KINGS OF THE WORLDCOM
MCI executives John Sidgemore
and Fred Briggs describe the
future of the telecommunications
industry.
By Alex Gove
The Red Herring magazine
October 1998
WorldCom has acquired 66 companies in
the past three years, and its most recent
prize--MCI Telecommunications--is the
biggest yet. If the Justice Department
approves the merger, as is expected, MCI
WorldCom will own a vast array of voice
and data service technologies and the
local infrastructure in the United States
and Europe with which to deliver them.
The Herring asked key people on both
sides of the merger about where the
telecom industry is heading and what
technologies and equipment will be
important in the coming years. John
Sidgmore is chief operating officer of
WorldCom and the former CEO of UUNet,
which WorldCom acquired in 1997. Fred
Briggs, chief engineering officer of MCI, is
in charge of orchestrating MCI's equipment
plans. Both men paint a picture of an
industry in flux.
Telecommunications used to be a dull
industry. What happened?
Sidgmore: The telecommunications
industry was static for about a hundred
years: it was controlled by monopolies all
around the world. Deregulation and the
explosion of Internet-related technologies
have completely changed the landscape of
the industry. A number of new companies
with huge amounts of capital are entering
the market, like MCI WorldCom, Qwest,
and Level 3. Older players like the RBOCs
[regional Bell operating companies], Sprint,
and AT&T are having to alter their capital
programs drastically to handle the new
technology.
What are these companies spending
their money on?
Sidgmore: Network requirements have
changed dramatically. Everyone has finally
realized that they have to be major players
in the Internet, or they're going to be out of
business. So carriers are migrating as fast
as they can to Internet-related
technologies. Every significant Internet
provider will offer fax over IP this
year--WorldCom announced it last
year--and everyone will have some sort of
voice-over-IP product.
As a result, the large-scale network
providers of old--Lucent, Northern
Telecom, Alcatel Alsthom, Siemens,
Ericsson--are hurrying into the Internet
space to compete with Cisco and Ascend
Communications and the others that have
been IP-centric. Similarly, the technology
companies like Cisco that have focused on
the IP world are moving into the core of the
network to compete with
telecommunications companies. Traditional
telephony and IP used to be segmented.
Now, everybody is investing in the whole
infrastructure. In our opinion, the next
technology generation will be a holistic
redesign of the network.
What do you mean by "holistic"?
Sidgmore: The way we deploy Internet
networks today isn't very efficient. We build
a traditional telephone network with lasers
and very expensive SONet [Synchronous
Optical Network] terminals, and then we
layer the Internet on top of it. I think that in
the future you'll see a network that requires
fewer layers. The core of the fiber network
will be optical--there's no question about
that--and there will be dense wavelength
division multiplexing at its core. The layer
that communicates to the user will be IP.
But the piece in the middle will be the big
question mark. That middle piece might be
ATM [Asynchronous Transfer Mode],
SONet, or IP.
How important is voice over IP?
Sidgmore: Not very. Internet usage is
growing at 1,000 percent a year; the voice
market is growing at only 8 to 10 percent a
year. Most people think that given the
current path, by the year 2000, 50 percent
of all the bandwidth in the world will be
Internet related. If that arithmetic continues
to hold true, by 2004 the Internet will
require 99 percent of all the bandwidth
there is, and voice and all other services
will require 1 percent. Everyone talks
about voice over the Internet, but voice will
be a niche market; it will be almost
irrelevant.
Briggs: VON [voice over the Net] is purely
an arbitrage opportunity. Because the
Internet is not subject to access charges,
costs are probably 20 to 30 percent of
those for a normal switched minute of
access. From MCI's standpoint, our telco
bill is probably in the neighborhood of $9
billion per year--about 45 percent of our
revenues go to telco. So if we could move
our traffic to the Internet and lower our
costs to the RBOCs by 70 to 80 percent,
we would do that in a second. The problem
is that the technology won't scale today to
do VON in any significant volume. We also
don't have the devices that can handle
voice, fax, and data. Although some
devices will handle one or two, most are
unable to handle all three, and none will
handle them on a wide scale.
