    Telecommunications: FTS 2000 Cost Comparison (Letter Report, 05/31/96,
    GAO/AIMD-96-95).

    This report identifies agencies that are using the Federal
    Telecommunications System (FTS 2000) and compares telecommunications
    costs of agencies that use FTS 2000 with those of agencies that do not.
    GAO focuses on four FTS 2000 services: switched voice and dedicated
    transmission, which constitute the bulk of FTS 2000 use, and packet
    switched and compressed video transmission. As of March 1996, 139
    agencies and other government entities were using telecommunications
    services provided under the FTS 2000 contracts. GAO's comparison of
    telecommunications costs incurred by a sample of agencies that use
    non-FTS 2000 networks with what FTS 2000 would cost produced mixed
    results, with some costs comparable, some less, and others more.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  AIMD-96-95
         TITLE:  Telecommunications: FTS 2000 Cost Comparison
          DATE:  05/31/96
       SUBJECT:  Service contracts
                 Contract costs
                 Cost control
                 Cost effectiveness analysis
                 Data transmission
                 Telecommunication
    IDENTIFIER:  Federal Telecommunications System 2000
                 FTS 2000
                 FTS 2000 Price Redetermination/Service Reallocation
                 DOD Defense Switched Network
                 FAA Leased Interfacility National Airspace System
                 Communications System
                 Federal Reserve Network
                 USPS Remote Bar Coding System
                 USPS Integrated Telecommunications Network

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO report.  Delineations within the text indicating chapter **
    ** titles, headings, and bullets are preserved.  Major          **
    ** divisions and subdivisions of the text, such as Chapters,    **
    ** Sections, and Appendixes, are identified by double and       **
    ** single lines.  The numbers on the right end of these lines   **
    ** indicate the position of each of the subsections in the      **
    ** document outline.  These numbers do NOT correspond with the  **
    ** page numbers of the printed product.                         **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ** A printed copy of this report may be obtained from the GAO   **
    ** Document Distribution Center.  For further details, please   **
    ** send an e-mail message to:                                   **
    **                                                              **
    **                                            **
    **                                                              **
    ** with the message 'info' in the body.                         **
    ******************************************************************

    Cover
    ================================================================ COVER

    Report to Congressional Requesters

    May 1996

    TELECOMMUNICATIONS - FTS 2000 COST
    COMPARISON

    GAO/AIMD-96-95

    FTS 2000

    (511343)

    Abbreviations
    =============================================================== ABBREV

      CVTS - Compressed Video Transmission Service
      DBOF - Defense Business Operations Fund
      DISA - Defense Information Systems Agency
      DITCO - Defense Information Technology Contracting Organization
      DSN - Defense Switched Network
      DTC - DISN Transition Contract
      DTS - Dedicated Transmission Service
      FAA - Federal Aviation Administration
      FEDNET - Federal Reserve Network
      FTS 2000 - Federal Telecommunications System 2000
      GSA - General Services Administration
      LINCS - Leased Interfacility National Airspace System
         Communications System
      PITN - Postal Integrated Telecommunications Network
      PSS - Packet Switched Services
      RBCS - Remote Bar Coding System
      SDIS - Switched Digital Integrated Services
      SDS - Switched Data Services
      SVS - Switched Voice Services

    Letter
    =============================================================== LETTER

    B-266140

    May 31, 1996

    The Honorable Richard C.  Shelby
    Chairman
    The Honorable J.  Robert Kerrey
    Ranking Minority Member
    Subcommittee on Treasury,
     Postal Service and General Government
    Committee on Appropriations
    United States Senate

    The Honorable Jim Lightfoot
    Chairman
    The Honorable Steny H.  Hoyer
    Ranking Minority Member
    Subcommittee on Treasury,
      Postal Service and General Government
    Committee on Appropriations
    House of Representatives

    We are required by Section 629(c) of Public Law 104-52 of the Fiscal
    Year 1996 Treasury, Postal Service, and General Government
    Appropriations Act to deliver a comprehensive analysis of the cost of
    certain federal agency telecommunications services no later than May
    31, 1996.  As agreed with your offices, this report identifies which
    agencies are using the Federal Telecommunications System (FTS 2000)
    and compares telecommunications costs between selected agencies that
    use FTS 2000 and those that do not to provide insight on the
    cost-effectiveness of FTS 2000.

