 2001. Simply stated, Sprint endorses GSA’s network acquisition plan to replace the FTS 2001 program. We will,

however, recommend changes to the Networx acquisition.

The Networx acquisition strategy is sound. The government’s experience over the past 15 years with multiple award, IDIQ, telecommunications contracts has been extraordinary. These vehicles

have enabled the government to aggregate its buying power to the

benefit of the smallest government agency.

As of the third year of the FTS 2001, the government had saved over $400 million, compared to the best prices available on FTS

2000. By the end of the term of the FTS 2001, the government savings will approach over $1 billion. Moreover, FTS has provided to

the government agencies unprecedented management tools, such as

online ordering, pricing and trouble report handling to manage the

accomplishment of their respective missions.

But the carriers cannot take all the credit for delivering unparalleled value to the government. The General Services Administration, as a full partner, has played a significant role in the success

of these vehicles. While some would say that it’s time to change the

above winning formula to one resembling a set of schedules, Sprint

strongly disagrees. It must be remembered that the schedule procurement model has been successful for the procurement of one size

fits all, commercial off-the-shelf commodity items. It is not suited

to the delivery of customized telecommunications solutions envisioned by Networx.

The Networx acquisition strategy should be modified, however.

First, the Networx carriers, contractors should not be put in the position of assuming the economic risk of an unpredictable access

market. The FTS 2001 required carriers to forward price access

services for 8 years. Unfortunately, full competition and those projected price reductions in access have not materialized. This has

caused significant financial harm to the service providers. As a result, the government must consider the future uncertainties in acVerDate 11-MAY-2000 11:25 Jul 12, 2004 Jkt 000000 PO 00000 Frm 00102 Fmt 6633 Sfmt 6633 D:\DOCS\94004.TXT HGOVREF1 PsN: HGOVREF1
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cess pricing when forming its price expectations of the Networx

offerors.

Second, the existing Networx procurement strategy is to award

a universal contract to provide the mandatory ubiquitous services

and a select contract to provide niche services. The Networx Select

contract should not be used to cannibalize the Universal Networx

program. If the select program awardees are permitted to subsequently provide overlapping but geographically limited similar

services, the select program provider could cherry pick or cream

skim the business base of the universal providers. The select program should be reserved exclusively for small and small disadvantaged businesses to provide them the opportunity to offer services

complementary to those provided by the Networx Universal providers. Finally, Sprint recommends that the successor contract not

contain a substantial minimum revenue guarantee [MRG]. One

major rationale to support a substantial MRG is to guarantee the

contractor a specific volume of business to justify the sizable system development costs. However, due to the foresight of the architects of the FTS 2001 acquisition strategy, all of the long distance

providers and MAA local service providers already must comply

with those requirements. Therefore, as long as the Networx billing

and system requirements remain the same, all the likely Networx

offerors should already substantially comply with these requirements and there is no need for a significant MRG to cover those

costs.

Fundamentally, Sprint’s message here today is that the Networx

procurement strategy has a long and successful pedigree. We urge

the committee to stay the course, and I’d be happy to answer any

questions that you may have.

[The prepared statement of Mr. D’Agata follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Johnson.

Mr. JOHNSON. Thank you very much, Mr. Chairman, for the opportunity to discuss the Networx contract. My name is Quinten

Johnson, I’m the regional vice president with SBC Communications, Federal Solutions. SBC is very pleased in responding to this

very important government program.

There are a couple of issues that would help SBC achieve the

lowest possible rates for the government under this contract. Historically, our internal rate determination is based on factors such

as the volume of the service and the opportunity, and the length

of the term of the contract. In this regard, the longer the contract

term, such as 5 year base with five 1-year options, would result in

lower costs, as would the addition of minimum revenue guarantees

demonstrating commitment on the part of the government.

We also believe that the government should seek normal commercial products and services which would allow the companies to

provide existing offerings in the government marketplace, as they

do in the commercial marketplace, resulting in lower costs.

In the cases of special requirements, we feel that the entity causing the cost should bear the cost. For example, if the government

was able to use the normal billing offerings, then the agency or department that requires a government-unique bill, that is CLIN,

contract line item number-based, should pay for the extra costs related to that type of bill. Using our normal billings systems would

result in reduction of billing errors and transition problems.

In the discussion of the structure of the Networx Universal contract, we feel that requiring all vendors to offer services everywhere that the present contract provides would provide potential

higher cost to the government. If vendors have to subcontract to

other companies, it would result in higher administrative costs,

which would result in higher overall costs.

We would suggest that the government allow for different categories of service and allow vendors to bid on the categories that

they have the greatest expertise in providing. Allowing companies

who have 7 or 8 categories covered out of 10 would allow for a

greater number of companies to participate in the contract, and result in more competition and lower rates to the government. This

could result in one single contract, rather than requiring a Networx

Universal and Networx Select.

A good model for this kind of bid would be the GSA Connections

contract, where vendors were allowed to bid on different categories

and task orders were competed within the companies that were

qualified in each category. This would allow the government to also

have the ability to offer products and services that go from the

more commodities-type to the very complex-type networks. Additionally, it would allow companies which have specific expertise to

assist the government in each of the different categories.

We are very pleased to see the requirement for managed network

services, since we have a history of offering this type of service. We

have found that many of these types of services do not fit into a

fixed price service-based or equipment-based CLIN. These managed

services are better served if they are priced on an individual case

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basis, which reflects the customized solution which meets each individual customer’s unique situation.

We believe that the converged services, such as Voice Over Internet Protocol [VOIP], and Services Blending products such as local

calling, long distance, voice, DSL, and wireless services on one bill

are already here. We think that Networx should have the ability

to include other services and technologies that will be developed in

the future to be included in this contract.

Thank you for allowing SBC the opportunity to participate in

these hearings. SBC looks forward to working with you and the

GSA on the continued development of the Networx contract. I

would be happy to entertain any questions.

[The prepared statement of Mr. Johnson follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. O’Hara.

Mr. O’HARA. Thank you. Good afternoon, Mr. Chairman.

I believe if we look back, I think we would all conclude that the

FTS program has generally worked well and served the needs of

the government. However, since the time that the FTS was last

awarded, there has been tremendous change in our industry. And

we believe strongly at Level 3 that the Networx approach, particularly the universal approach, as contemplated in the RFI, does not

allow the government to take advantage of the changes in our industry, and in fact would limit the government’s ability to derive

best value.

