Nextel Flop Hits Sprint

Just when it looked like things couldn't get any worse, Sprint's (S) bungling of the big Nextel merger gets it kicked off the government gravy train.

The General Services Agency on Thursday picked Verizon (VZ), AT&T (T) and Qwest (Q) 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.