State cancels $92 million ACS contract
The Murkowski administration has ended a $92 million contract with Alaska Communications Systems Group to provide telephone services for the state.
State officials contend ACS, which signed a five-year contract to provide telecommunications for the state and the University of Alaska, has not lived up to terms of the deal.
"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," Mike Miller, commissioner for the state Department of Administration, said Monday.
ACS could not be reached for comment Monday.
Under terms of the contract, which was signed December 2001, ACS was to take over local, long distance, wireless, data and video conferencing services for the state.
ACS was to build a new $29 million network, using technology similar to those powering the Internet, and provide voice, data and video services.
State officials at the time had touted the project as a way to save as much as $13 million and allow agencies to call each other without incurring long-distance charges.
ACS was to convert 20,000 telephones at the University of Alaska and hundreds of other state sites to a new "voice over Internet" technology.
But state officials said only 239 telephones had been converted by the April deadline.
"I don't think we were getting the savings we were expecting," said John Manly, Murkowski's press secretary.
This summer, ACS had been renegotiating terms of the contract with state officials but was unable to reach an agreement.
The company had asked to reduce the scope of services, extend its deadline and increase the cost of the contract.
ACS sought to sidestep extending "voice over Internet" service to state offices in the remote portions of Alaska, said Ray Matiashowski, Department of Administration deputy commissioner.
Phone charges in those outlying areas are high and such a move would have negated much of the state's long-distance savings, Matiashowski said.
State officials refused and in a Sept. 10 letter told the company it would end the contract. State officials are considering damages, Manly said.
Anchorage-based ACS is the main local telephone company in Alaska, serving Anchorage, Fairbanks, Juneau and about 70 other communities.
It had negotiated the contract with state officials under former Democratic Gov. Tony Knowles as a way to streamline the state's fragmented telecommunications contracts.
But the telecommunications company told federal regulators in August that it had lost money under the deal and encountered difficulty.
The company informed the Securities and Exchange Commission that it had spent $14 million building the new network as of June 30 and may have to spend as much as $42 million to fulfill the contract.
The company had touted the network as a key to its future success with plans to develop it under the state contract and then use it for commercial customers.
The Murkowski administration, which took office in December, said it had worked with the company since January to correct performance problems, including billing problems and overcharges. Manly said he did not know the specifics of the problems.
Under terms of the deal, ACS could be charged $200,000 per month for the state's unrealized savings since April and another $125,000 per month in other penalties, Matiashowski said.
Shares of ACS fell 1 cent to $4.42 at the close of trading on the Nasdaq Stock Market. The state's announcement came after markets closed.