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
             
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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. 
ï¿½ 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 1.34ï¿½                   5.74ï¿½
 (DTC Contract                 5.32ï¿½
 -Avg. Cents
 Per Minute)
Federal         MCI
 Reserve
Board of
 Governors
(Outbound                    $22,375   $21,335       -5%       $23.278       +4%
 Service -                     8.28ï¿½     7.89ï¿½                   8.61ï¿½
 Total)
 (Outbound
 Service -
 Avg. Cents
 Per Minute)
Legislative     MCI
 Branch
(GAO usage)
(Outbound                    $25,819   $25,836        0%       $27,966       +8%
 Service -
 Total)                        7.30ï¿½     7.31ï¿½                   7.91ï¿½
 (Outbound                    $5,207    $4,204      -19%        $3,249       38%
 Service -                    14.39ï¿½    11.62ï¿½                  -8.98ï¿½
 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




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SNAVELY KING AND ASSOCIATES'
TELECOMMUNICATIONS COST STUDY
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(See figure in printed edition.)Appendix II
ORGANIZATIONS ON FTS 2000,
ASSIGNED NETWORKS, AND SERVICES
USED
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(See figure in printed edition.)Appendix III
COMMENTS FROM THE GENERAL SERVICES
ADMINISTRATION
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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. ***