Dreams of the DISA Deal

With the end of the telecom turmoil tunnel still nowhere in sight, many struggling optical networking companies continue to set their hopes on a number of lucrative contracts with the Department of Defense.

Tracking down such deals has been tricky and fraught with competition -- but the stakes are high (see WorldCom Keeps $450M Defense Deal). The Department is expected to award a range of different telecom-related contracts worth hundreds of millions of dollars this year.

The latest government business to gather attention are contracts from the Defense Information Systems Agency (DISA) worth $877 million. The DOD agency announced last May that it wanted to build a global telecommunications network based on optical networking technology and issued two requests for information (RFIs) for the fiber and the equipment needed to build it (see Is Uncle Sam an Optical Sugar Daddy? ). Equipment and fiber vendors across the industry are eagerly awaiting DISA’s requests for proposals (RFPs), which are expected to go out any day now.

"That’s what people are waiting for now,” says Corvis Corp. (Nasdaq: CORV) director of investor relations Andrew Backman.

The project, titled the Global Information Grid Bandwidth Expansion (GIG BE), is meant to provide increased bandwidth and survivable communications to key military installations around the world. It is part of an overall DOD network-centric warfare strategy, which is to connect all the elements of war prosecution, from the front line to the headquarters in Washington.

“They’re looking for a constant flow of intelligence up the chain of command,” says Input analyst Payton Smith. "I think that particularly for the telecommunications industry, the government is attractive… Especially the Department of Defense.” Smith points out that the Department estimated last year that it would spend about $6 billion on telecom in 2002. Input expects that number to rise to about $9 billion by 2007.

To make that happen, a lot of pieces have to fall in place, and a lot of money has to be invested in network equipment and components. And of course, everybody wants a piece of the action. The DISA Website’s list of companies that have voiced interest in GIG BE reads like a Who’s Who of the optical networking equipment world.

“Everybody’s competing in this thing,” Merrill Lynch & Co. Inc. analyst Simon Leopold says. “Just name the company, and they’re probably on the list.”

Not only are there large sums of money to be made on a potential deal with DISA, but there could be money to be made quickly. With an ongoing war on terrorism and a war with Iraq looming ever closer, it would seem that the DOD doesn’t want to waste any time getting its network set up.

“The GIG BE is a ‘fast-tracked’ program,” the DISA Website states. “[The] schedule is to build a core in FY03 worldwide. Equipment will be installed starting 60 days after equipment contract award, and be completed in 6 months. Fiber contractor(s) will extend fiber to sites in FY04 and sites will be inserted into GIG BE mesh as they become operational. We will consider contractors’ recommendations for optimizing implementation.”

In addition to having the speed and security of government funding behind the project, snagging a government contract can also function as a catalyst for business in the private sector. “I think that a lot of the stuff coming out of the government will appeal to the enterprise,” says Sprint Corp. (NYSE: FON) spokesman Steve Lunceford. “Anything we’re looking at doing on the government side, we’re also looking at how they can be applied on the enterprise side.”

But while anyone and everyone is welcome to voice their interest in the GIG BE project while its still in the RFI stage, quite a few companies will discover that they simply don’t qualify to compete for the project once DISA has issued the RFPs. Due to security concerns, only companies that possess SECRET facility and personnel clearances will be able to obtain much of the information necessary for participating. DISA doesn't explain what the SECRET military classification entails [ed. note: if they did, it wouldn't be a secret now, would it?].

In addition, the contract awards will comply with the Buy America Act, according to a DISA Q&A on the project. The Agency doesn’t specify what this involves, but some observers say this could mean that alien equipment giants like Nortel Networks Corp. (NYSE/Toronto: NT) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA) will be excluded from the RFPs.

As for the technical requirements, it looks as if DISA is looking to build a mostly all-optical mesh network, mainly based on all-optical switches. The Agency is, however, also evaluating the benefits of OEO switches, according the Q&A on its Website. When it comes to the fiber, the Agency specifies that it doesn’t have to be 100 percent the same across the network, but that it does have to meet all of the functional requirements, including a minimum 10 Gbit/s data rate.

So who is most likely to come out on top in the GIG BE race? DISA specifies that it may award one contract to multiple vendors, but that it could also award multiple contracts to a single vendor. The Agency states that it is not obligated to favor small businesses or startups, and many industry observers agree that systems integrators will most likely bag a lot of the contracts (see Hunting for Gold in Homeland Security).

While many of the companies on the list are being tight-lipped about their ambitions to land a contract, one equipment vendor has been outspoken about its aspirations of grabbing a piece of the pie. Discussing Corvis's earnings on a conference call last week, CEO David Huber said that the vendor expected to be able to compete for between $200 million and $400 million of the upcoming government RFPs (see Qwest Comes Through for Corvis). Corvis launched a separate subsidiary in October last year to address what it sees as growing opportunities in the government space. The company expects to report revenues from its first government contract this quarter (see Corvis Targets Feds).

“The government is looking to build an all optical mesh network,” Corvis's Backman says. “Corvis is the only company that has delivered that to date... What the government is asking for is Corvis’s sweet-spot.”

