WCOM / MCIC merger to be put thru ringer. note PSIX comments at end.
By Denise Pappalardo and David Rohde
Network World, 3/23/98
Washington, D.C. - Any talk of a merger cakewalk for WorldCom, Inc. and MCI Communications Corp. is over.
Now that the U.S. Department of Justice has requested detailed Internet traffic data from the merger partners and their big Internet competitors, approval of the deal is likely to be a long struggle.
But behind the scenes it is clear that the fight over the MCI/WorldCom deal isn't really about whether the merged company would have a stranglehold on Internet backbone traffic. Instead, opposition to the merger is being drummed up mostly by the telephone industry's biggest labor union and the merger duo's biggest adversaries in the local exchange market.
Key players attacking the deal include the Communications Workers of America (CWA), the Rev. Jesse Jackson's Rainbow/PUSH Coalition, and the Consumer Project on Technology, a Ralph Nader group that also has been attacking Microsoft Corp. for its marketing practices. The CWA in particular has often tussled with MCI over attempts to unionize MCI facilities.
Also attacking the merger are local telecom powerhouses GTE Corp. and Bell Atlantic Corp. ''If this merger is approved without conditions, WorldCom will become 'an Internet emperor,' '' said Bell Atlantic in a recent petition to the Federal Communications Commission to deny the merger. GTE officials have made similar comments.
MCI officials responded that MCI and WorldCom are a threat to GTE and Bell Atlantic, ''but not in the way they would have you believe.'' Instead, MCI said GTE and Bell Atlantic are afraid of the merged company's ability to compete for local exchange business. So who's right?
One major tactic the merger opponents are using is they are throwing MCI's past hype about its Internet prowess back in its face. The merger partners now claim they will control only 20% of Internet revenues, but filings against the merger repeatedly cite past MCI statements that MCI alone carries up to 60% of the nation's Internet traffic.
''We're all guilty of this marketing material that makes outrageous claims as to what we support,'' conceded John Sidgmore, vice chairman of WorldCom and head of its UUNET Technologies, Inc. Internet subsidiary. The original MCI claim came from the days when it ran the National Science Foundation's NSFnet, ''which then comprised 50% to 60% of the Internet,'' he said.
Yet merger opponents continue to throw two of Sidgmore's own past statements back at him. At one point last fall he told The Washington Post that WorldCom was making backbone acquisitions because ''having a big network is a huge barrier to entry for competitors.''
Then, shortly after WorldCom bid for MCI, Sidgmore told the same newspaper the merged company might sell off its residential accounts, explaining that ''our strategy is not in the consumer business.'' The comment touched off a wave of concern that the FCC might look unfavorably on such a huge company abandoning residential customers, eventually leading WorldCom Chairman Bernard Ebbers and MCI Chairman Bert Roberts to write FCC Chairman William Kennard reiterating WorldComs commitment to consumer telephony.
Nevertheless, the CWA and Bell Atlantic repeatedly cite these two statements in their regulatory filings and other antimerger material. In addition, the CWA is aggressively promoting to its 600,000 members a report compiled from MCI's recent filings with the Securities and Exchange Commission showing that its top executives stand to reap enormous bonuses from the merger deal.
In another of the classic rituals of regulatory pressure politics, opponents of the MCI/ WorldCom merger are attempting to drum up grassroots support from ''small businesses'' - in this case, Internet service providers concerned about securing Internet backbone bandwidth for their customers.
One provider that has come forward is Utah's largest independent ISP, Xmission, based in Salt Lake City. Xmission's general manager, Sue Ashdown, is a veteran political activist who has battled US WEST, Inc. in proceedings before the Utah legislature and the state public utilities commission. Ashdown last year even organized a coalition of ISPs within the state to aid her in such battles.
But she said she hadn't given much thought to the MCI/ WorldCom merger until she got a call in January from a CWA official asking her to weigh in against the merger. Now a firm opponent of the deal, Ashdown said both she and the CWA have a hard time drumming up support from individual ISP managers.
One other ISP has gone further, filing a formal petition to deny the transfer of MCI's required FCC facilities licenses to WorldCom. San Diego-based Simply Internet, Inc. hired the Washington, D.C. law firm Wilkes, Artis, Hedrick & Lane to attack not only the merger but also UUNET's existing policies.
In implementing ISP peering and interconnection charges last year, ''UUNET has shown a clear intent to commandeer the Internet for itself,'' said Simply Internet's filing with the FCC.
Merger opponents were further heartened on Jan. 26 when a group called the United States Internet Providers Association (USIPA), represented by the same law firm, filed comments criticizing the merger on similar grounds. But the comments were withdrawn the next day.
Wilkes, Artis lawyer Rudolph Geist explained that a mix-up in communications between the law firm and USIPA members caused what Evans Anderson called a premature filing.
Anderson, one of USIPA's board members and vice president and general manager of CAIS Internet, Inc., said CAIS believes that if the merger goes through it will not seriously threaten competition. Geist also said USIPA has no official position on the merger.
But another new trade group for ISPs is not so reticent.
The North American Network Service Providers Association (NANSPA) describes itself on its Web site as a group of primarily midsize and regional ISPs dedicated to Internet self-regulation and the avoidance of charges for peering. Peering is the practice of backbone providers handing off roughly equal amounts of one another's traffic without going through the Internet's public network access points.
Claiming ''great interest'' following the mid-1997 implementation of peering charges by UUNET and others, NANSPA's online literature quotes officials of the group saying ''charging for peering is completely contradictory to the fundamental design of the Internet.''
NANSPA's literature claims it cannot reveal member names ''due to intimidation by a few telco/ISP carriers.'' It does list its headquarters at the prestigious-sounding address of 2020 Pennsylvania Ave., Suite 667, in Washington, D.C. But Network World discovered that this address is a postal-receipt box at a Mail Boxes, Etc. store.
Calls to NANSPA's voice-mail number generated a return< call from David Koch, president of Internet provider Fiber Network Solutions, Inc., in Columbus, Ohio, who said only that he is a member of NANSPA. Koch said he does not oppose the merger per se but wants MCI and WorldCom to agree to free and open peering, and is writing a letter to the FCC to that effect.
John Thorne, Bell Atlantic's senior vice president and associate general counsel, defends ISPs that are unwilling to help merger opponents. ''Every time I talk to a small ISP, the company is scared of retribution,'' Thorne said.
One Internet provider that is not afraid of speaking out is GTE. After the merger, ''retaining customers will be-come impossible,'' said John Curran, chief technology officer for GTE Internetworking, the carrier's Internet unit. Today, every ISP is motivated to maintain high-bandwidth and technically sound peering connections, Curran said. If MCI/ WorldCom is handling 45% to 60% of the Internet traffic, that motivation is gone, he claimed.
But others noted that GTE's general counsel, former Bush administration Attorney General William Barr, has been calling and visiting colleagues among the state attorneys general. His efforts bore fruit earlier this month when Virginia Attorney General Mark Earley and South Carolina Attorney General Charlie Condon called on the Justice Department to conduct a thorough antitrust review of the merger.
GTE admitted that its public-relations agency had booked the room at the Capitol Hill hotel where Earley and Condon's announcement was made.
Another prominent national ISP, PSINet, Inc., which has no traditional local exchange business, said it has no problem with the merger deal.
''The key here is to make sure UUNET and WorldCom and any of the other large carriers do not start charging based on the number of packets shipped,'' said PSINet CEO William Schrader. ''But if UUNET does start charging [based on packets shipped], then those customers will come to us. WorldCom will make a correct decision for the market and the customers will vote with their feet and move to PSINet.''
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