    The General Services Administration (GSA) administers the FTS 2000
    contracts for the federal government.\1 We focused our review on four
    FTS 2000 services:  switched voice and dedicated transmission--which
    make up the bulk of FTS 2000 use--and packet switched and compressed
    video transmission.  The glossary at the end of this report explains
    these services and other technical terms.

    Agencies we collected information from that use non-FTS 2000
    contracts include the Department of Defense, Federal Aviation
    Administration (FAA), the Postal Service, and the Federal Reserve.\2
    We also collected information concerning GAO's use of the Architect
    of the Capitol's contract with MCI, which provides telecommunications
    services to the Legislative Branch, and GAO's use of the U.S.
    Senate's contract with AT&T for frame relay services.  We used the
    services of a private contractor, Snavely King & Associates, Inc., to
    review and analyze data we collected from federal agencies on
    telecommunications costs.  The results of its review are included in
    appendix I.

    Although the non-FTS 2000 contracts we analyzed provide services
    similar to FTS 2000, these services are not necessarily identical.
    For example, some contracts include costs for hardware needed to
    support an agency's networking requirements.  In conducting our
    analyses, we made every effort to account for these differences, thus
    ensuring that the services analyzed were reasonably comparable.

    --------------------
    \1 GSA has two prime contractors for FTS 2000, AT&T (Network A) and
    Sprint (Network B).

    \2 Except for the Federal Reserve, all of the agencies we reviewed
    use FTS 2000 to some extent.  Defense, for example, is one of the
    federal government's largest volume users of FTS 2000 voice services.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :1

    As of March 31, 1996, 139 agencies and other government entities were
    using telecommunications services provided under the FTS 2000
    contracts.  Our comparison of telecommunications costs incurred by a
    sample of agencies that use non-FTS 2000 networks with what FTS 2000
    would cost produced mixed results, with some costs comparable, some
    less, and others more.

       BACKGROUND
    ------------------------------------------------------------ Letter :2

    FTS 2000 provides intercity telecommunications to almost 1.7 million
    federal government users nationwide.  The program provides five
    principal services:  switched voice, switched data, dedicated
    transmission, packet switched, and video transmission.  When the
    program began in 1988, GSA awarded two 10-year contracts, one to AT&T
    (Network A) and one to Sprint (Network B).  As permitted by the
    contracts, in 1992 and 1995, GSA conducted price
    redetermination/service reallocation competitions, where each vendor
    could bid for a share of the other's FTS 2000 traffic.  As a result
    of the 1995 recompetition, AT&T's revenue allocation increased from
    60 to 76 percent, while Sprint's dropped from 40 to 24 percent.  New
    prices resulting from the 1995 recompetition took effect in December
    1995.  Current contracts expire in 1998.

    A policy of mandatory use by executive agencies has been an integral
    part of the FTS 2000 program since its inception.  Under regulations
    issued by GSA pursuant to its Brooks ADP Act authority, agencies have
    been required to use FTS 2000 services unless GSA granted an
    exception.\3 Additionally, beginning with fiscal year 1989, the
    Congress has included a provision in the annual Treasury, Postal
    Service, and General Government appropriations act, reinforcing the
    mandatory use policy.

    A number of agencies, including the FAA and Defense have obtained
    waivers from GSA, mainly for certain data communications services
    used to support their own networks.  A few other agencies, such as
    the U.S.  Postal Service and the Federal Reserve, are not covered by
    the mandatory use provision, and thus are free to obtain intercity
    telecommunications services on the open market.  Similarly the
    Legislative Branch, of which GAO is a part, is not covered by the FTS
    2000 mandatory use requirement, and obtains much of its intercity
    telecommunications services from the Architect of the Capitol's
    contract with MCI.\4 GAO also obtains frame relay services from the
    U.S.  Senate's contract with AT&T.

    --------------------
    \3 Sections 5101 and 5124 of the Information Technology Management
    Reform Act of 1996, Public Law No.  104-106, February 10, 1996,
    repealed the Brooks Act, but provided GSA continuing authority to
    manage the FTS 2000 program.