Level 3 was founded on the principle of deploying the technology

that pushes the cost-of-service down. Our goal was not to have the

lowest cost of service the day our network construction was complete, but rather design and construct our networks in a way that

allowed us to take advantage of future changes in technology and

always enjoy the lowest cost of service. We invested $14 billion toward this goal, and in those areas

where we offer service, we have become a formidable competitor. In

a matter of a few short years, we’ve become one of the top three

Internet backbones in the world. We’re one of the top two providers

of dial-up services to the Internet, and we’re one of the top transport service providers in both the United States and Europe.

Our goal has never been to emulate the incumbents, as we saw

the industry realigning itself around areas of sustainable competitive advantage. We believe that in a world changing as radically

as ours, trying to be good at all things while competing against focused competitors is a difficult, if not impossible task.

In this environment, where both the services and the industry

winners and losers are far from certain, it is perilous to try and

predict the future. Instead, users are far better off taking advantage of and accommodating the inevitable changes in their plans.

While the last 5 years have been difficult ones for our industry,

there is no reason to believe that the rate of change is going to slow

down. Against this background, we believe that the government

can best achieve best value by considering the following alternatives.

First, allow companies to play to their strengths. Requiring potential bidders to support all services, including legacy services everywhere, will have the unintended consequence of higher prices.

In the IP arena for instance, where vigorous competition has

emerged over the last few years, we’ve seen prices drop approximately 80 percent just in the last 2 years.

Second, define the services and the required product attributes

that the government desires, not the underlying technology. Level

3 supports approximately 25 billion minutes per month of calling

in support of our ISP customers. If measured separately, this volume would place us among the top five local phone companies in

the country. Our customers consistently rate us as their best quality provider. However, we do not own or deploy a single circuit

switch. Instead, we support the volume with a soft switch, essentially a general purpose computer replacement for the very expensive traditional switching technology. Since we first introduced our

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soft switch services 4 years ago, our customers have enjoyed approximately an order of magnitude decrease in price.

Third, the government should maintain flexibility on which providers they do business with, not just today, but throughout the life

of any contract they enter. Since FTS was last awarded, dozens of

new entrants have raised hundreds of billions of dollars of capital.

The cumulative effect on innovation, pricing and quality brought

about by this set of market forces is far greater than any benefits

derived from a long term contractual commitment. Locking into one

or two providers today would deny the government the market benefits over the life of the contract.

In summary, the telecommunications market today does not look

like the industry that existed just a few short years ago. In order

to best derive best value, we believe that the government’s approach to communications procurement should take advantage of

these market changes.

Thank you.

[The prepared statement of Mr. O’Hara follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Hogge.

Mr. HOGGE. Good afternoon, Chairman Davis and members of

the committee. I appreciate the opportunity to appear today to discuss the GSA’s Networx program. My name is Jerry Hogge, and I

am senior vice president of Winstar Government Solutions. I’m

here to offer Winstar’s perspective as an incumbent supplier in

GSA’s MAA and FTS 2001 programs, and to offer our specific recommendations as to each of the six issues outlined in your February 17th letter to industry.

In addition to the six important issues raised by the committee,

I’d like to comment on what Winstar views as the most vital, overarching issue for the Networx program, and that is the ability of

the program to properly address homeland security, continuity of

operations and their relationship to our Nation’s telecommunications networks.

As we all know, communications are essential to the efficient and

effective operation of any organization. This is particularly true

with large, distributed organizations such as the Federal Government, where our telecommunications networks are at the heart of

all forms of communication, whether voice, data or video. Through

the terrible events of September 11, 2001, we learned some very

valuable lessons about the importance of communication and the

essential role our telecommunications networks serve in crisis situations. Unfortunately and more importantly, we were also confronted with some of the frailties and limitations of our telecommunications networks.

One aspect of homeland security and telecommunications networks is physical diversity into and out of key Federal sites. In

fact, numerous independent third party experts and observers have

concluded that all key commercial and government buildings need

to be served by at least two separate facilities-based networks and

enter and exit the building from separate points.

As such, Winstar contends the Networx program should directly

address this important issue. In order for Networx to adequately

address these important issues, there should be an express requirement for: One, a comprehensive network inventory assessment;

two, a program mandate that critical government sites be identified

and that special communications requirements be determined, including physically diverse infrastructure requirements; three, a

time down requirement for procuring diverse network connectivity

at these critical sites; and four, an ongoing program of review.

I will now direct the remainder of my remarks to the six key

issues raised by the committee. Concerning a centrally managed

program strategy, Winstar continues to see substantial and lasting

value in its relationship with the GSA FTS, and believes that there

are meaningful benefits for the competitive industry and the Federal agency users through FTS’s acquisition expertise and program

leadership. A centralized acquisition and program approach can facilitate the establishment of standards, promulgate shared, best

common practices, provide an organized evaluation of alternatives,

and lend a sensible, unified approach to contract management.

For national network requirements, such as those intended to be

within the scope of Networx Universal, a centralized approach also

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reduces transaction costs for the government and for industry participants, thereby making the procurement action more efficient for

the parties involved. Both small and large agencies can benefit

from GSA’s ability to aggregate Federal buying power, and from

their highly specialized expertise and telecommunications acquisition and program management.

Transition strategies and cost and contract performance period.

The transition from one major program to another is a daunting

task. Direct costs, such as service initiation charges, as well as indirect costs, such as lost productivity and temporary interruption

of operations can be substantial. The time, capital and human resource commitments required by the government as well as the

vendor community weigh heavily in the complex calculus of an

agency’s decision to make a change and thus have a direct link to

the contract’s period of performance.

The transition from the original FTS program to FTS 2000 took

roughly 18 months, and reportedly cost several hundred million

dollars. Approximately 10 years later, the transition from FTS

2000 to FTS 2001 took roughly 2 years to complete and also came

at a substantial cost. The magnitude of these transition costs and

the lengthy timeframes required to complete the task create inertia

against change.

We know empirically that movement between programs and

among vendors is not something agencies take lightly nor engage

in frequently. However, in order for there to be sufficient business

opportunity to drive competition at the time of contracting, transition must be a practical and sensible option for agencies as they

evaluate the costs and benefits of making a change.

In order for Networx to represent a meaningful business opportunity to industry and a rational choice for agency users, GSA

must balance these competing factors by: One, creating a shared financial resource to defray one-time costs of transition; two, establishing a 10 to 15-year contract period of performance structured

as two or three 5-year periods; and three, providing minimum revenue guarantees sufficient to motivate competition and justify specialized investment that may be required to comply with the requirements of the Networx program.

