Telecommunications:

GSA's Estimates of FTS2001 Revenues Are Reasonable

AIMD-00-123: Published: Apr 14, 2000. Publicly Released: Apr 14, 2000.

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Pursuant to a congressional request, GAO reviewed the General Services Administration's (GSA) estimates of the Federal Technology Service (FTS) 2001 revenues and the implications of allowing other service providers to compete in the FTS 2001 market, focusing on: (1) the percentage of FTS 2001 contracts that are minimum revenue guarantees (MRG); (2) when MRGs are likely to be satisfied; (3) the factors that could significantly alter the estimates of total program revenue and corresponding timeframes for satisfying MRGs; and (4) how competition could affect the estimates.

GAO noted that: (1) GAO found that GSA's revenue estimation process, which relies on historical and known agency requirements for FTS 2001-offered services, produced a reasonable estimate of program revenues; (2) GAO's independent, high-level estimate, which used the most currently available traffic forecasts and pricing information, produced essentially the same estimate--$2.3 billion in revenue over the life of the FTS 2001 program, assuming all 4 of the contracts' option years are exercised; (3) during GAO's review, GAO identified a number of technical issues with regard to GSA's revenue estimation process that did not affect the integrity of its revenue estimates; (4) the MRGs--a total of $1.5 billion--represent about two-thirds of current estimated program revenues over 8 years; (5) according to the results of both GSA's and GAO's analysis, the FTS 2001 MRGs are expected to be satisfied for both contractors during fiscal year 2004; (6) three primary factors could significantly alter estimates of total program revenue and corresponding timeframes for satisfying the MRGs: (a) pricing; (b) agency demand for FTS 2001 services; and (c) transition progress; (7) additional competition could yield price reductions, cause further transition delays, and reduce demand for services from the two existing FTS 2001 contractors; (8) in turn, these factors would decrease program revenues and lengthen the time needed to satisfy the MRGs; (9) in regard to the potential benefits of reduced prices and transition costs, it is difficult to quantify the effect on estimates without knowing an added competitor's prices or the specifics of related transition costs; (10) however, two factors would have to be considered in such an analysis; (11) savings in transition costs would occur only if the new competitor was an incumbent FTS 2000 provider and only to the extent that transition costs have not yet been incurred; (12) reductions in revenues to current FTS 2001 contractors would increase the timeframe for satisfying the MRGs; and (13) if MRGs are not satisfied during the contracts' term, GSA may be liable for additional payments to the contractors.

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