Johnny Been Good
MCI WorldCom's vice chairman won't let his company play second fiddle to anyone---especially AT&T.
By Kate Gerwig. Kate Gerwig is senior editor/services for tele.com. She can be reached at kgerwig@cmp.com. <mailto:kgerwig@cmp.com>
Sidgemore answers a lot of good questions at the end of this.
John Sidgmore loves making music, but he's no mere corporate troubadour. He's a major player in the current communications donnybrook who likes the competitive scene from where he sits. High up at the right hand of MCI WorldCom Inc. founder Bernie Ebbers, Sidgmore has had not only an unobstructed view of where MCI WorldCom is heading but also a great look at the competition. He likes what he sees, even though he's the first to admit that the scene can be a little frightening. As MCI WorldCom vice chairman, Sidgmore is an integral part of Ebbers' drive to build his company into a global communications powerhouse whose strength goes beyond simple reach. The MCI WorldCom battle plan calls for owning and operating its own facilities in every country where it does business--that's 65 and growing.
Of course, MCI WorldCom isn't the only telecom giant loping across the landscape and trying to bulk up. MCI WorldCom's major competitor, AT&T, has a global vision as grand as MCI WorldCom's. But Sidgmore--a Diet Coke-drinking, guitar-playing workaholic who sees value in staying up at night worrying about the business--isn't threatened by AT&T's moves, which include a seemingly ever-tightening partnership with BT. Sidgmore's confidence rests in his core belief that AT&T's approach is fundamentally different than that of MCI WorldCom. AT&T and BT, for example, are building out their Internet protocol (IP) network together, while Ebbers and Sidgmore want to own their network outright so they can control it from end to end. As for AT&T's strategy to develop and acquire broadband cable access in the United States, Sidgmore is all for it because he believes it will lead AT&T down residential streets and away from MCI WorldCom's business and wholesale focus.
AT&T isn't the only threat on Sidgmore's radar screen. Ebbers, after all, created MCI WorldCom out of 68 different companies, which leaves plenty of places for competitors to attack. Next-generation service providers are taking aim by building fiber networks that can be leveraged to come after MCI WorldCom. But Sidgmore thinks the sales forces of companies like Qwest Communications International Inc. (Denver) and Level 3 Communications Inc. (Omaha, Neb.) can't compare to that of MCI WorldCom and won't be able to challenge its customer base. The new players say: Just watch us.
All this jousting is a long way from Sidgmore's roots. Twenty-five years ago it would have been hard to imagine Sidgmore, now 48, shaking off the likes of Qwest or Level 3, not to mention AT&T. Back then, in the midst of his history studies, Sidgmore wasn't exactly sure what he wanted to do. All that changed when his father convinced him there wasn't much demand for historians in the working world. The ever-practical Sidgmore promptly changed his major to economics. His initial goals were short-term: "Get a paycheck so I could buy my next record." A nascent risk-taker, he chose a career in the computer industry. His reasons? It was new and filled with young people. "I figured these were nontraditional companies where you didn't have to sit in every chair along the way to get promoted," he says.
In one sense, Sidgmore has done more than just get promoted. He has survived. That's no small trick at the ever-changing MCI WorldCom, where executives from the companies Ebbers has acquired fall by the wayside regularly. The reason is both simple and complex. In Sidgmore, Ebbers has apparently found a kindred soul, someone that, like him, believes in prompting change rather than just dealing with the consequences. Sidgmore's long-term business associates support the notion, claiming he's a master at leading change who constantly thinks several moves ahead of the field.
Consider what he's done in the past three years. As chairman of business-oriented Internet service provider (ISP) UUNet Technologies Inc. (Fairfax, Va.), Sidgmore the tactician sold UUNet to MFS Communications Co. Inc., an aggressive business-oriented competitive local service provider, in 1996. In the process, he became president of MFS. When business-oriented WorldCom snapped up MFS for $14 billion in 1997, Sidgmore eased into WorldCom's vice chairman slot, again moving higher due to his ability to drive deals and partnerships. If Sidgmore's viewpoint prevails, he'll need this ability more than ever. After all, he plans to see that MCI WorldCom is known primarily as "the infrastructure company," the one that builds out a never-ending supply of bandwidth to meet increased demand. The demand will create the need for more bandwidth ... and on and on it goes. All this, he believes, can be balanced with traditional telecom services offered by MCI WorldCom and Internet services by UUNet. Quite a vision--even for someone sitting so high up.