    \4 The Senate, the House of Representatives, and the Architect of the
    Capitol are not covered by "mandatory use" of FTS 2000, since none is
    a "Federal agency" for purposes of the Brooks ADP Act.  See 40 U.S.C.
    � 472(b).  Additionally, section 306 of the Legislative Branch
    Appropriations Act, 1991, Public Law No.  101-520, 104 Stat.  2254,
    November 5, 1990, provides that, "notwithstanding any other provision
    of law," legislative branch agencies are "authorized to use
    telecommunications systems and services provided by the Architect of
    the Capitol or the House of Representatives or the Senate."

       SCOPE AND METHODOLOGY
    ------------------------------------------------------------ Letter :3

    To determine which government agencies are using FTS 2000 services,
    we obtained a listing of FTS 2000 users from GSA.  To analyze the
    cost-effectiveness of FTS 2000 services, we first reviewed a number
    of reports concerning FTS 2000 costs.  These include a January 1993
    report for the Interagency Management Council,\5 FTS 2000 Cost
    Effectiveness Comparison Acquisition Price Analysis, by Snavely King
    and Associates, and a July 1995 report, The GSA Report to Congress on
    the Cost Effectiveness of the FTS 2000 Program.  We then obtained GSA
    summary data of overall FTS 2000 billing for fiscal year 1995, for
    all agencies and services.

    On the basis of this analysis, we decided to focus our cost
    comparison on four services--switched voice and dedicated
    transmission--which account for around 91 percent of FTS 2000
    costs--and packet switched and compressed video transmission.  We did
    not evaluate the cost of switched data services because of
    insufficient traffic data from our sample of contracts.  We selected
    five government agencies that use various non-FTS 2000 services:
    Defense, FAA, the Federal Reserve, the Postal Service, and GAO.  We
    met with telecommunications officials at each of these agencies to
    determine which services would be appropriate for our cost
    comparison.  We used telecommunications prices that were in effect
    March 1, 1996.  In doing so, we recognized that the
    telecommunications marketplace is volatile and that prices are
    continually changing.

    We obtained contract pricing and call detail information from the
    Defense Information Systems Network Transition Contract (DTC) with
    AT&T, which is used to support the Defense Switched Network (DSN).
    We also obtained contract pricing, billing, and call detail
    information for switched voice services received by the Federal
    Reserve Board under its contract with MCI and by GAO under the
    Legislative Branch's MCI contract.

    To analyze the cost-effectiveness of FTS 2000 dedicated circuit
    prices, we obtained current contract prices and billing information
    for non-FTS 2000 networks maintained by the Department of Defense,
    FAA, the Federal Reserve, and the Postal Service.  GAO had only a few
    dedicated circuits and, therefore, was not included in this analysis.
    The contracts for dedicated transmission include

      -- Defense's DTC contract with AT&T for 9.6 analog, 9.6 digital,
         56/64 digital, and T-1 circuits;

      -- the FAA's Leased Interfacility National Airspace System
         Communications System (LINCS) contract with MCI, for 9.6 analog,
         9.6 digital, 56/64 digital, and T-1 circuits;

      -- the Federal Reserve's contracts for the Federal Reserve Network
         (FEDNET) with AT&T, MCI, and Sprint, all for T-1 circuits; and

      -- the Postal Service's Remote Bar Coding System (RBCS) contract
         with MCI and the Postal Integrated Telecommunications Network
         (PITN) contract with Sprint, both for T-1 circuits.

    To analyze the cost-effectiveness of FTS 2000 packet switched
    services, we obtained contract pricing, billing, and traffic data on
    frame relay service (a version of packet switching) GAO receives
    under the Senate contract with AT&T.  To evaluate the cost of FTS
    2000 compressed video transmission services, we obtained contract
    pricing, billing, and traffic data on video service GAO receives
    under the Legislative Branch's contract with MCI.

    We contracted with Snavely King and Associates, an economic and
    management consulting firm, which compared the costs incurred for
    services acquired under non-FTS 2000 contracts with what these
    services would cost under FTS 2000.  Snavely King employed Mitretek
    Systems pricing models to determine the cost of different agencies'
    services on FTS 2000.\6 Appendix I contains the results of Snavely
    King's analysis as well as its approach and methodology.