Billing requirements. As with any business opportunity, industry

will evaluate the revenue potential against the cost of acquiring

and maintaining that revenue. The Federal Government has longstanding and unique requirements for billing telecommunications

services. But as the cost of telecommunications services has declined over the past decades, the rationale for many of these unique

requirements has diminished. The government and industry have

jointly recognized this fact, and have made changes to certain billing requirements. Winstar expects the trend toward commercial

standards to continue into the Networx program.

Services and technologies required by the agency users. In order

for the GSA and the Federal agency users to achieve maximum

benefit through the Networx program, there must be a means for

ensuring that both mature and leading edge technologies are available to agency users. By mandating 14 major service categories,

each with multiple sub-service components that must be provided

on a ubiquitous basis, the Networx program will inherently limit

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the number of potential bidders to only the largest telecommunications companies. At a time in our history when technology advances and service innovation are occurring at such a rapid pace,

this broad mandate and resulting limitation on potential prime bidders works against the government’s interest. Winstar recommends

that GSA consider a tiered approach to service offerings designed

to take advantage of the strengths of as many companies as possible.

In conclusion, I’d like to again congratulate GSA on its accomplishments through FTS 2001 and the MAA program initiatives.

GSA has done an exceptional job at managing complex programs

through some of the most challenging times in our industry and in

our country.

At this time in our Nation’s history when homeland security is

one of our greatest challenges, I submit that economic savings

should not be the most important objective for the Networx program. Instead, our collective focus in this procurement should be

on ensuring that the Networx program does everything possible to

guarantee that telecommunications services are available to facilitate the efficient operation of government in routine and crisis situations, and achieve these objectives by utilizing the strengths of as

many telecommunications companies as possible.

[The prepared statement of Mr. Hogge follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Page.

Mr. PAGE. Thank you, Mr. Chairman and members of the committee. My name is Dave Page, and I’m the vice president for

BellSouth Federal Division.

It’s a privilege to appear before you today to present the views

of BellSouth on this new important government program, Networx.

Our response to the Networx RFI emphasized the need for open

and fair partnering, use of best commercial practices in as many

areas of the acquisition process as possible, and an innovative contracting strategy designed to concurrently drive prices downward

and reduce contract modification overhead. We have four recommendations.

First, Mr. Chairman, we believe both Networx Universal and

Networx Select awards should be made at the same time. As the

RFI is written today, Networx Universal will receive their award

9 months prior to Networx Select. Under this scenario, Networx

Universal awardees will have established themselves as vendors of

choice for almost a year prior to Networx Select awardees being

able to begin. Subdividing procurements by areas of need would

complement the select and universal categories. For example, instead of finding two or three companies in the world that might be

universal by the early definitions, you could have 10 companies

who offer long distance, VOIP, etc.

Second, we also strongly advocate the use of standard commercial pricing structures in billing platforms. CLIN-based pricing,

which is an artificial bundling of charges, is government-specific

and does not represent best practices in commercial business.

CLIN-based pricing requires either the development of a customized billing platform or manual conversion from commercial

billing to CLIN billing, both of which are inconsistent with lowering costs.

Third, we believe timely contract modifications are needed to provide the most advanced and up to date services to end-user agencies. The current modification process under an MAA takes far too

long. Specifically, we believe the modification process should be

handled either at the regional or national level, but not both. Required information for modification requests should be simple and

straightforward: brief technical descriptions, brief descriptions of

benefits and pricing. The government should commit to a rapid

timeframe within which the modification request would be processed, say 30 days.

Finally, moving beyond the incremental to the innovative, addressing timely contract modifications and more flexible pricing

strategy, the automatic inclusion of approved tariffs under Networx

and the use of tariff pricing as not to exceed pricing would be a significant step forward for GSA. I emphasize that the pricing should

be used as a ceiling; discounts would be handled on an individual

case basis.

Mr. Chairman, BellSouth’s recommendations are straightforward

and direct. GSA is moving forward with good intentions to be a

true best provider to its customers. With the suggestions made

today, BellSouth is confident GSA will continue to be the governVerDate 11-MAY-2000 11:25 Jul 12, 2004 Jkt 000000 PO 00000 Frm 00149 Fmt 6633 Sfmt 6633 D:\DOCS\94004.TXT HGOVREF1 PsN: HGOVREF1
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ments’ best answer to complex, involved communications contracts

awards.

Mr. Chairman, BellSouth appreciates the opportunity to share its

views, and we welcome any questions you may have.

[The prepared statement of Mr. Page follows:]

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Chairman TOM DAVIS. Thank you very much.

Mr. Addeo.

Mr. ADDEO. Good afternoon, Chairman Davis and members of

the committee. My name is Lou Addeo, I’m the president of AT&T

Government Solutions.

I appreciate the opportunity to present AT&T’s views concerning

GSA’s Networx acquisition strategy. AT&T commends the committee’s interest in this important acquisition, and looks forward to

working with both the committee and GSA to meet government

telecommunications and network needs. AT&T has a proud history

of providing service to the government. Thousands of AT&T employees provide sophisticated integration information solutions,

professional services and network technology.

Networx is a logical follow-on to GSA’s successful FTS 2001 Fed

wireless and satellite programs, and GSA should be commended for

its initiative in preparing the Networx acquisition. If properly

structured, Networx can provide agencies and taxpayers three important advantages: convergence of services, security and ubiquitous service. We have recommendations for each.

First, Networx can encourage convergence of services over IP,

Internet Protocol, with the promise of improved technical capability, increased security and lower costs. Agencies will be attracted

to providers that can offer such innovations as Web-based business

transactions, multi-media instant message, broad band wireless,

and grid networking.

Second, in the post September 11th era, Networx must address

the government’s need to have unsurpassed network security and

survivability. AT&T has made huge investments in its network,

nearly $3 billion in 2003 alone, so it can provide security IT services. Events such as the September 11th attacks, the 2003 blackout, the seemingly daily attacks by computer viruses and worms,

and the recent anthrax and ricin attacks on Capitol Hill further

demonstrate the need for national security emergency preparedness and continuing plans. For this reason, AT&T recommends

that robust security capabilities be expressly required in Networx.

Third, the agency mission requirements demand ubiquitous services. Networx should guarantee the agencies that the successful

Networx contractors will serve all their existing personnel and customers. AT&T supports the acquisition goals of service continuity

to all existing and new FTS 2001 users. We must be able to provide

service virtually anywhere. Agencies simply cannot afford to leave

some constituencies behind. They must reach every corner of the

United States and perhaps around the globe.

