Nader Leads Opponents Of WorldCom-MCI Merger
(03/13/98; 8:40 p.m. EST)
By Mary Mosquera, TechWeb
WASHINGTON, D.C. -- If the WorldCom-MCI merger goes through, consumers may find their monthly Internet access fee skyrocket to [as much as] $225, a network engineer told a conference of opponents to the $37 billion deal on Friday.
David Holub of Vixie Enterprises in San Francisco joined consumer advocate Ralph Nader, Internet service providers and other interest groups at a mostly anti-merger meeting called "WorldCom-MCI: Is the Internet At Risk?"
A merged WorldCom-MCI could dominate up to 60 percent of the Internet backbone, opponents say. But other backbone firms and Internet service providers fear the combined company will push prices artificially higher for smaller companies [that pay for a connection to]the backbone network. Those prices are likely to be passed from the smaller backbone firm[s] to Internet service provider[s], and eventually to the consumer.
For example, if a Tier I provider such as MCI, WorldCom, Sprint, or GTE charges a Tier II or Tier III backbone firm $2,500 a month for connection to the major backbone network, the smaller firm can then resell that service to an Internet service provider for $895 a month, after cost-cutting. The ISP then charges consumers about $20 a month for dial-up access. But if WorldCom-MCI raises its price to, say, between $18,000 and $50,000 a month, resellers will have to pass [the additional costs] along.
The Internet backbone is a network patched together through peering agreements, in which one backbone provider agrees to connect with another provider at a public network access point. Until recently peering agreements have been open, creating a larger network that is seamless to the customer.
But when so many networks connect they cause congestion at public network access points, leading some large backbone builders to create private access points and demand closed peering agreements.
Closed peering agreements often involve higher fees or some other practice affecting competition, and are subject to non-disclosure terms, said Gordon Cook, publisher of the "Cook Report on the Internet."
The FCC has subpoenaed some companies that have closed peering agreements with WorldCom-MCI, as part of the agency's review of the merger. "Companies need to see the conditions and terms of how each other competes," Holub said.
Higher prices as a result of the WorldCom-MCI merger could put a chokehold on a small company such as an ISP. Small ISPs would not be able to change backbone carriers easily if they find one offering lower prices, said Sue Ashdown, general manager of Xmission, a small ISP in Utah.
But the major backbone providers aren't the only ones taking aggressive steps to expand. Savvis, of St. Louis, has invested in 18 private connectors to avoid the overcrowded public exchanges, said Cook. Another wild card is Qwest: "Whether it builds the critical mass of small and mid-sized companies remains to be seen," he said. "If it does, we could end up with two parallel networks, a department store or Macy's network and a discount store network, [like] a Wal-Mart."
Ralph Nader believes the merger, and the expected price hikes, would knock some small ISPs out of business. WorldCom and MCI have both said they want to impose new pricing by the byte, he said. "This did not happen in the competitive market," he added.
CWA President Morton Bahr said the merger will also result in at least 1,500 job cuts, with more to come in the future. "You can't achieve $20 billion in savings without drastic job cuts," Bahr said.
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