WSJ: Ex-MFS Managers Plan to Build Global Network Based on Internet
By JOHN J. KELLER
Staff Reporter of THE WALL STREET JOURNAL
January 20, 1998
Former managers of local telecommunication-services trailblazer MFS
Communications Co., with $3 billion, plan to build the first global
system of Internet-based local and long-distance networks,
challenging aging phone companies in major markets.
The new company is led by James Q. Crowe, who built MFS and sold it
to WorldCom Inc. for $14 billion two years ago. Called Level 3
Communications Inc., it plans to employ the latest in fiber-optics
and packet-data switches and routers to move voice and data traffic
from users of the Internet.
Wiring Contest: The new fiber-optic networks
Company Total Miles Completion Date
IXC Comm. 20,000 Early 1999
Qwest Comm. 16,000 Early 1999
Williams 7,000 Late 1998
Level 3 20,000 Late 1999
*Excludes international and undersea links
The plan, using Internet-Protocol, or IP, technology, is a highly
efficient, more powerful data-transmission alternative to traditional
phone networks, which use slower circuit switches and are engineered
primarily to handle phone calls.
IP is the most serious technical challenge to the ubiquitous phone
technology, now well into its second century. The telecom industry is
being shaken to its circuit switches by network upstarts that are
building new systems promising far faster transmission and lower
operating costs than the vast systems now being run by AT&T Corp.,
the Bell companies and others.
As with any new-business wave, there are risks. The proliferation of
new fiber-optic systems being built by companies such as Qwest
Communications International Inc., IXC Communications Inc., Williams
Cos. and now Level 3 raises questions about whether too much
transmission capacity is being built. So far, the drop in
transmission costs is driving demand that is far outstripping supply,
aiding the arrivistes enormously. Mr. Crowe and his partners are
betting that the trend will continue for decades.
'A Fundamental Change'
"It's a fundamental change, like Moore's Law and what happened when
the computer industry shifted from the mainframe to the personal
computer as chips got more powerful and the cost of computing
declined," Mr. Crowe said. (Moore's Law refers to Intel Corp.
Chairman Emeritus Gordon Moore's observation that semiconductor
performance roughly doubles every 18 months.) Mr. Crowe added,
"Moore's Law has come to communications. The current phone networks
in place date from the turn of the century and were designed to
handle primarily voice."
The simple facsimile transmission is a good example of the revolution
now under way. When a faxed document is transmitted via the Internet,
it costs pennies on the dollar compared with when it is sent via the
regular phone network. That is because transmission is via data
packets, in which great stores of information are sent in electronic
envelopes in a digital format over a high-speed data network. This is
far less costly than sending it along traditional phone lines and
through switches, which use up far more transmission capacity to
transmit calls and data and are far more expensive to operate.
Every phone company in the world is struggling to restructure itself
for the Internet challenge and the demand it will continue to put on
the aging industry. AT&T's new chairman, C. Michael Armstrong, has
made Internet transmission a priority of the company's planning, and
is studying whether to use higher-capacity cable-television systems
to give AT&T's Internet-access service a boost. WorldCom has been
acquiring assets, including Mr. Crowe's old MFS, which should leave
it well-positioned for future IP-based transmission.
Denver Headquarters Planned
Level 3 will put Mr. Crowe in direct competition with his former MFS
and its new owner WorldCom as well as new networks such as the
aggressive Qwest, on whose board Mr. Crowe sat until recently. He
also intends to base Level 3 in Denver, Qwest's base of operations.
But Qwest Chief Executive Officer Joseph Nacchio said he isn't
worried about his new neighbor, calling Mr. Crowe a good friend.
"This validates what we've been saying about where the world is going
in terms of Internet-based networks," Mr. Nacchio said. "We're a
couple of years ahead of him in terms of building our network. I hope
we can sell him some wholesale long-distance capacity."
Mr. Crowe's team includes numerous former MFS executives, including
about a dozen in senior management. It is backed by Peter Kiewit Sons
Inc., an Omaha, Neb., company with mining and construction holdings.
Mr. Crowe was recently given management control of Kiewit Diversified
Group Inc., one of two Kiewit units. He promptly refocused the unit
on telecommunications, sold off its CalEnergy Inc. subsidiary for
$1.2 billion and is starting the new business with $3 billion in cash
-- more capital, he noted, than a recent study said was available in
all of Silicon Valley for new ventures.
Kiewit knows the telecom wars well. It got MFS rolling with a $500
million investment in the late 1980s. That initial investment, when
translated into WorldCom holdings, is said to have a value of more
than $5 billion today. Mr. Crowe also has a stake in the game. He
said he has invested $60 million of his own money in Level 3.
The new network will use the latest in fiber-optic technology,
including laser transmitters and a new kind of fiber called LEAF, for
Large Effective Area Fiber. The latter has advanced glass that allows
information to be transmitted via laser light in more colors of the
light spectrum than older glass fiber used by many established
carriers. |