These three opportunities, convergence, security and ubiquity,

make it critical that the Networx acquisition should stay on its

present schedule, or perhaps be accelerated, so the government can

realize the benefits of both converged technologies and large scale

contracting. Our analysis indicates that many agencies recently

have bypassed FTS 2001 and acquired services through independent acquisitions. Agencies may be taking these unilateral actions

because the remaining period of FTS 2001 is short. This short time

period introduces substantial limitations into an agency’s ability to

plan for and address telecommunications and network requirements. For this reason, a new contract is critical.

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We understand that GSA has the goals of continuous competition, ease of acquisition, use of commercial methods and expeditious transition. Let me discuss each of these. Continuous competition. Multiple contract awards will maximize competition, reduce

costs and provide contractors enough business to recover costs and

provide best value.

Schedule contracts. AT&T agrees with the multi-tiered acquisition strategy because it provides agencies choice and flexibility in

satisfying their network needs. To bring agencies even greater

flexibility, GSA should provide an additional option for agencies of

basic telecommunications-like schedule.

Three, contract term and practices. Many GSA objectives can be

met through commercial contract terms and practices. For example,

some agencies may be satisfied to be billed using commercial billing systems. Commercial systems typically result in simplification,

better prices, easier transitions, and more flexible business arrangements. AT&T looks forward to working with GSA and agencies to bring commercial best practices into Networx.

Modernization and transition. GSA and user agencies must actively manage and accelerate transition. I urge the Federal Government to move expeditiously on Networx to bring an unparalleled

level of service and innovation to U.S. citizens in the 21st century

E-Gov. world.

I thank the committee for the opportunity to share AT&T’s views

on Networx acquisition. AT&T is committed to serving the government to assure that this opportunity is fully met. I look forward to

any questions you may have.

[The prepared statement of Mr. Addeo follows:]

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Chairman TOM DAVIS. Thank you very much.

Ms. Murphy.

Ms. MURPHY. Mr. Chairman and members of the committee, I

want to thank you for giving me the opportunity to testify today.

The current acquisition strategy as described in the RFI for

Networx is unlikely to provide robust competition from many

sources, thereby restricting the government from securing cost-effective, high quality services. Moreover, the current plan does not

encourage industry to provide new technology or innovative solutions to meet the government’s increasingly complex information

technology requirements.

We believe that the two-contract award approach of Networx

Universal and Networx Select is flawed. The Networx Universal acquisition is geared to the traditional long distance carriers, and

represents business as usual for FTS and the agencies. The universal procurement would have a small number of awardees. The

large number of mandatory services that must be delivered within

the United States and to international locations under the Networx

Universal procurement reduces competition, limits new market entrants and also reduces the attractiveness of the Networx Select

procurement to other competitors.

The Networx Select procurement appears to be for all other vendors, both large and small. However, it is unclear how the select

vendors will compete with the universal providers, since the select

contract is scheduled for award 9 months after the award of the

universal contract. The select procurement would not allow incumbent local exchange carriers, competitive local exchange companies,

wireless carriers, satellite providers, systems integrators, or small

businesses to directly compete with traditional long distance vendors.

Some would say that the universal procurement approach is

needed to provide service continuity for existing customers. We

agree that service continuity should be provided for those customers who do not want to make a change at this time. However,

all customers will eventually transition to new technologies, either

because they have new application requirements or to take advantage in the improvement in price performance that those new technologies, like Convergence or Voice Over IP will provide. It is incumbent upon industry, GSA and government customers to work

together to ensure smooth transitions to different providers or new

service platforms. Verizon is confident that we can mitigate transition risks for those customers choosing to make a transition by active project management with dedicated resources.

There is no need to artificially create two procurement classifications of universal and select, when the marketplace can determine

the best solution. For example, if the Department of Agriculture,

with numerous remote sites, has a requirement for services at all

locations, then a vendor with greater infrastructure coverage will

have an advantage over a vendor with fewer facilities. Conversely,

there are other agencies with requirements for services primarily

in major metropolitan areas or specific regions where more vendors, including Verizon, could compete equally against traditional

long distance carriers.

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Competition in the marketplace and customer requirements

should determine the awardees for these specific task orders.

Verizon requests that the government consider several key changes

to the Networx acquisition strategy to maximize competition, reduce risk and achieve best value, while ensuring rapid introduction

of new technologies and offerings.

First, eliminate the distinction between Networx Universal and

Networx Select and create one Networx procurement with several

service categories, allowing for multiple awardees within each category. Significantly reduce the number of mandatory and ubiquitous service offerings. Develop multiple categories of services, for

example, voice, data, converged solutions, and others to allow all

segments of the industry to participate in direct competition with

the traditional long distance carriers. If desired, some of the standard commodity based service offerings could be placed on GSA

schedules. Allow vendors to structure their offerings to the geographies where they provide services with the opportunity to expand

them during the life of the contract. Reduce the number of government-unique management, operation, and billing requirements to

allow vendors to use their commercial systems, thereby reducing

costs and risk for the government. Finally, create a rapid contract

modification process to add new technologies as they are made

available.

In summary, GSA should allow the marketplace to drive the

service offerings, geographic coverage and prices for the Networx

acquisition. The dual procurement approach will only dilute the

power of the marketplace and cause increased costs, higher risks

and added confusion for the government. A single procurement

with multiple awards based on several categories of service configured for maximum industry participation will produce the most

flexible and stable contract platform for the future and result in

cost savings for the government.

I thank the committee for the opportunity to discuss the Networx

procurement, and would be pleased to answer any questions.

[The prepared statement of Ms. Murphy follows:]

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Chairman TOM DAVIS. Thank you very much.

And Jerry, before we get to you, let me just note, that was a vote.

We have two votes on the floor. What I intend to do is let you finish your testimony, try to get a question or two in, then I’m going

to turn the meeting over to Ms. Norton. Unfortunately, she doesn’t

get to come over and vote with us. Now, we’re trying to change

that, but that’s another whole story. [Laughter.]

And I’m going to give her some of my questions to ask. And

Chris, if you want to come back, we can hold them or we can give

the questions, we can get them all in the record. That way we can

move you on. I know from your perspective, when this is over, instead of holding you for what could be some time, consultants bill

the whole time. So we are conscious of that—[laughter]—and I

want to get them out of here as quick as we can, so our phone bills

stay low. Mr. Edgerton.

Mr. EDGERTON. Thank you, Mr. Chairman and members of the

committee. Good afternoon. My name is Jerry Edgerton, I’m the

senior vice president of MCI’s Government Markets Division. I appreciate the opportunity to appear before the committee today.

Thanks to you, Mr. Chairman, and the committee, for your support

of the FTS program.

