ACS misses deadlines in $92 million state contract

Posted: Friday, August 22, 2003

ANCHORAGE (AP) Alaska Communications Systems Inc. has run into snags with its $92 million, five-year contract to overhaul the state's telecommunications network, the company recently told federal regulators.

State officials say ACS has missed some deadlines specified in the contract, which became effective in April 2002, but refused to provide specifics.

An ACS spokeswoman said the company has been trying to renegotiate the contract with the state for several months and would not say anything more than it disclosed in an Aug. 8 filing with the Securities and Exchange Commission.

''Other than to say that we're negotiating it as we speak, I think, would be problematic,'' ACS vice president Mary Anne Pease said. ''We don't want to renegotiate in the papers.''

Anchorage-based ACS is Alaska's largest local phone company. Company executives have touted the state contract as a key to their company's future success. They said they plan to use the network they are building for the state as a springboard for adding customers and services.

The SEC document, filed in connection with a proposed ACS corporate bond issue, says each side has claimed the other is not living up to the terms of the 225-page contract and ACS is trying to renegotiate some deadlines and quality-of-service requirements.

The contract provides for ACS to take over all the state's telecommunications systems, including local, long-distance, wireless, data and video conferencing services.

ACS also agreed to build a new network, using the same technology that powers the Internet, on which voice, data and video services all can be delivered simultaneously.

The agreement establishes deadlines for providing each specific communications service and sets minimum standards for their quality.

When state officials awarded ACS the contract in late 2001, they estimated the network would save nearly $13 million in operating costs over the five-year life of the contract.

The state agreed to pay ACS roughly $18.5 million annually. ACS agreed to invest $29 million in the new network.

In the regulatory filing, ACS said it had spent $14 million building the network as of June 30. The company also said that it might have to spend as much as $42 million to provide the service called for under the contract.

ACS also said if its efforts to renegotiate fail, the company may have to pay the state as much as $325,000 per month in penalties and damages.

Further, the company said it has lost money under the contract for the 12 months that ended June 30, and it is not sure if it will make any profits from the contract.

Pease said most of what was disclosed in the SEC filing assumed a ''worst-case scenario'' that the company was legally required to provide for investors and federal regulators.

Ray Matiashowski, a state deputy commissioner of administration, refused to provide any information about the status of the network upgrade or which parts of the contract the state claims ACS is not living up to.

''There have been a couple of deadlines missed, and that's what we're talking about,'' he said. ''We're discussing these things with ACS. I think they're timely, and we're going to have results. At this point, that suffices.''

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