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State Terminates $100 Million ACS Telecom Contract


September 16, 2003
Tuesday - 1:00 am

Citing a material breach of contract due to ACS's failure to perform, the State of Alaska has terminated a $100 million telecommunications agreement with Alaska Communications Systems. Commissioner of Administration Mike Miller notified ACS Chairman and CEO Chuck Robinson in a letter dated September 10 of the state's intent to proceed with disentanglement as provided by the contract.

A news release from the Governor said that under the agreement, ACS was to have "transformed" 20,000 telephones at more than 400 state sites, including the University of Alaska, to a new, state-of-the-art handset using "voice-over-internet-protocol" technology by April 2003. To date, only 239 phones have been transformed, at five state facilities in Anchorage and Juneau.

Quoting the Governor's news release, the contract, negotiated and signed by the previous administration in 2001, placed the various telecommunication functions used by state government under the management of ACS. These included telephone system installation and maintenance throughout the state, long distance service, cellular and wireless service, video and audio conferencing, and even satellite uplinks. The objectives were to standardize service, reduce billing costs, standardize billings and obtain savings through volume. Transition team reports alerted the Murkowski administration to problems with the contract performance and to indications that the contractor might not be fully able to perform.

The Murkowski administration has worked with ACS since January to correct performance problems, including the transformation of telephone systems in state offices, billing problems, and overcharges, among many others.

"Terminating the contract was not our first choice. However, when the state failed to get the performance we needed from the contractor, we finally had no choice but to disentangle from the contract," Miller said. "That means moving functions back to the information technology group. We will reassess our telecommunications needs and at a later time re-bid those parts of the program that are in the state's interest."

Steve Smith of the University of Alaska agreed with the decision. "The University is disappointed that this particular contractual arrangement didn't work out," Smith said. "I think the state had no choice but to terminate the contract."

According to the Governor's news release, the contract with ACS provides a process for ending the contract and paying damages to the state, should the contractor fail to perform. Miller expressed the administration's hope that termination and disentanglement could proceed without litigation.

Alaska Communications Systems Group, Inc. ("ACS") (Nasdaq:ALSK) announced in a news release that it had received notification Monday from the State of Alaska to terminate the Comprehensive Telecommunications Service Agreement between the two parties. This agreement, signed in December 2001, called for ACS to manage and enhance the State's telecommunications networks and services.

ACS said it believes the State failed to perform its obligations under the Agreement, making it impossible for ACS to meet all of its performance objectives. The State was to identify all of its services and equipment and work with ACS to develop a specific schedule and plan for transformation of services. Unfortunately, the State never delivered an accurate inventory and failed to cooperate in developing the transformation plans as required by the agreement.

According to ACS, the company has notified the State of the problems it has encountered as a result of the State's failure to perform and has worked with the State for several months to try to identify solutions to these problems. Unfortunately, the parties have failed to identify mutually satisfactory ways to solve the numerous problems created by the agreement.

"We are very disappointed that the Partnership did not develop as envisioned and we only wish the Partnership could have produced better results for both parties," commented Chuck Robinson, Chairman and CEO of ACS. "ACS has invested more than $20 million to meet its obligations under this agreement and has consistently accommodated the State even beyond the scope of the original agreement, with services like additional satellite phones and added internet connectivity. Moving forward, we look forward to working with the State to negotiate solutions that will maximize customer satisfaction and provide adequate recovery of ACS costs, as provided for in the contract. It is currently difficult to anticipate the revenue impact of the termination of this contract until ACS receives the State's proposal for disentanglement. Longer term, we will concentrate our resources and our capital on opportunities that offer a better return on our investment and ensure that we remain the premier integrated telecommunications company in Alaska."

ACS is an integrated communications provider in Alaska, offering local telephone service, wireless, long distance, data, and Internet services to business and residential customers throughout Alaska. According to information proviced by ACS, the company currently serves approximately 318,000 access lines, 83,000 cellular customers, 44,000 long distance customers and 45,000 Internet customers throughout the State.


Source of News Releases:

Office of the Governor
Web Site

Alaska Communications Systems Group, Inc. ("ACS")
Web Site


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