MCI WorldCom has won the second and last round in a bidding war to provide at least $750 million in telecommunications services to the federal government.
The company joins Sprint in a head-to-head contract with the General Services Administration, the agency that buys wholesale telephone and data services for many government offices. Under the contract, the two companies will compete for the business of federal agencies served by the GSA.
MCI WorldCom and Sprint each are guaranteed equal shares of a $1.5 billion minimum return over the eight-year life of the contract. But the total amount of government business is expected to be likely $5 billion or more, said a GSA spokesman.
"That's our best estimate, based on historical use of services," said the GSA's Bill Beardan. "But I'd say that's a conservative guess."
MCI WorldCom executives said the GSA contract was the largest the company had won since WorldCom merged with MCI. The deal is likely to create close to 200 jobs around the country, a company spokesperson said.
The announcement is bad news for AT&T, which had been the dominant provider of federal government long distance services for the last 10 years. Under that earlier contract, AT&T had taken over about 72 percent of the GSA business, leaving the rest to Sprint, Bearden said.
The two companies won the eight-year contract based in part on very low bids for long distance service. Price for the government calls will start out at about 4 cents per minute and drop to less than 1 cent per minute over the life of the contract.
The companies also can try to outbid each other for the business of individual government agencies above their $750 million guarantee, possibly undercutting prices even more.
GSA officials say the contract's low prices will save close to $4 billion in government telecommunications expenditures over the life of the contract, compared to today's average prices.