“I think that Corvis has a good shot,” says Merrill Lynch's Leopold. “but it’s not a slam-dunk.” He points out that while Corvis is a leader in the all-optical switching category, other players could emerge to challenge it. “It’s possible that Lucent Technologies Inc. [NYSE: LU] could pull the Lambda Router out of the mothballs."

There are other RFPs in the works as well. Input is currently tracking seven DOD RFPs it expects to surface this year relating to telecommunications, according to Smith. He says he doesn’t know how much most of the contracts are worth but that Input expects a Navy contract for a joint tactical radio system to be worth about $720 million.

— Eugénie Larson, Reporter, Light Reading
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eyesright 12/5/2012 | 12:40:08 AM
re: Dreams of the DISA Deal Having worked on the DISN deal whilst at a carrier, I can tell you that the participants in this exercise better have patience, and team with a large carrier if they want to be successful.

They will also encounter an entirely new lexicon of terminology, the most important being the "change order".
optical_guy 12/5/2012 | 12:40:06 AM
re: Dreams of the DISA Deal On the equipment side of GIG BE, the key is that (as I understand the RFI and Q&As) the actual equipment will be purchased by winning vendors via existing integration and management contracts (SAIC and Artel ?) and that the Government intends to perform the integration themselves (again, via these integration contracts). This is actually a good structure for a Corvis who can manf their equipment but does not have the size and experience to manage an overall Govt network build effort. All they have to do is ship the equipment (yeah, provide documentation, training, etc....but mostly just ship)

BobbyMax 12/5/2012 | 12:40:04 AM
re: Dreams of the DISA Deal Has the DoD received the permission of foreign governments on whose soils the optical network node would reside. What is the purpose of this global opotical network. The amount allocated is not seem to be enough to cover the cost of the project. Will the infrastructure oif the network depend on the feedback received from the vendors?
flanker 12/5/2012 | 12:40:03 AM
re: Dreams of the DISA Deal Have they received the permission of foreign governments on whose soils the optical network node would reside.

It is a private network, you bonehead. Private line transport used for proprietary purposes does not require a license.

opticalweenie 12/5/2012 | 12:39:58 AM
re: Dreams of the DISA Deal The real key is that the product that is shipped
must actually work as claimed by the manufacturer.
There will be no room to diddle here, and hem
and haw and make excuses and send sales people out to buy expensive dinners in an effort to placate the customer. One misfunction and you'll be out. That is how DoD works. I sincerely hope the companies competing fully understand this - and a running their tests now, rather than never.
optical_guy 12/5/2012 | 12:39:57 AM
re: Dreams of the DISA Deal Weenie - I'd love to agree with you...I actually agree with you that this is how DOD should work on COTS purchases, but I have had the experience of working quite a number of DoD acquisition projects and "one misfunction and you are out" is seldom if ever the norm. There are hundreds of examples where one strike and out has not been the case.

xanthus24 12/5/2012 | 12:39:55 AM
re: Dreams of the DISA Deal DISA's network is ATM/PNNI based with speeds up to OC-12. This has been a limitation for them just from sheer data volume that they transport. Also, I know that they want more of an integrated network (Voiced, Video)than what they maintain today. To cover voice and video transport, there are several smaller networks, plus private line.
10Gig 12/5/2012 | 12:39:52 AM
re: Dreams of the DISA Deal flanker,

Been reading these boards for sometime now and it's quite definite that Bobbymax is an idiot and at times annoying.. but reasoning with stupid people only encourages them to open their mouth and fart more..

remember the saying: "Don't argue with idiots. They drag you down to their level and then beat you with experience"

likebizy 12/5/2012 | 12:39:50 AM
re: Dreams of the DISA Deal OG said "There are hundreds of examples where one strike and out has not been the case."
Isn't this the case with most things now! For example, "Iraq and the U.N." they keep screwing up and they keep getting another chance!"
zettabit 12/5/2012 | 12:39:48 AM
re: Dreams of the DISA Deal OG said "There are hundreds of examples where one strike and out has not been the case."

Another good example of where blunder after blunder gets tolerated is in the office of the President of the United States of America.

Let's see:

- how should the USA act so as to ensure it alienates as large of a segment of the world population as possible? And stop stop at the Middle East, make sure Europeans despise us too.

- how should the USA best ensure it is perceived in pursuing only its OWN best interests (forget global warming, American's can afford air conditioners and oxygen tanks)?

- North Korea policy, version 27

- And in case all of this annoys Americans as well, be careful, because if you disagree you'll be considered an "enemy combatant" and never be heard from again.

- how do you stimulate the economy by running deficit-based spending on non-GDP augmenting military expenditure, while simultaneously reducing government revenue from wealthy Americans? Oooh! Oooh! I know.

- Enron? Enron who? They're in Texas too? Well, wad'ya know?

- War crimes are bad! When commited by others. No way the US should ever face the International Criminal Court. My Lai 4? Never heard of it.

Based on George's track record, it appears that the government, and Americans, can be EXTREMELY tolerant of incompetance.
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