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Nextel Flop Hits Sprint

Scott Moritz

The General Services Agency on Thursday picked Verizon (VZ - Cramer's Take - Stockpickr), AT&T (T - Cramer's Take - Stockpickr) and Qwest (Q - Cramer's Take - Stockpickr) to vie for an estimated $20 billion worth of telecom service upgrades. The GSA decision handed Sprint a stunning setback, locking the company out of government business.

Former GSA officials and industry consultants had predicted that, as customary with big projects, the four-way race for the so-called Networx business would result in four winners.

Now not only is Sprint barred from lucrative service contracts in the future, but agencies currently using Sprint may have to switch to another service provider.

Declining to comment on why Sprint got stiffed, Networx program chief John Johnson focused on the winners on a conference call with reporters Thursday. "The three awardees addressed the objectives of the program," Johnson said when asked about Sprint.

Signs of trouble between federal agencies and Sprint emerged about a year ago, as Sprint's Nextel service started to deteriorate dramatically. Around that time, Sprint lost a federal agency's wireless service walkie-talkie contract to Cingular, say people familiar with the deal. Given the two-way radio requirements and Sprint's dominance of the technology, observers had seen Sprint as a shoo-in.

"I don't think the government was happy with the merger," says one analyst with contacts within the government. "They didn't like Sprint's tinkering with Nextel, and that's where all the falling-out started from."

This falling-out is particularly troublesome for Sprint on the wireless front, where the company provides walkie-talkie phones to most federal agencies. The phones rank as a favorite among field workers and job teams.

Sprint says it will seek an explanation from the GSA and possibly protest the decision.

A company representative says the unfavorable decision stems from "technical issues, not the Nextel merger ... be certain of that."

As for losing existing customers, the rep said that isn't an immediate issue.

"I would say it would take a few months. It's not going to happen overnight," the rep says.

Neal Fox, a former GSA assistant commissioner who now runs his own procurement consulting business, says Sprint will likely regain its contractor status with some help from consultants who can clear up the snags.

"Given that the government had to revise the solicitation seven times ... the government probably didn't have the requirements straight," Fox says.

But in the wake of the shocking snub, some observers are ready to making predictions.

"AT&T is the big winner here with the two-way phones," says Telecom Pragmatics' Sam Greenholtz, a former Verizon engineer turned consultant. "As Sprint shrinks, watch AT&T grow."