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Once-Spurned Telecommunications Giant Bounces Back

November 2008
By Michael A. Robinson

Federal unit joins huge telecom program following mergers and wireless gains.

Do not blame Don Herring if his business plan for the next decade seems simple at first glance. After all, the senior vice president in charge of AT&T Government Solutions believes he is poised to cement his division’s reputation as a key provider of federal information technology services with dozens of new civilian and defense contracts that could be worth billions of dollars.

In assuming his job in March 2006, Herring had the fortune of good timing. Little more than a year later, the General Services Administration (GSA) selected AT&T and its partners as one of three teams authorized to bid on information technology contracts under the sweeping Networx Enterprise program, valued at about $20 billion.

Subsequently, the AT&T team became one of five partnerships authorized to participate in the Networx Universal effort, worth a potential total of about $48 billion. Most industry observers and financial analysts do not expect the government to issue contracts for the full $68 billion that the GSA has authorized over the next 10 years, but even a fraction of just half that amount could have an enormous effect on AT&T’s bottom line.

Though much of the work in preparing for the Networx bid predated Herring’s role as head of the unit, it nonetheless represented a substantial coup for an executive who came with no previous direct experience with the federal government, which is well-known for its lengthy and arduous contracting procedures.

Furthermore, AT&T had been shut out of two previous overarching federal contract programs for telecommunications services—FTS2000 and FTS2001. Networx replaces those previous contract vehicles.

For his part, Herring notes that even if federal spending remains flat or decreases in real spending terms in the next few years—as many budget experts have predicted—AT&T still stands to make enormous inroads in the federal sector.

“The federal government spends somewhere between $65 billion and $70 billion annually in that space,” Herring notes. “That’s a huge number. We see a lot of opportunity in front of us by being on that [Networx] contract.

“Also, we see close to an insatiable appetite with the federal government for the types of services that we are bringing. Think about the kinds of services AT&T offers around remote access, networking capabilities, the ability to bring in not only broadband and wired services but now wireless services as well.

“Networx is not the only telecomm contract out there, but it is the most important. It’s broad reaching. It’s under the GSA, so virtually any and every agency can buy off of this contract. And that’s where the vast majority of recent awards have been met,” Herring says.

Joining the program underscores how much ground AT&T has covered in a short time. Just three years ago, SBC purchased all of AT&T for $16 billion and relinquished its nameplate in the process. Herring worked on the team that integrated the two behemoths.

The merger gave AT&T access to 60 percent of Cingular Wireless, which was further augmented by AT&T’s $60 billion acquisition of Bell South in 2006. In turn, the Bell South merger yielded the company the other 40 percent of Cingular Wireless.

The combined enterprise now ranks as the world’s largest telecommunications company in terms of revenue and the nation’s largest digital wireless voice and data network. Herring says the wireless network will help his division win federal contracts as more uniformed service personnel and civilian employees seek to work and communicate unplugged from the office.

Meanwhile, AT&T remains the exclusive carrier for the highly popular Apple iPhone that is transforming the market for smart phones and digital assistants. So Herring and his subordinates arguably have the most coveted icon of the wireless world either to help win new business directly or to underscore their wireless expertise. He says wireless devices will become a necessary component of nearly every federal worker’s “productivity kit.”

“Wireless is now part of the mainstream and our bloodstream, if you will,” Herring said. “It has become the way in which we communicate, both from consumer and business standpoints and, I believe, from an agency standpoint as well. We see more and more applications available for smart phones and for the iPhone, and we think it will only get better over time.”

A native of Amenia, New York, a hamlet near the Connecticut border, the 45-year-old Herring has spent his entire professional career at AT&T. He says that after receiving his bachelor’s degree from WesleyanUniversity in 1984, the former high school and college athlete returned to his hometown.

He spent a year working as a substitute English teacher and coaching the local high school’s varsity baseball team. After joining AT&T in 1985, he enrolled part-time in the master’s of business program at ColumbiaUniversity and received his degree in 1995.

Starting as a telemarketing executive based in White Plains, New York, Herring steadily has climbed the corporate ladder ever since. He, his wife, daughter and twin sons reside in Oak Hill, a northern Virginia suburb. Though he likes to play golf, he says he has little opportunity to pursue that hobby and spends much of his free time coaching teams on which his children play.

Citing corporate policy, Herring declines to provide revenue or growth figures for his concern, which employs about 4,000 workers, most of them near the nation’s capital. He does confirm that about 60 percent of federal sales stem from defense and the remainder from civilian agencies.

Most of the major information technology players serving the federal market have predicted high single-digit to double-digit growth over the next five years. So if AT&T’s government unit does not produce similar results, it will lag its peer group, something that seems unlikely given its access to so many federal information technology contracts spanning nearly every single component of the digital workplace.

Consider that the company’s federal division jumped from 67th place in 2007 to 38th place in 2008 in Washington Technology’s ranking of the top 100 government IT contractors. The publication estimated federal revenues for AT&T at roughly $505 million for 2008, compared with about $205 million for 2007.

A spokesman for the company notes that not all revenues, such as those for intelligence work or sales as a subcontractor, are included in the estimates.

Either way, AT&T was off to a good start with Networx, garnering two major contracts worth about $582 million since September 2007. The figures do not include a string of small contracts that had not been announced at press time, but the company still was behind the team headed by Verizon Communications Incorporated, which had a minimum of $680 million. Accurate revenues under the program for a team headed by Qwest Communications could not be determined.

Warren Suss, head of Suss Consulting Incorporated, a strategic planning and federal market research firm in Jenkintown, Pennsylvania, says it is too early to predict how the money will be allocated among the teams and how much the federal government actually will spend under the program.

“We are in a very dynamic environment,” Suss says. “Everyone is sort of learning as they move forward. AT&T has been coming on very strong. They pulled out all the stops in their initial proposals. Management seems to be committed to regaining their position. AT&T will be a strong competitor all the way through.”

The AT&T Networx team includes Northrop Grumman Information Technology of McLean, Virginia; EDS of Herndon, Virginia; GTSI Corporation of Chantilly, Virginia; SRA International Incorporated, of Fairfax, Virginia; Bechtel National of Frederick, Maryland; and Global Crossing of Florham Park, New Jersey.

In May 2008, the AT&T team won a $292 million contract with the Department of Homeland Security for OneNet, an advanced, next-generation network. Its first big deal occurred in September 2007 when AT&T announced a $270 million task order with the Treasury Department, which is developing a similar type of network called TNet. The total contract could be worth $1 billion, company officials say.

Herring notes, however, that each contract will be different in terms of how the revenue is shared among the partners and the roles each will play. For example, on some future awards AT&T may serve as the prime contractor, but on others it may have a subordinate position.

“Besides traditional wired services and wireless, we have a third component inside AT&T Government Solutions where we offer systems integration and professional services,” Herring concludes. “That broad spectrum puts us, we think, in a pretty good spot.

“We won’t know until the 10 years is up who got what, but we’ve seen a pretty high demand for what we’ve offered the agencies. Therefore, if you are looking to see how we are doing, you want to be looking at how Networx is doing for us.”

Web Resources
AT&T Government Solutions: www.corp.att.com/gov
General Services Administration: http://www.gsa.gov