    In conducting its analysis, Snavely King excluded all overhead costs
    incurred by the government for the provision of telecommunications
    services, regardless of whether or not these costs are passed on to
    individual federal agencies.  In addition, Snavely King did not
    attempt to quantify the cost or value of any unique government
    requirements and constraints imposed by law, executive order, federal
    policy, or mission requirements of any federal agency.

    We conducted our work at federal agencies in the Washington, D.C.,
    area, and at the Defense Information Technology Contracting
    Organization, Scott Air Force Base, Illinois.  Our review was
    conducted from February 1996 through May 1996 in accordance with
    generally accepted government auditing standards.  The quantitative
    financial information used in this report on total FTS 2000 costs for
    fiscal year 1995 was produced from GSA's billing systems; it was not
    independently verified by GAO.

    --------------------
    \5 The Interagency Management Council is a senior-level advisory
    group responsible for developing governmentwide telecommunications
    strategies and policies.

    \6 Mitretek Systems is a not-for-profit, private consulting firm that
    provides ongoing technical and management support to the FTS 2000
    program.

       FTS 2000 AGENCIES AND SERVICES
    ------------------------------------------------------------ Letter :4

    As of March 31, 1996, 139 agencies and other government entities were
    using telecommunications services provided under the FTS 2000
    contracts.  In fiscal year 1995, GSA billed federal agencies and
    other organizations nearly $680 million\7 for FTS 2000
    services--principally for switched voice services, which cost a
    reported $450 million (66 percent of all FTS 2000 services), and
    dedicated transmission services, which cost a reported $172 million
    (25 percent).  Appendix II lists each of the FTS 2000 user agencies,
    the services they are using, and assigned networks.

    --------------------
    \7 This total excludes an additional $59 million for GSA program
    support, reserves, and taxes.

       COST COMPARISON OF FTS 2000
       SERVICES
    ------------------------------------------------------------ Letter :5

    Our comparison of telecommunications costs incurred by a sample of
    agencies that use non-FTS 2000 networks with what FTS 2000 would cost
    produced mixed results.  The following sections detail our findings
    concerning switched voice services, dedicated transmission, and other
    services.

          FTS 2000 SWITCHED VOICE
          SERVICES
    ---------------------------------------------------------- Letter :5.1

    For switched voice services, Snavely King analyzed over 86 million
    calling minutes from the Defense Switched Network's October 1995
    billing records.\8

    Snavely King analyzed about 270,000 calling minutes from the Federal
    Reserve Board's January 1996 records and over 350,000 calling minutes
    from GAO's October 1995 billing records.\9

    As table 1 shows, Defense's switched voice costs, as measured by the
    costs the Defense Information Systems Agency (DISA) charges to
    military departments and other end users under the Defense Business
    Operations Fund (DBOF) for routine calls, would be significantly
    lower (75 percent) if those services had been acquired from Network
    A, but slightly higher (8 percent) if acquired from Network B.\10 In
    commenting on these results, Defense officials stated that the cost
    differences are based upon a 1-month traffic sample in a routine
    operational environment, and that the figures could vary
    significantly if the Department was responding to a military crisis.
    Also, according to Defense officials, the cost to satisfy command and
    control requirements for assured communications, which are not
    available from FTS 2000, has not been considered as a factor in the
    cost comparison.  However, at this time, these officials were unable
    to quantify the impact of this requirement on our cost comparison.

