MCI WorldCom Wages War Over Frame Users
InternetWeek, 11/02/98
By Kate Gerwig
When carriers aren't trying to buy each
other, they're trying to steal each other's
customers.
Recently freed from its six-year Concert
alliance with British Telecom (BT) for
international services, MCI has declared
"war to retain our customers," an effort to
woo multinational users away from
Concert's frame relay network and onto
the expanding MCI WorldCom global
frame network.
Frame relay is just the beginning, though.
In an internal strategy meeting two weeks
ago, MCI WorldCom executives devised
plans to make the same pitch to its
Concert ATM and Internet services
customers, InternetWeek has learned.
At the meeting, select salespeople were
given instructions on how to win the war
to retain the more than 700 multinational
customers that make up more than 40
percent of Concert's frame relay customer
base.
MCI WorldCom will try to convince 500
U.S.-based Concert customers and 200
HyperStream International (HSI)
customers to move to MCI's HyperStream
frame network by mid-1999. HSI, which is
operated by Concert, will be physically
disconnected in September 2000.
MCI and WorldCom have not yet
integrated their respective frame relay
networks. MCI's domestic HyperStream
frame network uses equipment from
Nortel Networks, while WorldCom's
legacy frame network uses hardware from
Cisco/StrataCom in the United States and
Ascend Communications internationally.
To circumvent the incompatibilities, MCI
WorldCom built four network-to-network
interfaces in the United States to move
HyperStream domestic frame traffic onto
WorldCom's global Ascend network.
To encourage users to drop Concert
frame relay service and move to MCI
WorldCom, MCI is promising customers
lower prices and faster network speeds.
But the downside is huge: In addition to
the two-step network-migration plan,
customers that make the shift will need to
buy new local-access circuits and
customer-premises equipment after
disconnecting from Concert. That change
is accomplished more easily in the United
States, where local access is cheaper and
provisioned more quickly. In other
countries, customers and analysts said,
such changes are a nightmare.
MCI WorldCom is building a new frame
network that will encompass 38
countries by June 1999, compared with
its current roster of 22 countries. That
expansion still falls short of Concert's
40-country reach, and MCI lags Concert's
coverage breadth inside those countries.
But as it builds out, MCI WorldCom intends
to provide customers with end-to-end
services, offering lower local loop charges
and eliminating the need for international
carriers or local telephone companies in
the United States to make the last-mile
connection.
"I am excited about the WorldCom vision
for providing local and global connections,
but vision doesn't move my traffic today,"
said Christopher Luise, chief technical
officer at Skandia International, a global
insurance and financial-services company
that operates on a 16-country Concert
frame network. Last-mile issues are the
main problems, but WorldCom's locally
owned global facilities also need to be
built out, according to Luise.
In the meantime, Sprint is knocking hard
on Skandia's door, offering as much as 30
percent off on individual country
connections to the frame network, Luise
said. He has not yet decided which carrier
Skandia will use.
Under its migration plan, MCI will tackle
the easiest customers first -- HSI
customers with fewer than 10 ports,
primarily in the United Kingdom and
Europe. The next group will be
Asia-Pacific customers with networks in
the 10-port to 30-port range. The last
customer group will be the most difficult to
migrate, but also offers the best profit
margins for MCI: organizations that buy
managed services and have more than 30
ports.
Most multinational frame relay networks
have seven to 10 sites, according to
TeleChoice analyst Tom Jenkins, and
about 70 percent of the ports are 56
kilobits per second or 64 Kbps.
"A really large company, like MasterCard
International, might have thousands of
connections, but those don't come along
every day," he said. A company with 16
locations operating at fairly low speeds
probably pays $2,000 per site per month,
Jenkins said, so a 30 percent rate cut
would mean significant annualized
savings.
During the strategy meeting two weeks
ago, MCI officials said they were even
willing to absorb Concert customers'
contract termination fees if the user's new
MCI contract is equal to or larger than its
Concert contract.
Ron McMurtrie, MCI WorldCom vice
president of product marketing, said many
U.S. customers contracted with MCI -- not
Concert -- to buy Concert services, so
termination terms are contract-specific.
In MCI's wake, AT&T is forming a joint
venture with BT and selling Concert
services in the United States, an AT&T
spokeswoman said. After the AT&T-BT
joint venture is approved, Concert will be
one of the global services packages
available to customers from AT&T.
AT&T chairman and CEO Michael
Armstrong has said he expects to
announce AT&T's first set of Concert
global services later this month. AT&T
also is expected to announce network
architecture plans for its joint global
network with BT in the next few weeks.
From his view directly in the middle of the
customer tug-of-war, Concert director of
frame relay services Tim Arnold said
customers will look at price, features, and
reach. The outcome is still open, he said,
and will likely result in a mixture of AT&T
and MCI sales wins.
Jeffrey Norton, manager of network
operations at Turner Broadcasting, said
MCI WorldCom doesn't have the reach
Concert does, but it does have local
access circuits in Europe.
Turner Broadcasting's Concert contract
comes up for renewal soon, and Norton is
being pursued by both MCI and AT&T.
Norton said MCI WorldCom's Ascend
platform may give customers more
bursting ability, if the circuits are not
oversubscribed.
"But in Europe and Asia-Pacific, a T1
circuit costs 20 times more than in the
United States. Any carrier has to make the
economics work out and engineer its
networks differently," he said.
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