Where are the greatest opportunities
for startups?
Sidgmore: Our ability to distribute content
from centralized Web sites will be critical to
our ability to scale. People expect Net
access to be cheap, but we're not going to
provide full-time flat-rate 2-mbps access
from Denver to Germany; the cost of the
long-distance fabric is just too high. The
only way to scale at a reasonable cost
over the next few years is to distribute the
content more widely. Caching, mirroring, or
decentralized storage will be critical. That's
one place where I would bet some money. I
also think the major switch
manufacturers--Lucent, Northern Telecom,
Alcatel, Siemens, Ericsson--will have to
move quickly into the gigabit-router space.
Finally, optical technologies will be very
important.
Briggs: Optical networks will be an
explosive field. It is clearly where we need
to go, because the only way you can
manage traffic at terabit speeds and
beyond is at the optical level. We believe
that the network is going to become
entirely optical--optical switching,
cross-connects, and add/drop multiplexers.
The industry is just now picking up on this.
The optical-equipment industry is wide
open. Entrepreneurs could provide great
benefit to the area of optical networking
because it requires creative thinking.
What specific opportunities in optical
networking do you see?
Briggs: The industry is not focused on
developing tools to manage wavelengths
of light. We need tools that tell us how to
utilize, restore, provision, and maintain
optical networks and achieve certain
performance levels.
Are proprietary standards inhibiting
innovation?
Briggs: Some internal components in
some units are proprietary, but you don't
necessarily need to open them, and they
make a lot of sense for the product. But I
also think there are access points that
need to be standardized. We are driving
that, whether from the router side, the ATM
side, or the traditional switch side.
How do you like to work with new
companies?
Briggs: Typically we won't invest in
venture capital funds. Venture capitalists
tend to invest in the next widget, like a chip
that does photonic switching. We need to
work with companies that are taking that
particular widget and building it into a
system. We might say to a Cisco or a
Lucent, "Look, these are the types of
capabilities that we need in this area." And
we are very candid about our plans and
what we are going to buy. We really go
through a long iterative process to develop
devices that we hope will someday come
to market.
Sidgmore: We don't tend to make
financial investments, because we're not
interested in getting a significant return on
our investment; what we want is to make
sure the technology works. A couple of
years ago we gave Ciena an enormous
commitment to buy a certain number of
devices over the first year; we did not
make a direct equity investment. Our order
jump-started Ciena, and our relationship
with the company has been a terrific
success for Ciena and us.
Both WorldCom and MCI invested in
Juniper Networks, a gigabit-router
company that competes with Cisco. Do
you worry that Cisco has become too
powerful?
Sidgmore: We don't really care who wins
in routers and switches. We've had a plan
for several years to have multiple sources
for every element in our network. We
haven't always reached that goal, but we
would like to make sure that in the next
generation we are not totally dependent on
one vendor. It's perfectly possible that the
next generation could come from a small
startup company. People think that's
ridiculous, but ten years ago nobody had
heard of Cisco.
Or of WorldCom. What will be MCI
WorldCom's greatest challenge going
forward?
Sidgmore: Over the past few years,
because we didn't have a huge base to
protect, we went after the Internet and the
international markets. We have
aggressively built out local networks in
most of the large financial centers in
Europe. We're the only telephone company
in the world that has local networks in
multiple countries. And we have undersea
cable, of course.
When you take that asset base and
combine it with what we have in the United
States, which includes local, long-distance,
and Internet services, and you consider
that our network facilities are all new, we
think we have a significant edge. The key
to making that edge pay off is to remain
entrepreneurial even as we get bigger.
Once we acquire MCI, we will have 60,000
people; it will be harder to present
ourselves as an entrepreneurial firm. Our
objective is to be the world's largest small
company. |