    Snavely King also found that the Federal Reserve's switched voice
    service costs were roughly comparable to FTS 2000 costs, ranging from
    4 percent more to 5 per cent less.  Overall, GAO's switched voice
    service costs, which include both outbound and 800 services, were
    roughly comparable to FTS 2000 costs.  Outbound services, which
    represent over 80 percent of GAO's switched voice costs, would have
    cost about the same on Network A and slightly more (8 percent) on
    Network B.  The 800 service, which represents less than 20 percent of
    GAO's switched voice costs, would cost 19 percent less on Network A
    and 38 percent less on Network B.  \11

                                         Table 1

                                 Switched Voice Services

    Contracting                  Non-FTS
    federal agency                  2000
    (contract/      Contract    contract
    program)        provider       rates
    --------------  --------  ----------  --------  --------  ------------  --------
    Department of   AT&T
     Defense\b
    (DTC Contract                         $1,161,9      -75%    $4,977,498       +8%
     -Total)                  $4,613,291  94 1.34�                   5.74�
     (DTC Contract                 5.32�
     -Avg. Cents
     Per Minute)
    Federal         MCI
     Reserve
    Board of
     Governors
    (Outbound                    $22,375   $21,335       -5%       $23.278       +4%
     Service -                     8.28�     7.89�                   8.61�
     Total)
     (Outbound
     Service -
     Avg. Cents
     Per Minute)
    Legislative     MCI
     Branch
    (GAO usage)
    (Outbound                    $25,819   $25,836        0%       $27,966       +8%
     Service -
     Total)                        7.30�     7.31�                   7.91�
     (Outbound                    $5,207    $4,204      -19%        $3,249       38%
     Service -                    14.39�    11.62�                  -8.98�
     Avg. Cents
     Per Minute)
     (800 Service
     -Total)
     (800 Service
     -Avg. Cents
     Per Minute)
    --------------------------------------------------------------------------------
    \a The FTS 2000 costs represent the effect of non-FTS 2000 contract
    usage as an incremental addition to the actual FTS 2000 usage in the
    test month.  That is, the hypothetical cost of non-FTS 2000 traffic
    using FTS 2000 rate structures reflects the rates that would be
    obtained with the combined traffic volumes of the two (FTS 2000 and
    non-FTS 2000) contracts.

    \b Rates used are not actual contract rates charged by AT&T for this
    service, but are the DBOF rates used for cost recovery purposes by
    DISA.  According to Defense officials, the DBOF rates are supposed to
    recover the full operating and maintenance costs of DSN.  These costs
    include transmission lease costs, switch operations and maintenance,
    contract services, depreciation expenses for capital equipment, a
    rate stabilization fee (designed to account for any unexpected
    variation in cost to DBOF, and an overhead fee associated with the
    operations of the Defense Information Technology Contracting Office
    worldwide and the DISA Comptroller Revolving Fund Division.  The
    rates for routine services include costs for command and control
    features, such as dual homing, alternative routing, redundancy, and
    survivability.  Also, according to Defense officials, for fiscal year
    1996, the rate stabilization fee was 3 percent, and the overhead fee
    was 2 percent.  In addition to these special fees, they stated that
    Defense is currently receiving a 9.5 percent discount (transition
    fee) on switched voice service that is being retained by DBOF to
    offset future network transition costs.  The 2 percent overhead fee
    has been removed from the rate calculation above.  The transition fee
    and the rate stabilization fee are still included in that
    calculation.

    --------------------
    \8 This calling volume includes all calls terminating and originating
    on-net during a 22-day period beginning October 1, 1995.  Snavely
    King extrapolated this call volume to a full month for volume
    purposes.

    \9 In late March 1996, the Legislative Branch exercised an option on
    its MCI contract and obtained an approximate reduction of 15 percent
    in its switched voice service costs, retroactive to January 1, 1996.
    Likewise, the Federal Reserve Board negotiated a 1-year extension to
    its MCI contract and, effective in late May, will receive rate
    reductions ranging from around 8 to 14 percent.  There was
    insufficient time for us to incorporate these rates into our FTS 2000
    cost comparison.

    \10 Under Defense's call precedence structure, a routine call is the
    lowest priority call, and thus is comparable to an FTS 2000 call.

    \11 FTS 2000 prices are likely to fall significantly over the next 6
    months.  First, as a result of the 1995 Price Redetermination and
    Service Reallocation recompetition, the Treasury Department is moving
    its FTS 2000 traffic from Network B to Network A, and, according to
    GSA officials, reductions in switched voice prices of up to 24
    percent will occur around July 1996 when increased traffic volumes
    are achieved.  In addition, on May 23, 1996, Sprint announced it was
    reducing its switched voice prices an average 27 percent on October
    1, 1996.  In its analysis, Snavely King used current prices, not
    those that will go into effect later this year.

