Under the terms of the agreement, Qwest--which has been building a high-tech network to transmit voice, data, and video--will provide the government with the fiber, hardware, engineering, communications services, and network management that make up a custom Virtual Private Network (VPN) service.
"The federal government is an enormous business opportunity with significant critical networking and communications requirements, and Qwest is pleased to make a bold entrance into this market by providing a custom VPN to the nation's largest employer," Joseph P. Nacchio, president and CEO of Qwest, said in a statement.
Today's announcement marks the first large government contract secured by the multimedia communications company's newly created Government Systems Division, which was announced in February to provide data, multimedia, and voice communications services to the federal marketplace. The new division is located in the Washington D.C. area.
Qwest's planned domestic 16,285 mile network will serve more than 125 cities upon its scheduled completion in the second quarter of 1999. Currently, more than 5,400 miles are activated from California to New York, from Dallas to Houston, and from Phoenix to Austin, Texas. Qwest is also extending its network 1,400 miles into Mexico with completion slated for late third quarter 1998.
Qwest and other Internet telephony companies like ICG Communications and Level 3 Communications may eventually face regulation from the Federal Communications Commission. Earlier this month, the government agency said in a report to Congress that would be premature to impose fees on Internet telephony companies immediately, but noted that many of them appear to be no different from traditional analog phone carriers.
That report renewed fears that the government may impose regulatory fees on companies that provide long distance and other telephone services using Internet technology. While traditional phone companies such as AT&T and GTE must pay so-called access fees and universal service fees, Internet telephony companies have so far been exempt.
In recent months, Qwest has been on the acquisition path.
In March, Qwest agreed to buy LCI International (LCI) in a $4.4 billion stock deal, creating the fourth-largest long-distance phone company in the United States. The merger combines Qwest's fiber-optic network with LCI's sales and marketing efforts, distribution channels, and billing system.
Qwest also bought Netherlands-based Internet service provider EUnet International for about $154.4 million in stock and cash, giving it a foothold in the European data transmission market through EUnet's network of operating units in 13 countries.
The company also recently completed the acquisition of Phoenix Network of Golden, Colorado, a reseller of long distance services, a deal valued at about $27 million in stock.
Since its initial public offering last June, the company?s stock has surged more than 160 percent to Friday's close of 37-1/2.