I’m here today to share MCI’s perspective on GSA’s upcoming

Networx procurement. MCI is the largest telecommunications provider to the U.S. Government. My company supports more than 75

Federal agencies, and some of the most complex and demanding

networks in the world.

MCI has had the privilege of working under a number of contract

vehicles to provide the best possible service on behalf of the government to the American taxpayer. Our guiding principle has been

and will always be to make sure that the Federal agencies get the

full benefits of competition, including the best available technology,

world class service, innovative problem solving, and most importantly, low prices.

I would like to also thank the GSA, particularly the FTS organization, for their leadership during a tumultuous time in the industry. Their leadership has resulted in the FTS 2001 program that

has delivered very strong results across all government agencies.

According to a recent GSA IG report to Congress, and as has been

previously mentioned here today, FTS has saved the government

more than $574 million in fiscal year 2003 alone, and almost $2 billion for the life of the program. The same report finds that the pricing for FTS 2001 services are 53 percent lower than the same services provided to commercial clients. Agencies and taxpayers have

been well served by FTS 2001.

MCI has worked closely with GSA and government agencies to

deliver innovative solutions in many areas, including call centers,

security solutions, and importantly, disaster recovery. These services were added to the FTS contract as customer need and technology evolved since the original award in 1998.

MCI continues to bring competition and innovation to the FTS

program. Even through the difficult challenges of the past 2 years,

we have remained laser focused on quality and customer service.

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ment team. We have an unsurpassed commitment to the highest

business ethics, and will be the model for corporate governance.

The new MCI has been working tirelessly to restore public trust

and successfully emerge from Chapter 11. With the exception of

completing our financial filings, MCI has satisfied all significant

tasks required for its emergence, including obtaining all Federal

and State regulatory approvals. Emergence is expected within the

next couple of months.

In addition, after a careful review by GSA, MCI was found to be

a responsible government contractor. An independent third party

conducted a customer satisfaction survey in August 2003 to gauge

how well MCI is serving our government customers on the FTS

2001 program. MCI received universally high marks for communication and overall performance. I’m proud to say that our customers cited MCI’s people as its greatest strength. This is important to us, because it reaffirmed that our account teams and customer service specialists were continuing to focus on our customers,

despite the challenges facing the company during this period.

MCI is convinced, based on our experience, that the Networx program will continue to build on the success of the FTS 2001, and

can maximize its primary goals of continuity, innovative solutions

and flexible and competitive pricing. In our response to the

Networx RFI, we recommended a three-tiered approach. The first

category would be commodity-like services with commercial support. The second would add more complex services and government-specific management and operations support, similar to FTS

2001. The third would be task orders for customized complex requirements. This three-tiered approach will maximize cost savings

by leveraging the buying power of the entire government, maintaining the flexibility to obtain customers services and benefit from

ongoing innovations and technology.

Mr. Chairman, there are a couple of additional issues that I

would like to bring to the committee’s attention that will affect the

ultimate success of the Networx program. First, a binding consideration for many agencies is the continuity of service. Agencies with

remote small locations should not be left behind, nor should the

constituents that they serve. The Networx contract must require

the winning vendors to provide service everywhere that service is

provided to today. Vendors may need to form partnerships to

achieve this goal. It is a critical necessity for agencies that offer

services directly to the public, such as the Social Security Administration or the Indian Health Services or the Department of Agriculture, as well as agencies responsible for national security and

defense.

Second, to reduce the overall costs to agencies and ultimately the

taxpayers, GSA should limit the expansion of the FTS 2001 billing,

reporting and monitoring requirements. Current FTS 2001 requirements provide significant benefits to all agencies. However, if an

agency has unique requirements, a task order approach eliminates

the possibility of a significant cost increase borne by all agencies

for a solution that benefits only a few.

In conclusion, let me answer directly the question posed by the

committee: Does a centralized government telecom plan jive with

an evolving market? The answer is definitely yes. The FTS 2001

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program saved government agencies both large and small hundreds

of millions of dollars, while at the same time allowing them to address the unique requirements of their missions. The Networx contract will continue to build on the success of FTS 2001 by providing

similar cost savings, assuring that agencies have the flexibility to

meet all of their communications needs, and providing an efficient

vehicle for Federal users to obtain innovative solutions in an evolving marketplace.

I thank you for the opportunity to appear. I’m available for any

questions.

[The prepared statement of Mr. Edgerton follows:]

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Chairman TOM DAVIS. Thank you.

Let me just very quickly throw out two questions that I’ve got,

then Ms. Norton has some others, and I’ll turn the gavel over to

her, and we’ll go over and vote. I’ll come back if she’s not through,

but we may well be through.

No. 1, is expanding the scope of the contract to allow State and

local governments to participate off the schedule, how does that affect you? Your rates are so low in this case that you can’t afford

to do this to others. I’d like to just get a reaction to that, to the

State and local governments being able to use this and buy anything whether it’s GWAC schedules, whatever.

And second, some have suggested that it’s imperative that all

government locations be served by a single, ubiquitous contract,

others argue that innovative solutions to some communications

needs would be encouraged by not mandating service to all current

locations, and perhaps the standard ubiquitous service model may

not be appropriate. What’s your response to that? The ubiquitous

model or scenarios that are tough to serve, they’re areas where you

don’t make any money. I’ve gotten different reactions to that as I

hear the testimony.

So those are my general questions. I’m turning the gavel over to

Ms. Norton, and she has the authority to adjourn this if she wants.

I told her not to get too comfortable in the chairman’s chair.

[Laughter.]

But we are working together on this, and I thank you very much.

Ms. NORTON [assuming Chair]. I’m not going to sit in the Chair’s

seat, because I would surely be tempted not to give it up if he

comes back. [Laughter.]

But I am going to allow any of you who wish to begin to answer

the questions first that the Chair has just posed.

Mr. D’AGATA. Ms. Norton, I would support State governments

having the opportunity to procure off of Networx. They, I know,

would be delighted to have that opportunity. It would save procurement costs on their part, and it would benefit industry from having

to compete on a State-by-State basis for the needs of the States.

Ms. NORTON. On that question, on that one issue, is there anyone

else who wants to respond?

Mr. ADDEO. Yes, Congresswoman Norton. I support it in a general sense, having supported State and local governments for a few

years. They do have some special approaches to doing business.

Now, I think in general, they could take advantage of a contract

of this type. But some State and local governments also pass down

their price performance to non-State and local governments. So it

would almost look as if they were passing down the pricing to commercial business. In that particular case, I would see that is a

blending of the protection generally afforded Federal Government,

State and local government in terms of pricing, that would be an

issue. Other than that, I don’t think it would be an issue.

