New No. 3 carrier? . . . Not so obvious

By David Rohde
Network World, 10/18/99

WorldCom CEO Bernard Ebbers and Sprint CEO William Esrey are certain to tell federal regulators that their proposed merger is OK because a lot of new long-distance carriers are ready to become major national players.

But for enterprise users, finding a new No. 3 carrier to replace a swallowed-up Sprint in bids and contracts isn't going to be that easy, analysts warn.

"Corporate users will be worse off as the Big Three become the Big Two," says a report issued by Forrester Research. "With one less national network pro-vider, users will be faced with fewer service choices and network diversity options."

That means they will search for new options, and the single best-positioned carrier to present itself as a third challenger to AT&T and the merged WorldCom company is Qwest, says Mark Zohar, a senior analyst at Forrester. But although Qwest recently completed its national network, the carrier still may not be suited for the comprehensive voice and data long-term contracts users commonly negotiated with AT&T, MCI and Sprint, analysts say.

For example, although Qwest has a growing frame relay business, it only began offering a managed router option in July, and then only through a third-party network-management house. Zohar predicts that Qwest won't bring a full suite of managed services in-house until it completes its merger with US West, whose Interprise data-networking division manages numerous enterprise networks.

And until very recently, Qwest did not have an IP-based virtual private network (VPN) service, despite all its focus on IP communications. Still, Network World has learned that Qwest has selected the Nortel Networks Contivity family of VPN routers for a service called Qwest Managed CPE VPN that is now in beta testing. The service will support up to 5,000 tunnels at sites equipped with the high-end Nortel Contivity 4500, Qwest officials confirm.

Another candidate for comprehensive user contracts is Cable & Wireless, which purchased the internetMCI portfolio last year after MCI WorldCom spun it off on regulators' orders. But other than the Internet backbone, "they need to acquire greater reach and greater [points of presence]," Zohar says. "They're still not perceived as being a national infrastructure provider."

Cable & Wireless officials concede that, ironically, before the internet-MCI purchase, the company had pulled back on its data business. "It was largely in the voice business, and its focus was in the [small and midsize enterprise] segment," says Art Medici, senior vice president for marketing at Cable & Wireless North America.

A third possibility is all-IP player Level 3 Communications. But even though Level 3 offers private lines and Internet access, most of its services have been aimed at carriers or, as its literature describes, "businesses that drive the majority of their revenue over the Internet."

"I'm totally confounded by Level 3 at this point," Zohar says. "Are they going to stick to a network-layer wholesale model, or are they going to get into retail?" In addition, a Level 3 spokesman confirms that its long-awaited public voice-over-IP service, when introduced by year-end, will first be available on a wholesale basis to carriers. Other second-tier candidates have likewise had a wholesale focus or have lacked national coverage.

One possibility may open up if the merged MCI WorldCom/Sprint sells off not only its Internet backbone, as expected, but also pieces of its legacy voice and data networks.

The good news is that Zohar expects the second-tier carriers to move quickly to fill the void. As the Forrester report dryly puts it: "Over the next 18 to 24 months, expect WorldCom to be more focused on integrating networks and lobbying government agencies than delighting corporate customers."