Will MCI/Worldcom backbone hurt market?

By Denise Pappalardo
Network World, 4/6/98

The U.S. Department of Justice is investigating it, service providers are protesting it, and even the Communications Workers of America (CWA) is rallying against it.

But users don't seem to think the planned merger between MCI and WorldCom will negatively affect Internet services.

MCI/WorldCom would be-come the second-largest telecommunications carrier. But the two carriers' potent Internet properties are now the primary stumbling blocks to a merger, because the government and merger opponents are concerned MCI/WorldCom would have a stranglehold on 'Net backbone traffic.

"It sounds like [MCI/WorldCom] will obviously gain market share, but based on new technology developments and the increased demand for bandwidth, I can only see prices going down," said Tod Bryant, director of information systems at New York Life Benefit Services, Inc., a Norwood, Mass.-based company.

The performance and quality of service that New York Life gets from UUNET Technologies, its Internet service provider, has a direct impact on the company. New York Life is running a Web-based 401k application for its customers. UUNET is a division of WorldCom.

While most executives at MCI and WorldCom will admit the merged companies will support only about 20% of Internet backbone traffic, industry analysts beg to differ.

"It's easy to speculate MCI/ WorldCom will have over 50% of the Internet market share, but it doesn't really matter," said Johna Till Johnson, program director for global network strategies at Meta Group, Inc., a Stamford, Conn.-based consulting firm.

Even so, if MCI/WorldCom did have a monopoly it wouldn't last, she added. All it takes is a couple of really savvy competitors to move in and take business from a monopoly, Johnson said.

"It's time everyone wakes up and smells the bits," said Ken McGee, vice president at Gartner Group, Inc., a Stamford, Conn.-based consulting firm. Yes, MCI/WorldCom will probably support a majority of Internet traffic, but that will not prevent other ISPs from being competitive, he said.

Yet, those opposing the merger, such as GTE Corp., Sprint Corp. and the CWA are claiming MCI/WorldCom's dominant position in the market will hurt users and adversely affect Internet backbone competition.

This majority stake in the Internet "will create a situation where it will no longer be in MCI/WorldCom's best interest to maintain high-quality interconnections with other ISPs," said John Curran, chief technical officer at GTE Internetworking.

Curran and others are concerned that if MCI/WorldCom has an overwhelming Internet backbone advantage, the company will be able to win and retain customers with unparalleled ease.

And other organizations, such as the Internet Service Provider Consortium (ISPC), a group of 165 small and regional ISPs, believe the merged company will take advantage of its leadership position by changing interconnection policies and contracts, or raising prices, said Deborah Howard, executive director of ISPC and a founding partner at 2Cow Herd, a Venice Beach, Calif.-based ISP.

But business customers are not buying into the naysaying.

"What are [the merged companies] going to do that will be so bad?" asked Dwight Gibbs, chief technical "fool" at The Motley Fool, a Web-based financial advisory company that primarily operates on the 'Net.. "If they jack up prices, Sprint and AT&T are going to be happy to undercut their prices to win that business."

To ensure redundancy The Motley Fool uses three different ISPs - UUNET, ANS Communications and @Work, a division of @Home Networks - to provision three dedicated connections.

"MCI and WorldCom will not have any competitive advantage until their networks are joined, and that's going to be a long time from now," Gibbs said. Until then, MCI/WorldCom will be operating like two separate companies with more interconnections between their networks, he said.

Users agree there would be more need for concern if there were only a few ISPs operating the Internet backbone today, but that is not the case. In fact, there is a handful of new providers that have sprung on the scene in just the last year that will continue to increase competition and are expected to drive prices down.

But none of the MCI/WorldCom opponents are talking about new carriers such as Qwest Communications International, Inc., Level 3 Communications, IXC Communications Corp. or Frontier Corp.

Qwest, Level 3 and IXC are building nationwide, high-bandwidth IP networks today.

These companies would not be able to get into this market if competition were not as fierce as it is, Johnson said. It simply does not make sense to say the joining of two of the over 20 backbone providers will stunt competition.

Qwest has even struck deals with GTE and Apex Global Information Services, a Dearborn, Mich.-based ISP, to sell its dark fiber to these service providers so they can expand their own networks. IXC Communications has a similar arrangement with PSINet, Inc., where it sold a large portion of its fiber network to the Herndon, Va.-based ISP. PSINet is one of only a few large national ISPs that is not against the MCI/WorldCom merger.

On the other hand, AT&T has been curiously quiet about the merger. Perhaps AT&T doesn't want to stir up any trouble with its TCG Communications acquisition.