News last week that Sprint (NYSE: S) had been snubbed from a massive series of government communications contracts caused quite a stir with analysts and industry watchers. Talk about kicking somebody when they're down -- Sprint has already been taking it hard on the chin for integration problems in its merger with Nextel in 2005. Now analysts have another reason to lament the company.
The latest setback occurred when the U.S. General Services Administration identified the three companies that would be permitted to bid on certain telecommunications contracts over the next 10 years, and Sprint wasn't one of them. The companies given the thumbs-up were AT&T (NYSE: T), Verizon (NYSE: VZ), and Qwest (NYSE: Q). Since it doesn't appear on the list, Sprint could now be ineligible to bid on future contracts, some of which it has previously won and delivered on.
There's some uncertainty as to the total value of the contracts the government will be offering as part of its "Networx Universal" program, since it is a projection of technology needs for the next decade. The government estimates that its agencies will be spending $20 billion for certain telecom services as part of the program, but the total could end up being much more.
While the news of Sprint's absence created quite a bit of chatter, it really doesn't change much for the company, and the news had little effect on the stock price. Sprint is still in the game for eligibility for other communications contract bids being announced in May. And while government contracts can amount to huge sums over the long haul, they only make up a small portion of service-provider revenues dominated by consumer services.
Still, Sprint is smarting from a decision that many believe was at least partially prompted by deteriorating service quality, particularly on the Nextel network that is popular with government workers. Investors should take the event simply as another notice that if Sprint Nextel doesn't right its ship and quickly address quality-of-service issues, customer base erosion will continue, whether those customers are government, enterprise, or consumers.
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AT&T is a former Motley Fool Stock Advisor selection. Find out which stocks are currently making the cut with a 30-day free trial.
Fool contributor Dave Mock sprints on occasion, but prefers the slow, easy burn of walking. He owns no shares of companies mentioned in this article. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.