Sidgmore spoke with tele.com senior editor Kate Gerwig.
When you look at U.S. communications providers, there are a lot of players, but the two biggest are in a race to expand globally--MCI WorldCom and AT&T, with its joint venture with BT. What are the similarities and differences between the two companies? The similarities are that both companies have large long-distance networks here in the United States. The differences are that AT&T is much more heavily consumer- or residential-focused, and we are mostly business-focused. When you look at AT&T's revenue base, half of it or more is consumer-based, and ours is a much smaller percentage. Some of the other differences are that we have a much larger Internet presence and we have our own international facilities. Their philosophy is to bring international services to their customers through alliances and joint ventures. Our philosophy is to own our own facilities all the way through, which we think is the only way you can control costs and quality.
When you look at your competitors out there, are new providers like Qwest and Level 3 challenging your customer base yet? Not significantly. I don't think Level 3 has sold to any customers yet. These companies are out talking about new technology and their new bandwidth and so forth. But at the end of the day, what they are playing in is the long-distance business in the United States. And they're building networks with a lot of capacity, without having much of a retail sales force. That leads to the wholesale market selling large amounts of capacity to other carriers or resellers at significant discount. If they don't have a sales force to sell retail business customers, I don't see how they threaten MCI WorldCom.
MCI WorldCom has a huge wholesale business selling bandwidth to other service providers. How do you walk the line of having those service providers be some of your biggest customers and also your competitors? It depends on your view of the world. We want to aggressively deploy as much capital as we can and build out our network faster than anybody else. In order to do that and make sure we fill it up with enough users--and make sure we get enough revenue to support that--we are willing to sell wholesale to other providers. We effectively look at other providers as having helped build our network. Another way to think about it is that the trick to making money in the network business is to make sure you use the whole diurnal curve, the daytime and the nighttime hours. The reason many people are in the consumer business is because they want to get the network used at night. Businesses essentially use it during the day. That's true for telephone, and it's true for Internet. That's why our wholesale business is strategic for us.
Will MCI WorldCom stick with its current business-to-business focus? Well, we have a consumer division that sells consumers long-distance like everyone else. And we're going to keep that up. But we are not going to build out the entire country in rural areas and so forth for local access to support consumer business, which is what AT&T seems to be doing with its cable focus. We're going to put more of our capital in the center cities and the major suburban areas, where large and even small businesses reside.
The consumer dial-up Internet service that MCI WorldCom recently launched with CompuServe seems like the exception to its all-business focus. Why did you need it? This service is only to be purchased in connection with consumer MCI long-distance. Twenty percent of U.S. households use MCI long distance. What we're doing is packaging the long-distance service with the Internet service. Actually, we partnered with AOL on that through its CompuServe brand. If you look at it a different way, we serve the consumer market very broadly, but we don't do it directly. We do it on a wholesale basis. For instance, AOL uses our network and then resells its service to consumers.
In building his company, Bernie Ebbers acquired 68 companies. Where are MCI WorldCom's gaps? Every company has some gaps. I don't think there's anything we look at and say, "We absolutely have to have that." We still view the [telecommunications] industry as a development project. But there's a long way to go. For example, if you look at the world, you'll see that we're very strong in the U.S. and strong in Europe but just getting started in Asia-Pacific. There are a large number of countries that we would like to be in. We're not necessarily going to get in by starting the business from scratch. So you can imagine we will use acquisitions over the next few years to kind of color in the map of the world for us.
Is not having a wireless company a problem for you? Nextel gets mentioned a lot as a natural acquisition for MCI WorldCom. Could that be next? It's not like we've never thought about wireless. But so far, in the United States, wireless service has not been viewed as a critical part of business bundled services. That is not necessarily true in all cases in Europe. Three or four years from now, you can imagine people running around effectively with mobile computers attached to the Internet using things like PalmPilot. Our issue is, Do we continue to stay where we are, do we resell or do we do something else?
Will MCI WorldCom try to do everything for every customer? I hope not, even though our sales people would like us to. We are the infrastructure company. No one company can do everything well, and the companies that succeed in this crazy environment we live in now are those that focus on doing one thing the best. What we do best is build an operations and communications network.