Ms. NORTON. What kind? Are those commercial entities, or nonprofits?

Mr. ADDEO. Yes, they’re commercial. Some could be non-profits,

some could be commercial and some could be construed as both.

Ms. NORTON. Any other responses on that?

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Mr. EDGERTON. I’d like to respond to that. We provide services

to several States. What we find generally in conflict is that their

procurement regulations are State specific, and they would probably have to make some exceptions in order to deal with, and buy

off of, the FTS contract. It would not be a universal, just the privilege to buy off the FTS contract, but not necessarily allow the

States to do that.

Ms. NORTON. No, it wouldn’t, so those who wanted to might and

those who didn’t——

Mr. EDGERTON. If their procurement rules allow that. We’re seeing all kinds of different procurement rules.

Ms. NORTON. And some might be quite willing to change their

procurement rules if in fact there were cost savings here, as I assume there would be. I’m certain for the District of Columbia there

would be.

Are there other responses to the Chair’s first question? Then

we’ll go on to his second question. Yes, Ms. Murphy.

Ms. MURPHY. With respect to the first question, Verizon would

also support cooperative purchasing, assuming that it could be limited to governmental entities. We see that as allowing all of the

public sector to take advantage of the broader purchasing power of

the Federal Government.

Ms. NORTON. How about Mr. Davis’ second issue? Does anyone

want to comment on that one?

Ms. MURPHY. Ms. Norton, with respect to ubiquitous service or

not, Verizon’s position is that if you had a procurement approach

that provided specific task orders, the agencies could decide whether they needed service to be provided ubiquitously or not. When we

look at traditional voice long distance services, for example, those

have traditionally been offered on a ubiquitous basis. We certainly

wouldn’t want to disadvantage those agencies that want to continue that way.

But as you look at the emergence of new technologies, very often

those are not available on a ubiquitous basis, they may come out

first in larger metropolitan areas and then be offered more broadly

over time. We would especially want newer technologies to be

available to the government on a non-ubiquitous basis, so that the

agencies could perhaps have the opportunity to pilot new technologies, which would allow them to ease their transition costs and

risks.

Ms. NORTON. My understanding from the question that I asked

the prior panel is that they are willing to look into that. I’m not

sure. It does seem to me if you’re talking about a country as big

and diverse as this, we’ve got to look at those options. I was

pleased to see that was seriously being considered.

Mr. Edgerton.

Mr. EDGERTON. Yes, Madam Chairwoman. Do you like that title?

Ms. NORTON. I’ll accept that. [Laughter.]

Mr. EDGERTON. Our experience in dealing with the customers

and the agencies is that, when they roll out a program, they roll

it out ubiquitously. They may do it on a timing basis, but the people in New Mexico or the people at Social Security Administration,

I think our toughest site was at the bottom of the Grand Canyon.

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They want the same level of service. They want the same response

time as the people in Baltimore get.

So it’s a demand brought about by technology. I was thinking

about what’s changed since we entered into this contract. Most of

us had modems. What’s a modem? And we dialed up at 56 kilobytes, and now most of us have cable TV access or DSL from

Verizon. And in turn, just the expectations have changed. And

that’s taking place in the agencies and by the customers. So the

ability to provide ubiquitous services is a demand. We are in a position and have attempted to fulfill that demand.

Ms. NORTON. Mr. Addeo.

Mr. ADDEO. I’m not as sweet talking as Jerry, but—[laughter.]

Ms. NORTON. Just try a little bit of it. [Laughter.]

Mr. ADDEO. I’ll work on it.

Mr. EDGERTON. And you never will be.

Mr. ADDEO. No, I won’t. I won’t.

I think ubiquitous service in the dimension that we just talked

about is one that we all support. The network and the carrier community and the partners here at the table are not just using and

looking at ubiquity from the perspective of providing basic service

alone in themselves, but of providing services through partners.

And networks are evolving technologically, and so are we evolving

through partnerships, and we know how to do not only the basic

network work, but we also know how to do network integration

work, which is a natural evolution of where we’re going in terms

of telecommunications.

Ms. NORTON. Mr. O’Hara.

Mr. O’HARA. Ms. Norton, I believe that there is an absolute requirement for ubiquity of service. However, it’s not apparent to me

that a single provider needs to be relied upon to provide that service. No carrier on this panel is capable of providing all services

themselves. They do partner, they do select teaming partners, etc.

However, there is a cost associated with that partnership, depending on the sophistication of the company involved. Either way,

those costs of the partnership get passed through to the government, and I would submit that in many instances, the government

may be better off by taking business, and buying, for instance, from

a Verizon in Verizon territory versus an SBC in Verizon territory

that would probably be subcontracting to Verizon.

So while there may be a need at the agency level for ubiquity of

service, it’s not apparent that you’d need to have a requirement

that all providers provide all things everywhere.

Ms. NORTON. Yes, sir, is this Mr. D’Agata?

Mr. D’AGATA. Yes. Ms. Norton, I think one of the beauties of the

FTS 2001 program is that the General Services Administration is

able to aggregate requirements to the benefit of all agencies. So

contractors consider that and provide prices that are very competitive.

Most of the agencies that we do business with want a single

point of contact for their services. So if it happens to be Customs

and Border Patrol and they have services going to remote sites

around the country, they want someone to manage that for them.

They want someone to provide a wide area network for all of those

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locations, and they want service level agreements to be met at each

site. One site is not necessarily more important than another.

So I think the benefit to the FTS 2001 program and hopefully the

Networx program is that it will be able to provide ubiquity to all

of the agencies.

Ms. NORTON. This discussion is most important. First of all,

we’ve broken down ubiquity to what it means. Yes, for Border Patrol, but what about the 50 other agencies who may have needs

that are far more concentrated? That’s why somebody needs to look

at this. If we’ve got the big bucks here, we have to look at what

in fact ubiquity means, and whether indeed what we have now is

all things told, the best way to do it, because you don’t make a hell

of a lot of savings breaking it up into several companies.

But it’s clear from the testimony of the prior panel they don’t

know. But what is also clear is that they want to find out. And

that’s why I think everybody here ought to be satisfied with that

notion. Was there anyone else who wanted to respond on the ubiquity question?

Mr. PAGE. I would like to just kind of tag along on what you just

said. For example, Health and Human Services might want a ubiquitous nationwide network, but CDC, which is located in Atlanta,

may have some very unique requirements that don’t fit that ubiquitous network. I think we need to have the flexibility to be able

to look at the people that do want the network that’s nationwide,

and the ones that are just very local in nature, with very specific

needs.

