MCI/WorldCom merger: bad to the backbone? (Company Business and Marketing)

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 become 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 that MCI/WorldCom would have a stranglehold on the 'Net backbone market.

"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., company.

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

While most executives at MCI and WorldCom say 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 if MCI/WorldCom did have a monopoly, Johnson said such a situation wouldnt last. All it takes is a couple of really savvy competitors to move in and take business from a monopoly, she said.

"It's time everyone wakes up and smells the bits," said Ken McGee, vice president at Gartner Group, Inc., a consulting firm in Stamford. 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, an ISP in Venice Beach, Calif.

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 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.

The overall impact of this merger will be positive for business users because all of the other ISPs will need to provide the same level of service as the merged companies, said Glenn Botkin, information systems engineer at Galaxy Science Corp., a Tucker, Ga.-based engineering firm.

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, a handful of providers have sprung up in just the past year that will continue to increase competition and most likely drive prices down.

But none of the MCI/WorldCom opponents is talking about new carriers such as Qwest Communications International, Inc., Level 3 Communications, IXC Communications Corp. or Frontier Corp. Qwest, Level 3 and IXC today are building nationwide, high-bandwidth IP networks.

These companies would not be able to get into this market if a true monopoly existed, Johnson said. It simply does not make sense to say the joining of two of the over 20 backbone providers will stunt com-petition, she said.

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 pending TCG Communications acquisition.