A new dimension to an old rivalry

Let’s face it, AT&T and MCI have never been buddies. The telecom industry was literally shaped by MCI’s epic battle with AT&T in the early 1980s. Their interactions since then have been punctuated by lawsuits and accusations, the most recent of which involved alleged irregularities in call routing. Now the two companies are facing off on a new battleground, and their recent announcements may show us how things will go.

At its analyst conference last month, AT&T said it will converge on one IP backbone to reduce capital and operations costs, and migrate toward higher-layer applications services, where the largest amount of future revenue will be. At about the same time, MCI announced a sweeping modernization of its fiber plant. Jack Wimmer, MCI’s vice president of network architecture and advanced technology, says the ultra-long-haul fiber changes will result in significant operations and capital savings, letting the company decommission 45% of its regeneration and optical amplifier locations along current fiber runs and eliminate half its total fiber-network elements while vastly increasing capacity.

Is MCI looking for optical convergence rather than IP convergence? Wimmer says no. MCI operates two parallel IP backbones, one for secure government and enterprise traffic, and another for the Internet. The carrier doesn’t see much benefit in converging on one IP core at this point. Wimmer says the next logical target area for convergence is the network’s edge, where the largest number of devices and greatest network capital and operations cost are concentrated. MCI wouldn’t comment on its next step in modernization, but it seems clear the carrier is working from the edge inward and perceives AT&T is doing the opposite.

In the application networking or higher-layer services area, MCI and AT&T seem more in harmony. MCI’s acquisition of Digex was motivated at least in part by the carrier’s recognition of the value of application hosting, and MCI is currently running internal trials in the hot new area of Web services. At its analyst conference, AT&T discussed how it is evolving its application services into Web services.

AT&T’s conference presentations seemed to stress the carrier’s value in providing the interconnect between broadband voice technologies such as Session Initiation Protocol and the public switched telephone network (PSTN), which would tend to limit SIP to voice applications. AT&T’s petition to the FCC on VoIP asks for regulatory relief for calls placed and terminated as PSTN calls but carried internally on IP. That implies a VoIP model that isn’t visible to users, much less extensible to non-voice applications. In short, AT&T’s voice position is conservative.

Wimmer summarizes MCI’s view in what might be the most profound statement any carrier has made on VoIP: “If all SIP and voice over IP are about is a new way to do long-distance voice, why bother?” MCI is excited about SIP as an architecture for collaboration and video. The first of all the major carriers to offer SIP voice, MCI also recently integrated its enterprise VoIP service with its most popular VPN service, in part to get the greatest possible leverage out of customer access costs – among the highest costs MCI and AT&T face. Consistent with its theme of edge convergence, MCI is hoping to converge the customer on IP. That, of course, plays to MCI’s strength with the Internet.

Listening to the two carriers, it’s hard not to think that AT&T is talking about cost conservation and MCI about opportunity generation. In fairness, MCI has less to worry about regarding cost. About to emerge from Chapter 11 cleansed of debt, MCI can afford to think about developing demand. AT&T must still survive the next two years until it reaches the turnaround point it talked about at the analyst conference.

That’s the point where opportunity comes in. Can AT&T be defensive for two years and win over a competitor that’s been on the offensive from the day it entered the market? Military strategists say you can’t win a war on the defensive. I wonder if AT&T read that. I bet MCI did.

Nolle is president of CIMI Corp., a technology assessment firm in Voorhees, N.J. He can be reached at (856) 753-0004 or tnolle@cimi corp.com.