Telcos starting to ‘salivate’ over new Shared Services IT plan, analyst says

Although the federal government says it has not yet decided what role the private sector will play in renewed efforts to streamline and consolidate government IT services, one industry expert says telcos are already “salivating” at the “hundreds of millions of dollars” in contracts the project will produce. Earlier this month the federal government announced plans to consolidate email systems, data centres and electronic networks used across departments and agencies under a single new agency called Shared Services Canada. At the time of the announcement, officials said the move is expected to shave down approximately $5 billion the government spends each year on IT and could save between $100 and $200 million of taxpayer money within a few years. “Shared Services Canada will take a whole-of-government approach to consolidate and manage IT infrastructure, with an initial focus on email, data centres and networks across Government,” Sebastien Bois, a spokesman for Public Works and Government Services Canada, under which Shared Services will operate, said in an email response to questions. “All resources associated with the delivery of these services are being transferred from 44 of the more IT-intensive departments and agencies to Shared Services Canada. This coupled with greater standardization, consolidation and optimization of existing resources and IT infrastructure across government will reduce duplication and will make better use of assets.” Industry experts do not necessarily agree with the government’s cost-saving projections, but they say the project will deliver potentially huge contracts for any telcos that assist with the transition. “This will be a hundred-million dollar contract,” independent telecom analyst Bill St. Arnaud told The Wire Report in a phone interview this week. He added in an email: “Companies like Bell, CGI, IBM and others are salivating to win this business.” Like other experts contacted by The Wire Report, St. Arnaud seemed skeptical that the initiative will save the government money in the end. He pointed to a previous attempt by the federal government, called the Secure Channel Network Security Services program, as a sign of the difficulties Shared Services will have to overcome. “On paper it’s a great idea ... and that’s why it always appeals to senior management administrators,” St. Arnaud said. “But trying to do it right across government is just too big. It’s too big of an elephant to swallow.” Under prime minister Jean Chrétien, Secure Channel was the government’s response to the growing need to get all federal departments operating in a safe online environment in the late 1990s and early 2000s. The initiative was expected to serve as a single secure network for the government to complete all of its online transactions with Canadians. But after repeated delays and extensive cost overruns, the estimated $96-million program had cost taxpayers more than $600 million by 2007 and a majority of departments and agencies remained reluctant to adopt the network’s slow and outdated technology. Prime Minister Stephen Harper’s government mandated all departments and agencies to sign onto the Secure Channel network in early 2007 but the government announced in late 2008 that the network would be replaced. By that time, analysts had estimated that the total cost of the initiative had soared to more than $1 billion. “Any of these big government software projects get so big that you get areas that are not well-defined,” St. Arnaud said. “If they just went for smaller pockets and identified certain areas , some savings could be .” Consolidating a large range of government IT services often requires the new system to accommodate the specific and sometimes conflicting needs of individual departments and agencies. The RCMP may prioritize an email system that is accessible to its officers using wireless terminals in their cars, but the Department of National Defence will want an emphasis on security and reduced points of accessibility. Different needs such as these, St. Arnaud said, lead to consolidated requirement documents that “will be about six inches thick.” As a result, only a handful of big telco and networking companies are capable of competing for the job—which can squeeze out small and medium-sized enterprises, he said. “The only companies that will have the resources for what will be this huge contract will be Bell Canada, CGI and IBM, and maybe one or two others,” St. Arnaud said. Despite the scope of the project, some experts say there could be room for smaller players to take on important roles. Serge Buy, director of government relations at the Canadian Business Information Technology Network (CABiNET), a consortium of small and medium-sized businesses, said small businesses can save the government money by reducing overhead costs incurred by the big telcos and network specialists. The government would have to tender smaller, individual contracts for smaller firms to compete, he said. “If SMEs compete with the large companies, usually they win ... They win on price, they win on innovation and they win on delivery,” Buy said in an interview. “But if they are not given the opportunity to compete, then goes to the large companies. The large companies—knowing that the SMEs won’t play a role—will be able to charge fully for their overhead and everything else.” Eamon Hoey, an IT and telecom consultant at Hoey Associates in Toronto, noted that larger companies may not be interested in winning the entire contract. He pointed to the experience of EDS Canada, which won a contract to redesign and manage the Government of Ontario’s IT infrastructure in the late 1990s. The provincial initiative was seen as a cost-saving mechanism. But downward pressures on cost proved incompatible with upward pressures on service, Hoey said, and EDS found it impossible to see the types of profit margins it had originally envisioned. “At the end of the day, nobody wants to be the full winner of this network,” Hoey said. “You simply have to slice and dice too low to be the complete winner across Canada.” Bois said the department is looking at what role the private sector will play in the consolidation process and managing the new networks when they are in place. “The role of the private sector has not yet been determined,” Bois wrote on behalf of PWGSC. No new contracts have been awarded, he said, and all existing arrangements will continue to be managed under current contract agreements. nkyonka@thewirereport.ca

Telcos starting to ‘salivate’ over new Shared Services IT plan, analyst says

News | August 25, 2011

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