Looking at Year-End Telecommunications Insights from Networx

(This blog post is part of a multi-week series reviewing data and trends from GSA’s IT acquisition vehicles for FY14. Read previous posts at  http://gsablogs.gsa.gov/technology/.)

Most federal agencies purchase network services through the Networx telecommunications program. Fiscal Year 2014 year-end Networx purchasing data provides a good picture of the federal networking and telecommunications market.

Last June, we talked about mid-year trends in telecommunications purchases. Today, let’s look at the entire year for FY 2014.

In total, more than 136 federal agencies use Networx. Federal agencies purchased $1.53 billion in network and telecommunications services from the Networx contract in FY 2014. This represents an increase of over $179 million from FY 2013, or 13.2%.  (* See note)

Annual Networx Buying Trends

The two largest in-demand core services on Networx continued to be Network-Based Internet Protocol Virtual Private Network (NBIPVPN) and Managed Network Services (MNS), making up 46% and 12% respectively of Networx purchases. NBIPVPN is a mouthful and you can translate that to secure bandwidth services purchased across an agency.

Demand for these two services grew rapidly. Government agencies increased purchasing of bandwidth by 19% and managed network services by 22% in FY 2014 over FY 2013.

We are seeing federal agencies purchase more high-bandwidth services. This represents a clear shift away from traditional digital signal hierarchy services towards Ethernet-based services. While the inventory of DS-1s (1.5 Mbps services) remained flat, the inventory of 200-500 Mbps Ethernet services in FY 2014 was up over 150% compared to FY 2013. And, we expect this trend to accelerate in FY 2015.

Call center services (such as intelligent call routing to agents) were up 46%. Given the recent modernization of some call centers to Networx, this purchase increase is not surprising. In FY 2015, we anticipate call center services growth will taper as large federal call centers complete their modernization efforts.

One of biggest growth services this past year was toll-free service (TFS). It was the third highest demanded service (9%) on Networx, with purchases up 43% compared to FY 2013. We anticipate this growth trend will decrease or end going forward because it was mainly due to one-time needs in FY 2014 within a few large agencies.

FY 2013 to FY 2014 year-over-year purchase increases are shown below for some of Networx core services.

 Highlights of Network Purchases by Service FY13-FY14  Percentage Growth (FY13-FY14)  Percentage of Networx Purchases
 Network-Based Internet Protocol Virtual Private Network Service  19%  46%
 Managed Network Services  22%  12%
 Toll Free Services  43%   9%
 Call Center Services  46%   3%

Consistent with what we found mid-year, increases in bandwidth-driven services more than offset declines in legacy services like long distance voice, which is for the year down 5% from FY 2013. Not surprisingly, long distance voice now accounts for less than 3% of the purchases on Networx.

And, legacy networks based on the Asynchronous Transfer Mode and Frame Relay protocols have largely disappeared from federal purchasing. They now account for about 0.5% of the purchases.

Beyond these core services, purchases of storage services (Network Attached Storage, Storage Area Networks, and Backup and Restoration Services) through Networx had another year of strong growth at 122% over FY 2013.

While storage services account for a small portion of Networx purchases, it is the second year of triple digit growth in storage services.  We expect growth in cloud-based services like this as bandwidth itself grows to accommodate increased government data needs.

Delivering Cost Savings

One of the missions of GSA is to use the purchasing power of government to drive down prices and reduce costs for agencies. GSA closely and continually evaluates how Networx is meeting this mission, especially around the area of pricing.  In FY 2014, the Networx program saved taxpayers and agency users approximately $670 million on telecommunications, compared to best commercial prices.

GSA calculates savings by keeping and using detailed Networx data on both the services agencies purchase and agency usage volume. Third-party market research allows us to compare best commercial rates for these services to Networx pricing.  If you are interested in seeing current year pricing by service on Networx, please visit our Networx Unit Pricer.

In general, purchasing on Networx has become stable. The proportion of services purchased in FY 2014 is fairly close to what was expected. We expect FY 2015 purchasing trends to remain consistent and for Networx to continue to deliver savings.

* The source of the $1.5B is Networx billing data. Federal Procurement Data System (FPDS) data may reflect a smaller volume of federal purchasing due to differences in task order and service order reporting as well as differences between invoice cycles and agency reporting on FPDS.

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