Now for the question you always love--peering. Is the way providers exchange traffic working, or do we need a new peering plan? I think peering is actually working better and better, to be honest with you. We had a big outcry a couple of years ago, but I think the way the model settled in is pretty positive. Certainly there is a large and growing number of ISPs out there that are doing reasonably well. I think you'll always have some segment of ISPs that peer with each other in groups. And then you'll have ISPs that buy service from the larger ones when they can't reach certain places. And as the networks grow, you're going to see the peering pairs changing. But I think you will always end up with some ISPs paying for service because they can't deploy enough capacity themselves, and some will peer. I don't think a funding mechanism, a settlement mechanism, will be practical, at least in the next couple of years.
When video over the Internet arrives, what is your plan for having a network ready to handle all that content? Won't that put an incredible load even on a backbone like UUNet's? There has been an incredible demand on the network for the last several years, but our network has grown in size by roughly 10 times per year. That is growth the likes of which we don't think the world has ever seen in any industry or in any technology. We're basically always growing the network as fast as we can. As you put more bandwidth out there and drop the price of bandwidth, you enable new applications like video, which demand more bandwidth. So you put out more bandwidth. And you have this circular effect you wind up never getting out of.
There are a growing number of new applications service providers (ASPs). Will MCI WorldCom move into applications management? We do have certain applications like Web hosting and so forth. But I would say that is not the mainstream of our service offering. Our service offering is primarily infrastructure. We will be responsive to customers who want that and bring in EDS [Electronic Data Systems Corp.] to work with us. EDS would be the partner providing that.
With EDS's recent acquisition of MCI WorldCom's Systemhouse information technology services unit, is EDS primarily bringing the systems integration capabilities in, or will it do applications management for your customers, too? It's going to do both. In the marketplace, we will partner, so we bring the communications services and it brings the systems integration resources. But the deal itself also allows us to outsource some of our own information technology to EDS, so it will actually be providing services directly to us, and then in the reverse, we're going to be doing all of its networking.
So where do you see MCI WorldCom moving in five years? You wouldn't see a strategy tremendously different than our strategy today, which is offering end-to-end integrated services, primarily focused on the business market, with an enormous effort internationally and on the Internet. They are the fastest-growing segments today, and five years from now they'll still be the fastest-growing segments of the business. You'll see us owning the assets end to end in more and more countries.
In WorldCom's merger with MCI, there was a lot of talk about the estimated $2 billion in synergies that you would gain from the merger. Do you still expect that to happen? It's staying exactly the same. We definitely expect it to happen. We're ahead of schedule actually. The number is about $2 billion over five years.
MCI WorldCom hasn't made as many acquisitions since acquiring MCI. Is that boring for you? Oh, we've done many deals since MCI. We did an enormous $16 billion deal with EDS recently. We acquired OZEmail, which is the largest Internet company in Asia, for about $500 million. And there are lots of other little ones along the way. The problem is that nobody notices the little ones anymore because the company has $35 billion a year in revenue. So if we buy a $100-million-a-year company, people don't pay attention.
Doesn't MCI WorldCom's rising stock price reflect that investors like your acquisition strategy rather than the company's actual performance? I don't know whether the stock is based on the acquisition strategy. I think it's a combination of things. The company still has the fastest growth rate of any large communications company in the world. The reason is that we have the best mix of international services--mostly developed organically, meaning developed ourselves. We developed all of our European business ourselves. Our Internet business, UUNet, was acquired by WorldCom in 1997. It has grown enormously since then. So our internal growth rate, without acquisitions, is very, very strong because we have the best mix in high-growth segments. So I think the high-growth rate, at the end of the day, is actually the biggest determinant of our market cap and our stock price. The second piece is that we have taken a lot of action. We have been very aggressive deploying our own capital, as well as facilities around the world and in undersea systems and so on. Our image on Wall Street is very aggressive and innovative.
How would you describe your relationship with Bernie Ebbers? A lot of executives came along with the companies he has acquired, and yet a lot of them have left. You're the vice chairman of the whole company. You are also in the public eye more than he is. Why is that? Well, I talk to the press more. Bernie and I get along famously; we see eye to eye on just about everything. We have had arguments from time to time, but almost invariably we convince each other one way or another. I think Bernie Ebbers is by far the best CEO in our industry.
Why? He's extraordinarily bright and enthusiastic, and loves the business and the company. He and I share a very aggressive vision of the industry. We have shared it from the beginning, back when we thought we could change the whole competitive landscape by aggressively making acquisitions, aggressively deploying capital and taking prudent risks. And taking action. For a long time, we were the only ones taking action.
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