Ms. NORTON. Are there any other responses there? Let me ask

a question that the chairman wanted to ask. And I’d like to hear

what each of you, what the response of each of you would be to this

question. Will your company be able to participate with a reasonable chance of success in Networx as it is currently configured in

the RFI? Why don’t we just start here and go down the line.

Mr. D’AGATA. From Sprint’s standpoint, Ms. Norton, we feel that

we will be able to compete in the Networx architecture.

Mr. JOHNSON. Ms. Norton, from SBC, absolutely we could compete. I think there would be some of the issues that we outlined

earlier, transition, billing, things like that, but absolutely we’d be

in a position to compete.

Mr. O’HARA. From a Level 3 perspective, I suspect that we could

compete. We may choose not to compete for the universal portions

of the program, as the government through that program is essentially shifting risks and costs onto Level 3 where we don’t see adding a lot of value. To the extent that a tiered approach or some

other select approach is adopted, then I think we could bring tremendous value through this process to the government.

Mr. HOGGE. As far as Winstar is concerned, I guess the answer

depends upon the ultimate answer to the ubiquity question, how

that turns out. In terms of Winstar competing for this as a prime

bidder, if ubiquity turns out to mean everything everywhere, particularly with some concept of a postalized rate, that would be

quite a challenge for Winstar, given our network architecture and

infrastructure is focused and concentrated in major metropolitan

markets. If ubiquity turns out to mean something else, then the

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ing for Networx as a prime bidder. Certainly, as an incumbent provider in the MAA program and FTS 2001, we have a substantial

incumbency position, particularly on the local side. So we have

demonstrated our ability to compete. It’s just the scope and breadth

of the way the RFI is written today that is giving us some cause

for concern.

Mr. PAGE. From a BellSouth perspective, we certainly could go

after the universal part of Networx. However, we would have to do

that through many layers of subcontractors to be able to hit the

ubiquity that it currently calls for. At that business case review, we

might choose not to do so. That’s why we feel strongly that we need

to have the merging of the select and the universal with different

categories.

Mr. ADDEO. AT&T feels strongly that we could compete, given

the current RFI. I think over 49 respondents came in and responded to it. And with regard, as we follow on with the discussion

on ubiquity, I think it really brings to the fore one of the key questions. We will be partnering with other carriers, other companies

and other partners, either directly in, and neither to the universal

and/or the other and perhaps on the schedule side.

Ms. MURPHY. Ms. Norton, Verizon would have difficulty responding to the universal portion of Networx on our own, without extensive partnerships that would add cost to the government. We have

not yet determined whether we would be interested in participating

in the select portion, because that has not been as well defined so

far. Assuming that GSA, because of its openness to some of the

ideas discussed today, combines the procurements into one with

some multiple categories where there is the ability to provide services on a more flexible basis, then Verizon would be well positioned

to compete on the Networx contract.

Mr. EDGERTON. I find it fascinating that we, in fulfillment of the

current set of services of FTS 2001, use all the people at this table

to fulfill those services. We have contracts and basically use these

competitors to provide the services in fulfillment of FTS 2001. So

we are in a position to compete and look forward to it.

Ms. NORTON. All right, now, I want to get a little competition

going on the panel. [Laughter.]

As you might have gleaned from my earlier comments, I’m interested in the lowest price for the government, of course with the

requisite quality of service. But I belong to the ‘‘show-me school’’

when it comes to lowering prices. There’s a kind of instinctive notion that if you have several categories of service and multiple

awards in each category that you would lower prices. But that’s instinctive. I’m not sure it’s true.

Would any of you be prepared to tell me why the price for the

government would be lower than it is now in your view, if in fact

we have that kind of competition among categories of service and

with multiple awards to a number of companies? Why would the

price be lower than it is now?

Mr. ADDEO. At the risk of starting the war, Madam Chairwoman,

although I don’t think there would be—I do think that a couple of

comments first of all, I don’t think, if this was a like-for-like contract, that you’d see a significant amount of price reductions. Although I don’t think it will be.

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I do think, however, that some of the——

Ms. NORTON. Why don’t you think so? If competition is supposed

to do that, why doesn’t it do it in this case?

Mr. ADDEO. I think that the current services, if you compare

them against previous contracts, they’re managed every year down,

automatically there’s a price reduction, and there’s some marketto-market benchmarking already that exists within the contract. I

think you heard already that the gentleman from Sprint had indicated that there was some concern as to the pricing on access, because there was not, in his forward view, the pricing on access reductions that he put into his contract where perhaps the others

didn’t win.

But I think that there’s convergence coming on with the network,

where you’ll see price performance enhancements and things like

voice and video, which cost probably more than they need to cost

right now, over time being converged into a technology that will be

able to help reduce costs. That has to be identified and borne out

over the next few months, few years. But you’ll get substantial

price reductions and price performance changes. But not on the

like-for-like services.

Ms. NORTON. Yes, Mr. O’Hara.

Mr. O’HARA. This is a case where, not surprisingly, I actually do

disagree with a number of the other members of the panel. I think

if you just look at what has happened in the private sector over the

course of the last 3 or 4 years, at the differences in terms of price,

the rate of price performance improvement or price compression. In

those segments of the business that have been highly competitive

versus those other segments of the business that have been less

competitive, at least on a relative basis, you see radical changes in

the rate of price performance.

I don’t see any reason to believe that same dynamic would not

play out within the government sector. Whether you take the government’s buying and you break it up into two or three buckets,

they still represent massive buckets. Even if you were to break it

down into many dozens of buckets, it would still have the wherewithal and the clout to bring tremendous pricing, complimented by

much more rigorous competition for some segments of the business.

And in those segments where you may not have as rigorous a competition, I think what I’m hearing for the Montanas and the Border

Patrols and the like, you’re still going to have at least three people

competing, which is as good as you’re likely to get through the universal approach in those areas.

So I think there’s tremendous benefit to be gleaned. I think the

evidence from the private sector would bear that out.

Ms. NORTON. You know, Mr. Addeo, I hear what you’re saying,

and with this kind of contract, perhaps it is the case, you understand it is counterintuitive. It’s counterintuitive to say, particularly

when we’re dealing in IT, there are things that even my IT people,

they’re almost giving them away now compared to what we were

paying for them 3 years ago. It doesn’t happen in everything that

way, but certainly in IT, you just can’t keep up with what competition has done.