          FTS 2000 DEDICATED
          TRANSMISSION SERVICES
    ---------------------------------------------------------- Letter :5.2

    For dedicated transmission service, Snavely King analyzed over 12,000
    circuit prices from contracts at Defense, the FAA, the Federal
    Reserve, and the Postal Service, and compared them with what they
    would cost on FTS 2000.  As table 2 shows, Snavely King found that
    Defense would pay between 8 and 15 percent less if it acquired this
    service under FTS 2000.  The FAA, however, would pay 10 percent more
    on Network A and 21 percent more on Network B if it acquired the same
    circuits from FTS 2000.  In total, the Federal Reserve's costs for
    circuits from all three FEDNET contracts would be slightly higher on
    Network A, but comparable on Network B.  However, as shown in the
    table, the results of our comparison of FTS 2000 circuit costs with
    individual FEDNET contracts varied greatly, with the costs on Network
    A varying from 14 percent less to 82 percent more and on Network B
    from 23 percent less to 70 percent more.  For services under both of
    its non-FTS 2000 contracts, the Postal Service would pay
    significantly more for circuits on FTS 2000, ranging from 54 percent
    to 83 percent more.

                                         Table 2

                             Dedicated Transmission Services

    Contracting                      Non-FTS
    federal agency                      2000
    (contract/          Contract    contract
    program)            provider       rates
    ------------------  --------  ----------  --------  --------  --------  --------
    Department of       AT&T      $3,623,452  $3,340,9       -8%  $3,089,5      -15%
     Defense (DTC                                   95                  96
     Contract)
    Federal Aviation    MCI       $2,390,989  $2,642,3      +10%  $2,905,1      +21%
     Administration                                 17                  13
     (LINCS Contract)
     Federal
     Reserve System
    (FEDNET Program)    AT&T        $116,377                 +2%                 -9%
     (FEDNET Program)    MCI        $113,465  $119,044      -14%  $105,618      -23%
     (FEDNET Program)    Sprint      $49,014   $97,161      +82%   $87,825      +70%
                                               $89,149             $83,352
    U.S. Postal
     Service
    (RBCS Replacement   MCI         $164,696                +63%                +65%
     Project)            Sprint      $84,737  $268,900      +83%  $272,447      +54%
     (PITN Replacement                        $155,227            $130,809
     Project)
    --------------------------------------------------------------------------------

          OTHER FTS 2000 SERVICES
    ---------------------------------------------------------- Letter :5.3

    Snavely King analyzed the cost of two other FTS 2000 services:
    packet switched services and compressed video transmission, and the
    results varied.  It found that the frame relay service GAO receives
    under the Senate contract with AT&T would be more expensive on FTS
    2000, ranging from 31 percent more on Network A to 15 percent more on
    Network B.  Snavely King also analyzed the cost of video transmission
    service GAO receives under the Legislative Branch's MCI contract and
    found it would be roughly the same (3 percent more) on FTS 2000.
    Snavely King's analysis is summarized in table 3.

                                         Table 3

                                      Other Services

    Contracting                      Non-FTS
    federal agency                      2000
    (contract/          Contract    contract
    program)            provider       rates
    ------------------  --------  ----------  --------  --------  --------  --------
    U.S. Senate Frame   AT&T         $69,593   $90,880      +31%   $79,723      +15%
     Relay Contract
     (GAO usage)
    Legislative Branch  MCI          $21,015   $21,721       +3%        \a
     Contract-Video
     Services (GAO
     usage)
    --------------------------------------------------------------------------------
    \a Network B's video transmission service is not equivalent to what
    MCI provides; therefore, no cost comparison could be performed.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ------------------------------------------------------------ Letter :6

    We obtained written comments on a draft of this report from GSA.  A
    summary of GSA's comments and our evaluation follows.  The full text
    of GSA's written comments is provided in appendix III.  For those
    agencies that we evaluated, we provided sections from Snavely King's
    draft report pertaining to their contract costs.  Because of the
    short time frame for producing this report, we asked that these
    agencies limit their responses to commenting on the accuracy of the
    information presented.  Both we and Snavely King have incorporated
    these comments, where appropriate, in our respective reports.

