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No-Bid Telecomms Contract Makes US Look Like Fools

Another Scandalous No-Bid Contract Makes US Look Like Fools

By Pat Gerber
May 23, 2003

Critics have been howling since the announcement that the Department of Defense gave a no-bid contract for cell phone service in Iraq to a disgraced company called WorldCom. And with good reason.

Competitors in the telecommunications business pointed out that WorldCom has no experience in building cell phone systems and objected to the fact that industry leaders were not even informed that such a contract was contemplated, much less given the opportunity to bid on it.

Reform-minded watchdogs were appalled that any contract of any description was given to a bankrupt company whose $11 billion accounting fraud scandal was the largest in history, a company that is regarded as the poster child for everything that is dysfunctional about American corporations today. Budget-watchers were aghast at the outrageous cost. And then there is the sheer stupidity of it all.

Satellite phones make sense in a place like Baghdad, but cell phones do not. Satellite phones are reliable, though slightly cumbersome. They work everywhere, even in the roughest conditions, which is why Afghan warlords use them. They can be depended on when other means of communication have failed. Cell phones, by contrast, cannot even be relied on in major U.S. cities, where the networks are as good as the still-evolving technology allows.

The contract is for a small, temporary network. Its price tag is $45 million for 5,000 to 10,000 phones, if there are no cost overruns. That works out to $4,500 to $9,000 per phone. Since many people carry two or three phones, the cost per user is higher.

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These figures are so grotesque that they make clean government advocates yearn for the good ol’ days when the Pentagon confined its spending excesses to $640 ash trays. Had this contract been put out for open bidding, companies that have actually done this type of work before would not only have been interested but would probably have agreed to a more reasonable dollar figure.

The notion of plunking down any cell phone equipment amid the rubble and chaos of a devastated, crime-ridden city like Baghdad is foolish. The 19 antennas and base stations that will form the backbone of the network will quickly become tempting targets to every Iraqi who is angry with Americans, and even if soldiers are diverted from their regular duties and used to provide tight security for the equipment, it is highly probable that a few antennas will get hit from time to time and cause the phones to go dead.

Moreover, cell phone networks run on electricity, a commodity that is likely to remain scarce in Iraq for some time. The amount of electricity needed just to keep the base stations cool enough to operate in the summer heat is unlikely to be available, and blackouts pose their own special problems for cell phone systems.

Installing generators to power the equipment will only add more targets for irate Iraqis to attack. The bottom line is that even if the proposed system were built out, the best case scenario is that it would provide intermittent phone service in some parts of the city. Aid workers, military personnel and others who need dependable phone service would be out of luck.

Finally, there is the question of whether WorldCom should be eligible for any government contracts. Last year, when the Government Accounting Office reviewed another contract between the Department of Defense and WorldCom, it concluded that the DoD "relied on grossly inaccurate financial information in making a determination that WorldCom was a responsible contractor."

That is a polite way of saying that WorldCom lied. Groups from the left, right and center have lobbied Congress to exclude WorldCom from all government work. They have not forgotten that WorldCom’s spectacular bankruptcy reamed investors’ portfolios when its stock price dropped 99%, put thousands of employees out of work and wiped out their retirement accounts, cheated suppliers who will never be paid what they are owed and wracked other economic mayhem, and they continually remind us that its purported culture of deceit has not yet been supplanted with a culture of fairness and decency.

The fact that the company recently paid a record $500 million penalty to the SEC has not quieted critics, who claim that this fine is merely a slap on the wrist, is not in proportion to the damage done and serves as further evidence that the current administration shows favoritism.

Our government looks like – and is – a hypocrite when it encourages other nations to have a free and open economy while practicing exactly the opposite. Deals such as this only provide additional ammunition to those who would disparage us.

- Commentary and opinion by Pat Gerber a telecommunications analyst from California. Pat welcomes feedback to

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