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(COMTEX) Merger Won't Slow WorldCom, MCI Growth
Merger Won't Slow WorldCom, MCI Growth
Nov 17, 1997 (INTERNET WEEK, Vol. 3, No. 45) -- Providers of
Internet backbone equipment need not fear lost revenues as the merged
MCI WorldCom looks to cut costs.
"Not a single dollar" from the $2.5 billion that the companies plan to
save on operating costs will come from Internet-related businesses, and
both companies will continue to buy an increasing volume of bandwidth
expansion equipment before and after the merger is completed, WorldCom
Inc. [WCOM] Vice Chairman John Sidgmore told Internet Week.
WorldCom will continue to spend $1 million a day for bandwidth
expansion equipment while the Justice Department is evaluating its bid
to buy MCI Communications Inc. [MCIC] for $41.8 billion in stock and
cash.
"We think MCI is planning to do the same," Sidgmore said. "We will be
buying more than [$1 million a day] next year."
When contacted for this story, an MCI spokeswoman said the company has
entered a "silent period" and can't comment on the merger.
WorldCom, which owns or is in the process of acquiring several large
facility-based ISPs - including UUNet Technologies Inc., America
On-line's [AOL] MFS Communications and CompuServe Corp.'s [CSRV]
networking division - is buying large volumes of SONET equipment from
Northern Telecom Ltd. [NT], Wavelength Division Multiplexing units from
Sienna Technologies Inc. [SIET], high speed routers from Cisco Systems
Inc. [CSCO] and Ascend Communications Inc. [ASND] and ATM switches from
both Fore Systems Inc. [FORE] and Ascend.
The company will continue with its purchases during the six to eight
months it will take the Justice Department to investigate the merger.
"You can't stop and try to consolidate your position in this business,"
Sidgmore said.
If the Justice Department approves the merger initiated by WorldCom,
the company will consolidate its network with MCI's in what would be
one of the nation's biggest, fastest proprietary networks. But,
Sidgmore said, the networks will largely duplicate each other, because
of the different customer bases WorldCom and MCI have. WorldCom
provides a variety of business services, while MCI has one of the
largest consumer Internet access networks. Sidgmore said business
clients normally use the network during the day, while residential
customers use it at night.
"All services will share common backbone facilities," he said.
MCI WorldCom will also continue to provide data transportation
services, a major revenue center for MCI and WorldCom Internet
divisions in the past quarter. This service will also be at the heart
of the Justice Department antitrust investigation, according to people
close to the inquiry.
Earlier estimates held that MCI WorldCom would carry about 60 percent
of international data traffic after the merger. Sidgmore strongly
refuted this estimate.
"We don't have anything remotely like 60 percent, and we can't find
a single shred of evidence that would indicate where this number came
from," he said. "I'm not at liberty to comment on the actual number,
but I can guarantee it's not even remotely close to 60 percent."
Lawyers familiar with the Justice Department proceedings said one of
the reasons the examination of the merger will take six to eight months
is the lack of knowledge about how open the Internet market is and what
relationships between buyers and producers are like.
"It's a new industry and a new questin," said Phil Verveer, a
partner with Willkie Farr & Gallager, who headed the AT&T [T] anti-
monopoly investigation at the Justice Department in 1973-1977.
After winning the bidding war for MCI with GTE Corp. [GTE], WorldCom
announced it plans to save up to $2.5 billion on annual cash operating
costs by 1999 and up to $5.6 billion by 2002. GTE is keeping it's $40 a
share cash offer on the table in case WorldCom's stock tumbles and the
company can't afford the $51 a share it's paying MCI shareholders.
None of these synergies, according to Sidgmore, will be paid for by
saving on Internet-related programs.
"Internet is not about saving money, it's a huge opportunity," he
said.
Sidgmore sees opportunity for the merged company in migrating "big
boring business applications" to the Internet and in building intranet
facilities for corporate clients.
Another distinct opportunity MCI WorldCom would address is the
explosive consumer demand for Internet connectivity. Sidgmore indicated
this demand will fuel the development of the faster broadband access
for consumer Internet users. Sidgmore brought up the xDSL technology as
an example.
"That's an emerging market," said Nikos Theodosopoulos, a senior
telecom analyst with UBS Securities LLC. Theodosopoulos pointed out
xDSL, and more precisely ADSL and HDSL high speed access solutions,
will be very attractive to WorldCom, since they are available over
copper telephone lines and don't require other kinds of last mile
connections, like cable modems.
Alcatel, Westell Technologies Inc. [WSTL], Pairgain Technologies
Inc. [PAIR] and Atran are among the companies manufacturing xDSL
solutions. (John Sidgmore, WorldCom, 703/206-5441, Nikos
Theodosopoulos, UBS Securities, 212/821-6951, Phil Verveer, Willkie
Farr & Gallager, 202/328-8000)
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Copyright Phillips Publishing, Inc.
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