March 15 (Bloomberg) -- AT&T Inc., Sprint Nextel Corp. and competing phone companies will find out this month whether they can bid for the biggest U.S. government communications contract ever or get shut out of most federal work for a decade.

Carriers must win the right to bid on projects valued at more than $20 billion over 10 years, for work ranging from Internet-based telephone and video services to data-network security upgrades. As many as 135 agencies will pick providers from the list, limiting work for companies that are left out.

``This is high-stakes procurement,'' said Ray Bjorklund, senior vice president at FedSources, a McLean, Virginia-based research group that tracks government contracts. ``It could be quite a hurt for some of these teams if they were to not win.''

Teams led by AT&T, Verizon Communications Inc., Sprint and Qwest Communications International Inc., the four largest U.S. phone companies, are the entrants. The government says it may pick just two winners for the biggest part of the contract.

The aim of the program is a coordinated plan for government agencies to upgrade to Internet-based communication systems and new technologies that emerge in the next 10 years. The government also wants to tighten network security and improve agencies' ability to communicate with each other, particularly in emergencies.

The spending may grow to as much as $80 billion, Bjorklund said. That would provide each of the groups with as much as $2 billion a year in revenue if all four win the right to participate.

Millions Preparing

The phone companies say they have spent millions of dollars and assigned thousands of employees to parts of the work in the past three years to prepare for the orders. Verizon, the second- largest U.S. telephone company, in September opened a network operations and security center in Ashburn, Virginia. The facility provides services such as real-time security monitoring of agency networks and will help groups move to the newest systems.

Two or more bidders will be chosen for the first slice of the two-part contract, called Networx, said John Johnson, a General Services Administration assistant commissioner overseeing the program in Washington. Work for some agencies may start as early as next year.

``We have not seen any contracts that are as robust as Networx in terms of the myriad projects and services we have asked for, particularly in the area of security,'' Johnson said.

Most to Lose

Sprint and Verizon may have the most to lose because they have a government-wide contract for telecommunications work already. Sprint has had an 18-year run as a contractor, and Verizon became part of a government-wide program in 2005 by buying MCI Inc.

Any carrier that doesn't win the right to bid on Networx will find the federal market ``very challenging'' over the next decade, said Susan Zeleniak, vice president of Verizon Federal in Vienna, Virginia.

All four carriers formed teams with technology and defense companies to meet the program's requirements. The group led by Reston, Virginia-based Sprint includes Lockheed Martin Corp., while New York-based Verizon is working with Hewlett-Packard Co., General Dynamics Corp. and Computer Sciences Corp.

Northrop Grumman Corp. and Electronic Data Systems Corp. are among providers on San Antonio-based AT&T's team, and Qwest's team includes BearingPoint Inc. and SAIC Inc.

For Sprint, the third-largest U.S. mobile-phone company, a win would come at a key time. The company lost consumer clients as it meshed operations following its purchase of Nextel Communications Inc. in 2005. The company said in January it plans to cut 5,000 jobs this year because sales will trail analysts' estimates.

$100 Million Plus

Sprint gets several hundred million dollars each year from existing federal fixed-line contracts, and may win an additional ``$100 million-plus'' in annual revenue from the new wireless component, Tony D'Agata, vice president of federal business at Sprint's public sector division in Reston, said in an interview.

Sprint shares have dropped 18 percent in the past 12 months, lagging behind a 35 percent gain at AT&T, a 9.7 percent increase at Verizon and a 26 percent rise at Qwest.

AT&T, the largest U.S. phone company, hasn't held a government-wide contract for eight years, and Qwest, the fourth- largest, has never had one. Becoming a Networx supplier is a priority for AT&T because agencies may increasingly rely on ``very large procurement vehicles'' for communications projects, said Don Herring, president of AT&T Government Solutions in Vienna, Virginia.

``The more of us that are in the game, the better it is for the government,'' said Diana Gowen, senior vice president for Qwest's government services division in Washington. ``The government likes to have as much choice as possible.''

Qwest's lack of experience as a government-wide provider won't put the company at a disadvantage because many of its experts used to work for Sprint, MCI or AT&T, Gowen said. Denver- based Qwest is ``smaller and more nimble and more agile'' than other bidders, she said.

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

Last Updated: March 15, 2007 16:18 EDT