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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lightshow 12/5/2012 | 12:38:57 AM
re: Dreams of the DISA Deal Zettabit,

I must give you a hand for that awsome reply!

hey_tedd 12/5/2012 | 12:38:55 AM
re: Dreams of the DISA Deal You will have to be able to work with the current DISA legacy network.

Many DISA requirements are real, the problem is that the environment complexity to sell to the product is very high and you will have to have patience of Jobe. Most small companies do not understand what it takes to sell to this environment; it takes years, so you have to have a strong big partner, to help you get over the hump. A defense contractor that does a lot of defense related communications work. There are many out there, you will have to do your homework to find the right partner, and they will not be easy to work with either.

You will have to have a real vision for the future of networking as well, and connections with the next generation Internet project at DARPA.

You will also need NIST connections, and get on their certification wagon, such as FIPS 140-1. The 140-1 may not apply to you, but you may have to prove that you can interoperate with FIPS 140-1 specific devices. The other big issues are related to cryptography in general and tempest issues. There are many complex issues, which are related to security and the electrical behavior of the device in a secure area.

I hope this helps for anyone that is interested in selling to this area of the market.
lowbandwit 12/5/2012 | 12:38:28 AM
re: Dreams of the DISA Deal From reading most of the posts up to now it's clear that the majority of experience is with 'real-world' telecomm. The military in general, and DISA specifically, is a world unto itself. How many people know what an IDNX is? As of four years ago it was the work horse of DISA. I don't know about now, but I'd have to put my money on it still playing a major role in their network. The DoD isn't afraid (historically) of niche companies.

As far as access rights to foreign soil... it's really not that dumb a question. DISA already has fiber routes in many countries, but each has been negotiated with the host country. If they do any kind of major build they will have to secure leases to new routes before they can do anything. Yes, it's a private network which doesn't need to be licensed, but they still need someone's permission to trench.

On the domestic front I don't think that encryption will be that important, but in areas where we do not have 100% physical control of every inch of fiber you can bet they'll have link encryption. I do wonder what the fastest crypto is capable of now? If they roll out 10 GigE, does the NSA have something for it?

My two cents.
eyesright 12/5/2012 | 12:38:27 AM
re: Dreams of the DISA Deal Lowbandwit,

Ah yes, the IDNX bandwidth manager. It comes in three main flavors I believe (30, 70, 90) and is (was?) manufactured by a Redwood City, CA. company.

Insofar as encryption, people need to familiarize themselves with C2 security operations as specified in the Rainbow series.
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