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PENNIES ON FEDERAL PHONE BILL ADD UP TO A MULTIMILLION DOLLAR EXCESS TAXPAYER EXPENSE, STUDY FINDS

PENNIES ON FEDERAL PHONE BILL ADD UP TO A MULTIMILLION DOLLAR EXCESS
 TAXPAYER EXPENSE, STUDY FINDS
 Excess Outlays Total Up to $172 Million More Than Necessary
 for Switched-Voice Services Alone in FY '91 and '92
 WASHINGTON, April 7 /PRNewswire/ -- The government telephone bill for FTS 2000 service "turns pennies into an unnecessary multimillion dollar expense to federal taxpayers," according to a study released today by Putnam, Hayes & Bartlett, Inc. (PHB), an international economic and management consulting firm.
 Comparing FTS 2000 rates for just switched-voice service with those available to large commercial customers, PHB identified a differential of 2.2 to 3.9 cents per minute. The differential translates into an estimated government payment for switched-voice service (one of the six FTS 2000 offerings) of $150 million to $172 ?million above commercial rates, supporting the General Accounting Office (GAO) estimate of $148 million reported last September.
 The PHB study, commissioned by MCI Communications Corporation (NASDAQ-NMS: MCIC) concluded that there is "no mechanism in place today which has successfully ensured that the FTS 2000 vendors continuously provide the government with the lowest available rates. ... Since large commercial telecommunications users have obtained lower rates in the competitive marketplace than the government receives under the FTS 2000 program, it is evident that competition is a remedy to this pricing disparity."
 The study pointed out that the massive volume of traffic under the government procurement drives the large numbers. Every penny in the per-minute rate for a phone call costs taxpayers $34 million. The commercial rates used in the PHB analysis are based on publicly available AT&T rates offered to businesses or government branches whose telecommunications needs, although large, are dwarfed by the FTS 2000 program. PHB compared these rates with FTS 2000 switched- voice rates as reported by the General Services Administration (GSA).
 In answer to the GAO's findings, the two FTS 2000 vendors (AT&T and Sprint) argued that "special requirements" of the FTS 2000 contracts account for the significant difference between their charges and commercial rates. The PHB analysis concluded that the vendors' lists of "special requirements" do not explain prices for FTS 2000 that are higher than the commercial prices used as a benchmark by the GAO. In fact, the study reveals that some requirements actually should lower the vendors' costs and that some items in fact were not requirements of FTS 2000. Three justifications have been offered to explain the higher FTS 2000 rates: unique federal telecommunications services; customized service features; and a single, dedicated nationwide telecommunications network. But PHB concluded that:
 -- It is a myth that FTS 2000 requirements differ significantly from those in the commercial marketplace.
 -- It is a myth that customized services necessarily mean higher prices.
 -- It is a myth that the FTS 2000 program requires a separate network. Consequently, there is no apparent justification for FTS 2000 charges to be higher than those available in the commercial market, PHB said.
 FTS 2000 switched-voice services have accounted for roughly 90 percent of the FTS 2000 telephone bill. Data services, which make up most of the remaining 10 percent, are also important because these services are expected to grow rapidly over the next few years. Studies for the GSA have found that FTS 2000 data rates exceed commercial levels by as much as 60 percent.
 Many have offered "price redetermination" as the panacea for all FTS 2000 pricing problems. PHB observed that this cumbersome bureaucratic process is unlikely to yield the same benefits as the simpler alternative of open competition. Price redetermination is currently scheduled to be completed by December 1992. PHB estimated that taxpayers will continue to spend more than $1.5 million per week until redetermination is completed and new prices become effective.
 -0- 4/7/92
 /NOTE: About FTS 2000: FTS 2000, the largest civilian contract ever entered into by the federal government, was initiated in 1989 for a 10-year period to ensure federal government users continued improvements in long-distance telecommunications services and technology at the lowest available cost. It was also intended to simplify the purchase of those services through centralized management of procurement. Under a policy of "mandatory use" applied to FTS 2000, federal departments and agencies are required to purchase long distance service from only two designated vendors, AT&T and Sprint, for six broad categories of service.
 Putnam, Hayes & Bartlett, Inc., is an economic and management consulting firm headquartered in Cambridge, Mass. The study analyzing federal telecommunications procurement policy and practice was carried out under the direction of PHB Senior Adviser Dr. Robert A. Leone. Leone is also a professor of operations management and associate dean at Boston University's School of Management.
 Leone will be available for interviews today in Washington. Call the contact below for more information.
 A copy of the complete study is available./
 /CONTACT: Chuck Pucie or Joan Worden for Putnam, Hayes & Bartlett, Inc., 202-467-3900/
 (MCIC) CO: Putnam, Hayes & Bartlett; MCI Communications Corporation ST: District of Columbia IN: TLS SU:


SB-DC -- DC004R -- 5711 04/07/92 09:20 EDT
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Date:Apr 7, 1992
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