And again, I recognize this is a unique contract. There’s not another contract like this in the world. So I’m willing, and I believe

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that GSA is willing, to look at what Mr. O’Hara refers to, which

is the experience in the private sector, to see if it obtains here. But

we ought to see if it obtains here, recognizing the uniqueness of the

area in which we are operating with this GSA contract.

Let me ask another question while the chairman is getting himself together here. Does the bundling of services, which is what we

have here, make it harder or easier for small and minority businesses to participate in this contract?

Mr. JOHNSON. Ms. Norton, I think absolutely, because I think

there’s always going to be a certain niche——

Ms. NORTON. What is absolutely?

Mr. JOHNSON. That it would help, having minority businesses involved. I think certain services, especially a lot of the new tech,

Voice Over IP, broadband deployment, I think there’s going to be

an active role, especially in certain geographies where there’s a role

for those businesses to play.

As was stated earlier, I don’t think any one industry participant

can be all things to all people. There’s going to have to be those

kinds of relationships.

Ms. NORTON. Mr. Page.

Mr. PAGE. I honestly think this is one of those ubiquity questions

also, because I think where you really get the most for your small,

disadvantaged businesses, the most use for them, the most advantage for them is in those unique little small areas, niche areas,

where they can be probably more nimble than most of the organizations represented on this panel today. And they are able to work

with a larger company or on their own to go after those niche, very

specific need businesses.

I think it would offer them, being able to bundle a lot of things

together would give them a unique advantage.

Ms. NORTON. Your industry provides an opportunity for the new

crop, particularly, of women and minorities who missed out when

the great companies of the United States were built. So we hope

you’re not building another white male industry, when in fact we’re

starting from the ground up, and there are lots of young people out

here from the broad spectrum of American society who could easily

participate on the ground floor and at the highest levels in this industry.

Mr. Addeo.

Mr. ADDEO. I think at this table, we certainly have that problem.

But I do think there is no doubt that the GSA is going to have this

in mind when they do this contract. And there are probably all

these companies here before you have what they call small business mentoring programs, use of 8(a)’s. And again, we keep talking

about the network business at its basic level. We’re going to be providing basic services. When we talk about applications and new

changes into the network and new partnership space, all that space

or a majority of that space should be taken up by partners and

then serious partners with regard to mentoring programs and

small businesses.

Ms. MURPHY. Ms. Norton, I feel honor-bound to respond, under

the circumstances. Scary as it may be, I’m going to agree with Mr.

Addeo that when you’re providing basic services, those commodityVerDate 11-MAY-2000 11:25 Jul 12, 2004 Jkt 000000 PO 00000 Frm 00197 Fmt 6633 Sfmt 6633 D:\DOCS\94004.TXT HGOVREF1 PsN: HGOVREF1
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like services, the players that are currently in the marketplace are

the players who will be providing those.

But as you look at the new technologies and the ability under the

Networx contract to provide solutions to meet agencies’ needs,

there’s a tremendous opportunity for partnering with small business, women and minority-owned firms and 8(a). I know that’s an

area that we’ve had particular success, when there is a solutions

component to these contracts that allow us to provide a broader

suite of services.

Ms. NORTON. Mr. Chairman, if I could just ask one final question.

Chairman TOM DAVIS. [resuming Chair]. Sure.

Ms. NORTON. I’m a member of the Homeland Security Committee. Obviously security is a primary issue in your business. I’m

wondering about concentration, a contract that concentrates services. When the airlines went out, and who would have thought that

would ever have occurred in this region, Mr. Davis and I were left

with an airport that was closed for 2 weeks, amazingly more than

any place else.

But what happened was, people hopped on Amtrak and got out

of Dodge that way, and I suppose other ways as well. But Amtrak

had a great flow of business during that time. I’m wondering

whether we increase or diminish security by multiplying service

providers and what your view of that is?

Ms. MURPHY. Ms. Norton, you speak to something that’s very important, and it comes down to how you define ubiquity or continuity of service as part of the new contract, and why there needs to

be a place for telecommunications providers to provide services in

perhaps not all the way to the bottom of the Grand Canyon in

every single case.

If we look at the events of September 11, in particular what happened in New York and at the Pentagon, one of the great lessons

learned by our customers is that continuity of operations requires

diversity up to and including vendor diversity, carrier diversity, to

make sure that in the event of another disaster they can continue

to operate.

Ms. NORTON. Mr. Edgerton.

Mr. EDGERTON. I’d like to comment that since September 11th,

there have been lots of changes in network architecture and technology and diverse routings and so forth, to again provide the assurance that you have continuity of service, at least on your backbone networks. The next piece is how do you do that last mile and

make sure there’s continuity of service. That’s one of the benefits

of a procurement like this, that you can aggregate services traditionally in GSA facilities or government areas, and then get even

a further level of redundancy as part of the overall solution.

Ms. NORTON. Mr. Edgerton, on this you all have my sympathy.

All I can tell you is that when we had that blackout in the Northeast, it spread all over the country because of the interconnection

of all of these.

Mr. EDGERTON. The good news is the telecommunications system

continued to work. [Laughter.]

Ms. NORTON. OK. Mr. Chairman, I do want to say, in turning

back your gavel, that you indicated that I did not have a vote on

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the House floor. And I want to thank you for helping me in that

great 200-year fight. But I do want to put everybody on notice that

I do have a vote in this committee. [Laughter.]

Chairman TOM DAVIS. And a strong voice, if you haven’t noticed.

[Laughter.]

Ms. NORTON. And Mr. Chairman, I want to compliment you finally because as I looked at the size of this panel and noted the

many—this is the biggest panel I think this chairman has had

since he took over the gavel—I think it shows that the chairman

believes in competition, because he’s brought the whole industry

here. And I’m going to coin a new slogan for him, leave no company

behind. [Laughter.]

Chairman TOM DAVIS. Let me thank the panel for bearing with

us. We started late this morning, and you never know. When we

started the markup it was going to be like that, and things happened along the way.

We appreciate your bearing with us. I appreciate GSA for being

here and continuing to take notes on this. I think the industry

input is really important. The difficulty is that what we think we’re

going to get today isn’t what we’d have gotten 2 or 3 or 4 years

ago. You’re one of the most rapidly technologically developing industries in the world. And we need to maintain that flexibility,

where we can come in and out and just get the best deal for the

U.S. taxpayers and the government every step of the way.

Your companies are leading the world. We’re proud to have you

here today. Good luck to all of you. Thank you.

[Whereupon, at 1:56 p.m., the committee was adjourned, to reconvene at the call of the Chair.]

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