Sidgmore speaks out on the megamerger

By David Rohde
Network World Fusion, 10/08/99

MCI WorldCom Vice Chairman John Sidgmore got the ball rolling on the acquisition of Sprint when he talked about wireless issues with Sprint Chief Operating Officer Ronald LeMay last June.

In an interview Friday with Network World Senior Editor David Rohde, Sidgmore addresses the reasons for the $115 billion megamerger, the challenges it faces, and the reaction from enterprise network professionals.

How did the merger discussions get started?

We had just concluded our discussions with Nextel. Sprint and MCI WorldCom had also competed for MMDS spectrum [a specialized band suitable for wireless local loop]. Ron LeMay and I talked, and I asked if there was a way to share the PCS spectrum. We needed it and he knew it. So I said we really need to get together in person. Then Bernie Ebbers and I flew out to Kansas City in early July . . .

It sounds like a lot of this merger has to do with wireless. Why didn't you just buy Sprint PCS?

You can't just do that - Sprint owns Sprint PCS. Besides, at the end of the day we really wanted the whole thing. For starters, we did have a strong belief that wireless data is going to be a very big part of the future. The second theme was getting in the position to provide broadband services, not just to large businesses but to small business and homes way out in the suburbs. Then there was our international presence, which Sprint needed because they weren't getting the benefits they wanted out of Global One. Plus, there are lots and lots of financial synergies.

Do you think the regulators will require you to sell Sprint's Internet backbone? Do you want to do so anyway?

I don't want assume in advance what the regulators will decide. But we would guess that if they have a concern, it will be the Internet backbone, and we're prepared to talk about it.

Some analysts think you'll also sell other assets, even including Sprint's regular long-distance network. Is that possible?

I don't think long-distance will be an issue with the regulators, because the RBOCs will be entering the market soon.

FCC Chairman Bill Kennard had some harsh words about the merger, saying it looked like a "surrender" by Sprint to MCI WorldCom. What's your response?

Obviously, we wish he didn't say that. We met with him only after whatever quotes got out there. He was more objective about it than the sound bites you heard. Certainly, his job is to be concerned, and this is the largest deal of all time. We understand that.

MCI WorldCom already has four frame relay networks, two ATM networks and the Internet backbone. Sprint has two frame relay networks plus ATM and the Internet. You seemed to put your integration efforts aside after the frame relay failure in August. So why do you need to take on even more separate networks now?

Much has been made of the issues with integration, but it has nothing to do with the outage. In terms of the outage, we just want to make sure we have backup facilities in place. In terms of network integration, both Sprint and MCI are ultimately working toward a network integration that will consolidate all types of traffic on a single platform supplying the transport core of the network. You build a very, very efficient optical backbone that moves bits as efficiently as possible. It's on the edge devices that run the protocol stacks [where you can have different offerings] . . .

Besides, our networks are integrated. We have a single Internet network and a single voice network. The only concern has been on frame relay, and occasionally on ATM. And then it's usually just that there's one country or another where the platform [a particular user is employing] is not in.

Sprint is a company with a reputation for generally excellent customer service. Meanwhile, people continue to complain about MCI WorldCom's customer service. What can you say to people who assume that Sprint's account teams and second-tier technical support will be affected by the merger?

I do not know yet what impact, if any, this will have on Sprint's organization until we get much, much closer to the situation. But I can tell you that this merger is not being done to reduce [the total number of employees]. WorldCom has done a lot of acquisitions, and we always take the best available technologies and practices. If Sprint's customer service turns out to be better, it's likely that we'll take advantage of that.

What will happen to Sprint's ION service?

I think ION [a converged voice/data-over-ATM offering] is going to be a very important piece of this, overall, combined with our national DSL rollout. But when people talk about services like ION, they focus on the hardware box on the customer side. I think that's the very least important part of it. I would be amazed if the box doesn't change over the next two years.

So far reaction from enterprise users to the merger seems quite negative. Sprint customers are concerned that they will lose an independent data-networking option, and some MCI WorldCom customers say you're simply not ready for another merger because there are still problems from the last one. What's your response?

That's not been the general reaction we've seen. But certainly we have heard some customers say that. Whenever you have a merger of this size, it's a natural reaction for people to be nervous. On the first part [Sprint customers], I would tell them that they're going to have a lot of options, including a larger Qwest and Williams. Actually, competition in the long-distance business is unbelievable, and with ISPs there are lots of facilities-based ISPs [to choose among].

When you proposed to merge with MCI, you personally were criticized for saying the consumer market held very little opportunity. Looking back, are you amused given how much MCI WorldCom now seems intent on serving consumers?

Well, the concern I expressed about the consumer market has really changed since then. When we merged with MCI we did not see any way to develop a ubiquitous broadband platform to get out to the home. We were much less bullish on the consumer market. Now, with nationwide DSL and MMDS, [we can see how we can become] the third player in the home [besides telephone companies and AT&T's cable rollout].

Do you think AT&T and Qwest will try to throw a lot of fear, uncertainty and doubt at MCI WorldCom and Sprint because of the challenge of the merger?

Probably. I'm sure there will be some salespeople who will try that.

Well, if nothing else, MCI WorldCom and Sprint are in for a year or more of internal reorganizations and a distracted focus on regulatory and antitrust matters. How can you stay focused on new, improved products and services when you're constantly involved in a merger? Is this just a hard way to live all the time?

(Laughs) Is it a hard way to live? Certainly. There's no question about it. But it doesn't hurt the company to go through these regulatory battles. Our engineers have very little if any involvement in this situation. Our salespeople have no involvement in it. The people who get tortured are people like Bernie and me who have to deal with it.

Actually, a lot of people who have left the company say it's precisely the folks in the middle who get tortured in these mergers, because their own managers don't really know what's going on.

If that's so, can they explain why we're the fastest-growing, most profitable company in the industry?

No, they don't have a good answer for that. Thank you very much.