9 Hot Trends for '99

he explosion of competition since the deregulation of telecommunications began is driving prices down dramatically. The most striking example, one that could affect every federal office to some degree, is the pair of eight-year FTS 2001 contracts awarded to Sprint Corp. and MCI WorldCom Inc. around the first of the year. They will cut agencies' long-distance phone bills by two-thirds and will bring agencies an average rate of 1 cent per minute by 2007.

In awarding the FTS 2001 contracts on behalf of the government, the General Services Administration leveraged the collective buying power of the agencies. Together they spend close to a billion dollars a year on long-haul telecommunications. But individual agencies also are achieving substantial cuts in communications costs on their own.

After the landmark 1996 Telecommunications Act wiped out many restrictions on who could offer telephone service, the Air Force insists on competition when it contracts for local phone service at bases nationwide. The competition program has paid off in rate cuts of up to 70 percent, says John Summers, a contracting officer in the service's central telecommunications acquisition office at Tinker Air Force Base outside Oklahoma City.

The Air Force program began with a solicitation for would-be suppliers of local service at Scott Air Force Base in Illinois -ironically, the home of the Air Force Communications Command. The solicitation drew not a single response, Summers recalls.

Not even Ameritech, the regional Bell operating company (RBOC) that historically has served Scott and most of the rest of Illinois, bothered to bid for the contract. Ameritech got the contract by default, Summers says, at the published rates called tariffs -part of the legacy system of regulations over phone service.

Since then, however, the Air Force has put more than four dozen bases' phone service up for bid, Summers says, and about one-third of the contracts have gone to companies other than the incumbent RBOC. "We had some bumps in the road at first," like the one at Scott, he says, but on the whole it has been an extremely successful program.

He ticks off the savings: 70 percent at Kirtland Air Force Base, N.M.; 59 percent at Fairchild AFB, Wash.; 26 percent at March Air Reserve Base, Calif.; and 24 percent at Langley AFB, Va. At Langley and Tinker, the contracts went to Cox Communications Inc., which historically has been a cable television company but now offers telephone service.

Last summer, GST Telecommunications Inc., a 5-year-old company headquartered in Vancouver, Wash., unseated US West twice in one month, winning the Kirtland and March AFB contracts. A GST spokesman says the company also provides services to the Veterans Affairs Department, the Coast Guard, the Fish and Wildlife Service and other Defense Department installations.

Even when the RBOCs hang onto their Air Force customers, Summers says, the competition is forcing them to cut prices. For example, at Andrews AFB just outside Washington, incumbent Bell Atlantic won the contract, but the Air Force is paying 12 percent less as a result of the competition. The other bidders reportedly included MCI WorldCom, which is primarily a long-distance company.

And at Scott AFB, where the first competition for local access providers drew no bids, Summers says Ameritech recently increased its tariffed prices but included a provision that exempted Scott from the increase, which would have cost the base $12,000 a month.

"When we compete these [contracts], the RBOCs are being very creative about how they price," Summers observes.

Although communications deregulation has introduced some uncertainty and complexity to the federal environment, it has its good side: lower prices. Some of the price cuts are the result of lower-cost technology, such as fiber-optic cables that carry much more traffic in one conduit. Many of those technological advances, however, are the fruit of deregulation, which has forced companies to innovate so they can stay competitive.