    Defense officials provided views on our contractor's report.  A
    summary of our discussions with Defense officials and our evaluation
    follows.

          GSA COMMENTS
    ---------------------------------------------------------- Letter :6.1

    In its comments, GSA expressed three principal concerns.  First, GSA
    questioned the emphasis placed on the percentage differences between
    contracts, without recognizing the magnitude of services provided in
    each case and the cumulative savings based on volume and total usage
    of the program.  Second, GSA stated that our report was misleading
    and out-of-date because it used prices in effect at a single point in
    time, and therefore does not reflect the significant reduction in FTS
    2000 prices which will occur when the Department of the Treasury
    moves from Network B to Network A.  Likewise, GSA stated that the
    report does not reflect the reduced prices for Network B switched
    voice services which Sprint announced on May 23, 1996.  Finally,
    concerning DTS prices, GSA stated that there has been, in some cases,
    a comparison of a limited quantity of street prices, (what it calls
    "cream skimming") against comprehensive FTS 2000 contracts which
    require the same prices everywhere.

    We discussed these concerns with GSA officials and analyzed their
    written comments.  We disagree with GSA's assessment of our report.
    First, we disagree that our report should emphasize cumulative
    savings rather than percentage differences in contract costs.  The
    purpose of this study was to perform a contract-by-contract
    comparison of costs for selected non-FTS 2000 contracts and FTS 2000
    contracts--and that is how the results are provided in each of the
    tables.  Further, in doing this cost comparison, we gave FTS 2000
    every advantage, by costing out other contracts as an incremental
    addition to FTS 2000's huge volume and by stripping out GSA's 8
    percent overhead charge.

    Second, we disagree that our report is either misleading or
    out-of-date because of the prices we used.  Any cost comparison in a
    market as volatile as telecommunications is a snapshot in time and
    subject to change, as we clearly state in our methodology.  By
    design, we devised a methodology to perform cost comparisons based on
    prices that were in effect on March 1, 1996--not those that had yet
    to go into effect.  Still, we recognize that because of the dynamics
    of the telecommunications environment, the results of this study, if
    performed 6 months later, for example, might be very different.  In
    our report, we explicitly recognize that FTS 2000 costs are likely to
    drop significantly over the next 6 months.  For example, in a
    footnote on page 6 we discuss how the Treasury Department's move from
    Network B to Network A will result in reduced prices on AT&T's
    network, and we discuss Sprint's recently announced price reductions.
    Similarly, we recognize in our report that both the Legislative
    Branch and the Federal Reserve Board have recently either exercised
    contract options or negotiated contract extensions that reduce the
    prices they pay for communications services.

    Finally, concerning GSA's discussion of "cream skimming" of DTS
    prices, we did not attempt to determine the reasons behind variations
    in contract costs.  Our objective, as detailed in Public Law 104-52,
    was to compare the costs.  GSA claims that because of "cream
    skimming" some agencies have been able to acquire DTS at much lower
    prices than those charged by FTS 2000.  However, GSA offers no
    evidence to support its claim.  The facts are that in a number of
    cases agencies, such as the Postal Service, have been able to acquire
    much better DTS prices on the open market.

          DEFENSE VIEWS
    ---------------------------------------------------------- Letter :6.2

    We discussed the contents of our contractor's report with Defense
    officials, and they expressed concerns about comparing the
    telecommunications services obtained through these different
    contracts.  Although these officials agreed that the DTC rates they
    are paying are much too high, they stated that the report fails to
    recognize and account for the very distinct differences between DTC
    and FTS 2000.  These officials cited a number of unique requirements
    that would need to be considered when comparing service costs.  For
    example, they noted that significant additional investment would be
    required to enable FTS 2000 to support its Command and Control
    mission needs, including support for interfaces and connectivity to
    other Defense networks, support for Defense's worldwide numbering
    plan, and other costs related to interoperability with deployed and
    tactical forces.  Also, Defense officials stated that the DBOF rates
    used in the analysis include additional operations and support costs
    related to their global environment.

