March 29 (Bloomberg) -- AT&T Inc., Verizon Communications Inc. and Qwest Communications International Inc. won the right to bid on orders under a government contract worth at least $20 billion, the biggest-ever federal telecommunications award.

Sprint Nextel Corp. was denied participation in the biggest part of the so-called Networx acquisition program, which lasts 10 years, the General Services Administration said today at a press conference. The decision will end the Reston, Virginia-based company's 18-year run as a government-wide contractor.

``A lot of us are scratching our heads, saying, `Exactly why didn't Sprint get the award?' '' said Ray Bjorklund, senior vice president at FedSources, a McLean, Virginia-based research group that tracks government contracts. ``Sprint's government business is important, no question about it.''

The companies will compete for business from as many as 135 federal agencies in thousands of locations worldwide. The services provided will cover everything from Internet-based telephone and video access to data-network security upgrades.

The announcement marks the first time the U.S. has picked more than two groups of companies to bid on a government-wide telecommunications contract, a deal spanning its whole operations. The contract replaces an arrangement with Verizon and Sprint. San Antonio-based AT&T hasn't held a government-wide contract since 1999, and Denver-based Qwest has never had one.

``The three awardees best meet our needs,'' said John Johnson, a General Services Administration assistant commissioner overseeing the program, in response to a question about why Sprint wasn't picked.

Shut Out

The program had been especially critical for Sprint, which gets several hundred million dollars each year for federal network services and has lost consumer customers in recent months. The company, which runs the third-largest U.S. wireless service, said in January it plans to cut 5,000 jobs this year as sales trail analysts' estimates.

The loss of federal contracts may cost Sprint $500 million in sales over two to three years, said Christopher Larsen, an analyst with Credit Suisse in New York, in a research note.

``However, we note that the margin on this revenue is below average,'' said Larsen, who has a ``neutral'' rating on Sprint shares. ``This announcement is a moderate negative for Sprint.''

Sprint said in a statement it will support a bridge contract to continue its work with government customers for as many as 40 additional months. The company said it is confident it will be found eligible to bid on a second, smaller part of the Networx contract that will be announced in May.

Possible Protest

The company also requested a debriefing with GSA next week and will decide after that meeting whether it will protest its exclusion, the company said in an e-mail. Being rejected for the Networx program doesn't mean Sprint is locked out of the market completely because individual agencies may opt to purchase from them on the open market, or through other federal contracts.

``Government telecom spending is going up, so Sprint's going to get the benefit of it somehow,'' said Bjorklund at FedSources. He added that a protest by Sprint could slow implementation of the program, delaying orders for AT&T, Verizon and Qwest.

Shares of Sprint fell after the announcement and later recovered, rising 49 cents to $19 at 4 p.m. in New York Stock Exchange composite trading. Shares of AT&T rose 22 cent to $39.17, Verizon shares advanced 34 cents to $37.57 and Qwest shares gained 10 cents to $8.95.

Lots of Work

The program was designed to help government agencies upgrade to Internet-based systems, add more wireless networks and adopt technologies that will emerge in the next 10 years. The government also wants to tighten network security and improve agencies' ability to communicate with one another, particularly during emergencies.

The phone companies say they have spent millions of dollars preparing for the contract in the past three years, assigning thousands of employees to parts of the job.

Today's announcement is ``a step in the process,'' said Don Herring, president of AT&T's government business. ``Lots of work needs to be done for what happens next.''

Qwest will focus on transforming federal data networks ``right out of the chute,'' said Diana Gowen, senior vice president for Qwest's government services division in Washington, in an interview today. Verizon said in a statement that it is ``already ahead of the game'' in technology investments to continue its work with federal agencies.

All four carriers formed teams with technology and defense companies to meet the program's requirements. Sprint had planned to work with a group that includes Lockheed Martin Corp., while New York-based Verizon teamed up with Hewlett-Packard Co., General Dynamics Corp. and Computer Sciences Corp.

Northrop Grumman Corp. and Electronic Data Systems Corp. are on AT&T's team, and Qwest's team includes BearingPoint Inc. and SAIC Inc.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

Last Updated: March 29, 2007 16:30 EDT