MCI aims to reshape communications landscape
Irish Times
Friday, July 23, 1999
MCI Worldcom, the telecommunications giant, has been tracking
Telecom ireann closely. Mr John Sidgmore, vice-chairman of
MCI Worldcom, said he was even talking to the Taoiseach, Mr
Ahern, in the run-up to the Telecom flotation.
When asked whether MCI Worldcom might consider buying
Telecom, he said "the valuation as a result of the Initial Public
Offering makes it a high acquisition target". However, he
believes privatising the previously State-owned company "is
great for the country of Ireland".
The challenges now facing Telecom, he advised, are to stimulate
demand for Internet and data traffic because "the economy in
Ireland can support higher spending levels" and to become more
aggressive in its pricing. "If it's smart that's what it will do," he
said.
Last week, at a press briefing in Manhattan, Mr Sidgmore
outlined MCI's ambitious plans for reshaping the global
communications landscape. Last year, MCI Worldcom, with
operations in 65 countries and 88,000 employees, had revenues
of $30 billion (euro 29.3 billion). It is the fastest growing
telecommunications company in the world, expanding at a rate
of 17 per cent to 20 per cent a year.
For the past 100 years, telecommunications has been a "very
boring industry, that was monopoly controlled and slow to
change", Mr Sidgmore said. However, in the last five years, it
has suddenly exploded with the adoption of the Internet. "For the
first time in history we have the potential to reach everyone with
the same public network at a reasonable cost," he said.
Dataquest, a research firm in California, has estimated the
telecommunications industry has the potential to grow from $800
billion this year to $1.1 trillion by 2002.
Mr Sidgmore said MCI's international market is growing faster
than its domestic operations in the United States. It receives $4
billion of its revenues from overseas of which $1 billion comes
from Europe. He expects revenues coming from the Internet,
data and international operations will rise to 70 per cent within a
few years, up from 36 per cent currently.
One reason for this growth is that technology costs are being
driven down. Ten years ago, MCI spent 65 per cent of its capital
expenditures on the switching and transport pieces of its
network. Five years from now, they will represent 10 per cent of
capital."
Overall, MCI spends 6 per cent of its total costs on switching
and transport and the rest is dominated by access fees (34 per
cent), selling and administrative costs (49 per cent) and billing
systems (11 per cent). In fact, he said, "it costs us twice as
much to bill you for the service than it does to offer it to you".
He believes broadband networks, which offer high quality and
high speed, will take the Internet to the next level. New
applications are driving the demand for larger bandwidth, which
doubles every 3.5 months. "Bill Gates [of Microsoft] believes
bandwidth should be free," he said. "We think software should
be free!"
MCI Worldcom's Internet network this year is 10 times the size
of what it was last year and by next year it will be 10 times this
size again. He expects 99 per cent of its bandwidth will be the
Internet by 2004. "Voice will be a niche market," he said.
The biggest drivers of change, though, are what he termed the
Silicon Cockroaches. These are computer to computer
communications that are live, active, breed quickly and require
more bandwidth. They can send huge amounts of traffic in short
bursts.
One observer has envisaged that by next year each person will
have five Internet-access devices on their person at any one
time. These could include pagers, PalmPilots, Web phones,
digital day-timers and Internet watches.
International Data Corp (IDC) projects, for example, that 12.2
million non-PC, Internet access devices will be sold next year -
nearly matching the sale of personal computers. By 2002, the
number of low-end, Internet-connected devices is expected to
reach 55.7 million, according to IDC.
Jupiter Communications, meanwhile, projects that more than 10
million mobile phones will be capable of accessing Internet data
by 2002.
What the Internet basically has done, said Mr Sidgmore, is
change the playing field and allow new companies break onto
the scene. Previously unknown companies, like Amazon, eBay
and E*Trade, can compete with large companies and therefore
make the world more competitive. The winners, he believes, will
be those that have the best marketing ideas, the best service, the
most knowledge of their customers, and the best use of the
Internet.
MCI Worldcom itself has not been standing still. It has been
deploying its technology as quickly as possible through 70
acquisitions in the last four years and by investing in
infrastructure. To strengthen what it calls its OnNet strategy, it
has built two trans-Atlantic cable systems and another two
under the sea to Asia-Pacific.
Two years ago, it became the first company to build an
inter-city, inter-country network that covers all the major
financial centres in Europe. "We are deploying these capabilities
this rapidly because we see unprecedented growth driven by the
Internet," Mr Sidgmore said.
He was adamant that MCI Worldcom wants to deliver bundled,
integrated services on its own network, rather than outsource it
to a consortium. This way it can control its own costs, products
and pace.
Now, in what Mr Sidgmore called the "Golden Age of
Communications", MCI is looking to see how it can enter the
wireless world. Traditionally, wireless devices have not been as
important a part of business in the United States as they have
been in Europe. One reason is that telephone carriers rarely sell
them bundled together with their Internet, local and long distance
offerings. But in the next three years they probably will.
Mr Sidgmore sees three options facing MCI Worldcom: to
acquire a wireless company; to wait a few years until a phone
company goes out of business; or to build its own wireless
network. "I would be surprised if we don't have a presence in
wireless communications in Europe in three years time," he said.
ireland.com:80/newspaper/finance/1999/0723/seven2.htm |
