Federal Contract Catapults AT&T; Into Computer Major Leagues

Times Staff Writer

In a decision that will be felt in the computer industry for years, the Air Force on Friday awarded a $929-million contract to American Telephone & Telegraph for computer equipment and software for military and civilian installations worldwide.

The contract--which could bring AT&T; as much as $5 billion over the next five years--salvages the telecommunications giant’s foundering computer business and establishes its Unix operating system as a government standard for future purchases, analysts said.

The award is the biggest single computer services contract ever written by the federal government and was bitterly contested by six major bidders. Among the losers were Zenith Data Systems, Honeywell Federal Systems and computer industry leader IBM, whose junior partner was El Segundo-based Computer Sciences Corp.

“It is a great shot in the arm for AT&T;'s data systems business,” said Robert M. Kavner, president of AT&T; Data Systems Group. He said the firm won the contract because its operating system was the most compatible with existing computer systems in use throughout the federal government.


Contract Could Total $5 Billion

The Air Force is buying the computers for itself as well as the Army, Navy, Coast Guard, Defense Communications Agency and Defense Logistics Agency. AT&T; will deliver mainframe computers, software, maintenance and as many as 20,000 minicomputers, the Air Force said.

The $929-million contract awarded Friday is for two years. The government can renew the pact for three more years, bringing the total value to $4.5 billion. If other agencies adopt the system, the contract’s value to AT&T; could exceed $5 billion, company officials said.

AT&T; is a relative newcomer to the computer business, entering it in 1984 after the breakup of the old Bell telephone monopoly. The company’s computers struggled in the marketplace, although analysts considered them technically competitive with long-established computer makers.


The government contract, however, puts AT&T;'s computer business solidly in the big leagues.

“Their computer operations have done nothing since the breakup of AT&T;,” said industry analyst Jack B. Grubman of the investment house Paine Webber in New York. “This is the first feather in their cap and it’s an awfully big feather.”

Showdown for Unix System

He said the contract doubles AT&T;'s computer business and firmly establishes the company as a serious player in the market for computer operating systems. The sheer size of the government’s orders, Grubman said, will help set industry standards for such software.

He said that if other government agencies follow the Air Force’s lead, it could bring AT&T; millions more in new business.

“If they had not won, they would have had to rethink their (computer) effort in a major way,” Grubman said.

The competition was a showdown on the Unix system, a computer software program for linking together computers of different makes that was developed by AT&T; but is now used by other computer manufacturers. The government specified that the winning bidder must use the Unix system and if AT&T; had lost on its own turf it would have been devastating to the firm, Grubman said.

A company official who asked not to be named said that winning the contract was not a make-or-break matter for AT&T;'s computer business, but that it was critical to its plans to expand in the highly competitive industry.


Rivals for Deal

“Winning this contract firmly establishes AT&T; as a leader in the federal computer marketplace,” said Warren G. Corgan, vice president of AT&T; Federal Systems division.

The contract was won by AT&T; with TRW Inc. and Control Data Corp. as junior partners. They beat teams consisting of Honeywell Federal Systems and Honeywell Bull; Planning Research Corp., Plexis, and Eaton Corp.; Zenith, Hewlett-Packard and Santa Cruz Operations; Sunnyvale’s Lockheed Missiles & Space Co. and Counterpoint, along with the IBM-Computer Sciences partnership.

An industry source said that AT&T;'s bid was not the lowest of the six received by the Air Force, but that the company presented the best proposal for tying unrelated government computer systems together. The AT&T; system will handle database management and other office operations.

The Air Force had originally expected the system to cost far more than the $1 billion it expects to pay AT&T.; The equipment will be installed at military bases across the country and abroad, but an Air Force official said it had not been decided where the system would be used first.

AT&T; Federal Systems, based in Greensboro, N.C., will do the engineering, software development, marketing and management services for the project. The minicomputers will be built at AT&T; facilities in Oklahoma City.