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Qwest aims for brass ring
Officials are reviewing bids for a $20 billion federal program, Networx.
By Greg Griffin, Staff Writer
Denver Post
Sunday, May 28, 2006


The federal government is reviewing bids for the largest telecommunications contract in U.S. history, a 10-year, $20 billion program that would include nearly all federal agencies.

Teams led by major U.S. phone companies -- including AT&T, Verizon, Sprint Nextel and Denver-based Qwest -- are competing for a piece of the program, called Networx.

The contract looms as questions are being raised about the cozy relationship between the telecommunications industry and the government.  The National Security Agency, in particular, is alleged to have a vast database of domestic phone records.

"The government does have a lot of ability to pressure these telecom companies," said James Bamford, author of "Body of Secrets: Anatomy of the Ultra-Secret National Security Agency."

"There are so many government contracts.  Who's going to supply the BlackBerrys or supply phone service to the Pentagon? ... When you're doing business with them, it's not in your interest to turn the government away," said Bamford, based in Washington, D.C.

Qwest would not discuss its classified contract work for the government or comment on the NSA.

But the federal government is already Qwest's largest single customer, accounting for a projected $500 million in revenues this year, or about 3.5 percent of total sales.  About 60 percent comes from military-related contracts.

Civilian government contracts have been the fastest-growing segment.  Qwest launched the Internal Revenue Service's website in 2002 and provides network capacity and services to the departments of energy and labor, the Federal Aviation Administration and the General Services Administration.

Qwest officials said annual sales to the federal government could reach $1 billion or more within a few years.  Qwest historically has been a small player in government contracts, but the company is hoping that inclusion in Networx could catapult it into the big leagues with AT&T and Verizon.

"I like to think Qwest is more aggressive and nimbler than these big monolithic firms," said Diana Gowen, Qwest's senior vice president of government services, who is based in Washington.

Another Qwest advantage, Gowen said, is the company's ultramodern national fiber-optic network.  It cost billions of dollars to build and, though underutilized, it's a key selling point in the Networx competition.

Qwest leads a team of more than 30 companies in its bid for Networx.

The GSA plans to announce by next spring which telecommunications companies -- as well as defense contractors and smaller firms -- have qualified to be Networx vendors.

Companies chosen to participate will be eligible to compete for hundreds of major government contracts over a 10-year period from agencies ranging from the Department of Defense to the Department of Interior.

The NSA's role in surveillance

Top-secret government agencies like the NSA and CIA are less likely to participate in Networx, however, said Warren Suss, a Jenkintown, Pa.-based consultant to companies seeking federal contracts.  The NSA operates its own, secure communications networks, he said.

The NSA collects what is known as "signals intelligence" internationally, which could be any form of electronic communications.  Domestically, the agency is restricted from engaging in surveillance without legal authority.

However, the NSA has increasingly engaged in controversial domestic spying programs to thwart terrorism -- including eavesdropping on some international calls to or from the U.S.

Bamford said the nature of electronic surveillance has changed and that the NSA is moving from satellite-based surveillance to tapping far-flung fiber-optic networks, where most voice and data communications flow today.

The Electronic Frontier Foundation filed a lawsuit in January against AT&T, charging that the phone company gave the NSA access to Internet and telephone records without court approval.

In its statements, AT&T says that it follows the law and protects customer privacy.

Separately, USA Today reported on May 11 that the NSA compiled a vast database of customer call records from AT&T, Verizon and BellSouth -- but not Qwest -- after Sept. 11, 2001.

Verizon and BellSouth have since denied providing the information to the NSA.  AT&T said it has not given customer information to the government without legal authorization.

The government could come to the assistance of the phone companies if it asserts a rare but highly effective "state secrets" privilege to protect the information;  if judges agree, lawsuits asserting privacy violations by the companies would dissolve, according to several news reports.

USA Today reported that Qwest, under previous chief executive Joe Nacchio through mid-2002 and current CEO Richard Notebaert, denied the NSA request due to legal concerns.

Qwest has yet to comment on the USA Today report.

Networx getting Qwest's attention

If Qwest did indeed refuse to give the NSA what it wanted, could that affect its bid for Networx?

There may be no way of knowing at this point.

There's no doubt, however, that the contract is a high priority for Qwest.

In early 2005, Gowen's predecessor at Qwest, Jim Payne, told the publication Network World that the Networx bid was getting "a lot of attention" from Qwest's corporate headquarters.

"They have reviewed Networx at the senior executive level a half-dozen times, and we are regularly briefing them on it," he said.

Gowen said Qwest can grow its government contracts without Networx, but it will be more difficult.

Yet, winning a piece of Networx will be a challenge for Qwest, said Suss, the consultant.

"From a technological point of view they're a strong contender" for Networx, he said.  "But the government is looking not just for the newest technology.  There are so many agencies with so many needs.  They're all looking for different things.  Qwest has got to provide something that meets the needs of all the agencies."

Qwest's greatest strength in the Networx competition may be Gowen, he said.

"If anyone can do it Diana can," Suss said.  "She really knows how to command corporate resources.  They picked one of the best people in the industry."

Gowen started at Qwest a year ago.  Prior to that, she helped build MCI's government contract revenue from less than $100 million to $1 billion, according to news reports.

Pursuing Networx was one reason, according to some analysts, that Qwest fought so hard to merge with MCI in 2005.  MCI is known for its strong government contract business.  Verizon ended up winning MCI.

Staff writer Greg Griffin can be reached at 303-820-1241 or at ggriffin@denverpost.com.

http://www.denverpost.com/business/ci_3870993