Competition takes a holiday

The proposed merger between WorldCom Inc. and Sprint has been dead for a

short while. In its wake, a careful review of its impact on the government

market is in order.

In the press conference announcing the Justice Department's injunction

against the merger, the attorney general's office noted numerous markets

that would suffer from a lack of competition if the merger were consummated.

Absent from that list was the U.S. government market.

The size of that market is unparalleled. The laws and regulations related

to mergers are there to protect and defend the public interest. Their single

thread of commonality is free market competition.

The merger would not have advanced competition, but what few have noted

is that the threat of the merger caused equal competitive harm. The merger's

failure has lulled many into believing two viable competitors remain in

place, WorldCom and Sprint. In the government market, nothing could be further

from the truth.

Since the October 1999 announcement of the proposed merger, Sprint has

been notably absent from key government bids, lethargic in transitioning

customers to their FTS 2001 service and passive in pursuing new customers.

The FTS 2001 program, designed to provide long-distance telecommunications

services to federal agencies under competitive bidding, may have been irreparably

harmed. Sprint's lack of aggressive marketing in the government sector has

left the government with only one or two bidders on too many acquisitions.

Expectations for a speedy transition, the prompt addition of new and

enhanced services, and significantly reduced prices ran high. The award

to Sprint alone was to save the government $4 billion during its potential

eight-year life.

If FTS 2001 is to be salvaged, the government must recapture the program's

competitive origins, serve the taxpayers and protect the public interest.

That could be accomplished by making significant changes to the FTS 2001

contracts, including:

* Reconsidering the minimum revenue guarantee of $750 million per vendor.

* Limiting aspects of the contracts that eliminate the possible addition

of local services and expansion to state and local governments.

* Establishing another telecommunications contract as the vehicle to

provide a competitive spark to the FTS 2001 program.

* Encouraging the acquisition of Sprint's federal government business

by a player — other than AT&T Corp. to avoid further market concentration — that has the competitive "fire in the belly" to aggressively serve the

marketplace.

No new authority is required to enact these or other changes

that could uphold the current competitive market structure. But failure

to act could spawn a return to the monopoly-provider era.

Even as the Telecommunications Act of 1996 models to the world how competition

can underpin global competitiveness, the government's own services cannot

support a return to the past.

—Crawford is president and chief executive officer of The Crawford Group

in Washington, D.C.