    We agree that the non-FTS 2000 contracts we analyzed, including DTC,
    provide services similar to but not necessarily identical to FTS
    2000.  Still, in conducting our analyses, we made every effort to
    account for differences in services, thus ensuring that the services
    analyzed were reasonably comparable.  For example, in comparing
    DTC/DSN costs with FTS 2000, we analyzed only routine traffic
    originating and terminating within the continental United States,
    which accounted for nearly 84 percent of our traffic sample, and
    which is comparable with--but not identical to--typical FTS 2000
    voice traffic.  We did not compare the cost of the remaining 16
    percent because it comprised voice services that have no equivalent
    on FTS 2000, such as traffic having a higher precedence level.

    We also agree that additional charges in the DBOF rates for
    operations and support costs, could account, as least in part, for
    higher Defense costs.  We believe that Defense should be able to
    estimate the value of these operations and support requirements, and
    evaluate their impact on costs.  However, Defense officials provided
    no evidence at this time as to the cost of these requirements or
    their impact on DBOF rates.  As a result, Defense officials were
    unable to explain the significant difference between FTS 2000 and
    DTC/DSN rates.

    As agreed with your offices, unless you publicly announce the
    contents of this report earlier, we will not distribute it until 30
    days from its issue date.  At that time, we will send copies of this
    report to other interested congressional committees and the heads of
    all federal agencies listed in the report.  Copies will also be sent
    to others upon request.

    This report was prepared under the direction of Linda D.  Koontz,
    Associate Director, who may be reached at (202) 512-6240 if you or
    your staff have any questions.  Other major contributors to this
    report are listed in appendix IV.

    Jack L.  Brock, Jr.
    Director, Information Resources
     Management/General Government Issues

    (See figure in printed edition.)Appendix I
    SNAVELY KING AND ASSOCIATES'
    TELECOMMUNICATIONS COST STUDY
    ============================================================== Letter

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)Appendix II
    ORGANIZATIONS ON FTS 2000,
    ASSIGNED NETWORKS, AND SERVICES
    USED
    ============================================================== Letter

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)Appendix III
    COMMENTS FROM THE GENERAL SERVICES
    ADMINISTRATION
    ============================================================== Letter

    (See figure in printed edition.)

    (See figure in printed edition.)

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================== Appendix IV

    ACCOUNTING AND INFORMATION
    MANAGEMENT DIVISION, WASHINGTON,
    D.C.

    Franklin W.  Deffer, Assistant Director
    Kevin Conway, Senior Information Systems Analyst
    Mary T.  Marshall, Information Systems Analyst
    Cristina T.  Chaplain, Communications Analyst

    GLOSSARY
    ============================================================ Chapter 0

          COMPRESSED VIDEO
          TRANSMISSION SERVICE (CVTS)
    -------------------------------------------------------- Chapter 0:0.1

    A service that provides the capability of transmitting a video signal
    between two or more end locations at a bit rate significantly lower
    than standard video transmission.

          DEDICATED TRANSMISSION
          SERVICE (DTS)
    -------------------------------------------------------- Chapter 0:0.2

    A service that provides a continuously available transmission path
    between two or more end locations and is priced independently of the
    number of minutes or calls transmitted.

          FRAME RELAY
    -------------------------------------------------------- Chapter 0:0.3

    A type of fast packet technology using variable length packets called
    frames.

          PACKET SWITCHED SERVICES
          (PSS)
    -------------------------------------------------------- Chapter 0:0.4

    A service in which messages are broken down into smaller units called
    packets, which are then individually addressed and routed through the
    network.

          SWITCHED DATA SERVICES (SDS)
    -------------------------------------------------------- Chapter 0:0.5

    A switched service that provides the capability of transmitting data
    at rates of 56/64 kilobits per second over conditioned facilities.

          SWITCHED DIGITAL INTEGRATED
          SERVICES (SDIS)
    -------------------------------------------------------- Chapter 0:0.6

    SDIS provides the capability of integrating voice, data, image, and
    video services from an individual terminal location by means of
    digital connectivity.

          SWITCHED VOICE SERVICES
          (SVS)
    -------------------------------------------------------- Chapter 0:0.7

    A service that provides the capability of transmitting voice through
    a switched network.

    *** End of document. ***