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February 21, 2000

The Next Frontier
AT&T and MCI WorldCom are trying to turn from long-distance pipe peddlers into one-stop shops

Illustration by William Rieser

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ergers don't get much bigger: $129 billion in stock and cash, 75,000 people, and several hundred offices in 66 countries. When MCI WorldCom announced its intention in October to acquire Sprint, the enormity of the deal shook the business world. It also immediately reshaped the telecommunications market into two potential superpowers.

But to what end? "Our vision is to offer an integrated bundle of voice, data, Internet, and international services sold completely on our own network," says MCI WorldCom vice chairman John Sidgmore. AT&T, the other superpower in the telecom market, is also developing new products and services. Indeed, through an aggressive series of acquisitions and investments, both carriers are looking to transform themselves from long-distance pipe peddlers to all-inclusive shops that offer a variety of value-added services, including enhanced Internet access, Web hosting, broader IT outsourcing, global infrastructure, wireless communications, and platforms for application service providers.

That's compelling for some businesses. "One-stop shopping holds great promise," says Buddy Fiume, VP of enterprise technology at Nabisco Inc., the $8.26 billion snack-food company in Parsippany, N.J. Nabisco uses AT&T for the bulk of its domestic data network and dial-up access to the Web, but splits its international traffic between AT&T and MCI WorldCom, and uses UUnet, an MCI WorldCom unit, for dedicated Internet access. But even advocates have questions. "My concerns are putting all my eggs in one basket--that competition will drop, meaning price increases will offset price breaks," Fiume says.

It's an ambitious strategy, to be sure, and one not without pitfalls for the carriers and their customers. The supercarriers may be taking on more than they can handle; users complain that basic support services have already suffered as AT&T and MCI WorldCom have grown. Also, the supercarriers are starting to face competition in their core competencies from the Bell operating companies, which are trying to expand into their markets (see sidebar story, "Regional Bells Struggle To Offer Full Line Of Services"). The result is that, while the promise of a single-provider source for network-oriented E-business services is attractive, and the two telecom superpowers are racing each other to bring it to fruition, the hurdles are many and the time frame is fuzzy. Meanwhile, many companies are waiting to see what happens.

The rate of mergers and acquisitions in the telecom industry has been dizzying. In the last five years, AT&T has acquired Teleport Communications Group, a competitive access provider; Cerfnet, an Internet provider; McCaw Communications a wireless provider; and the IBM Global Network. In 1998, MCI was acquired by WorldCom, which had already bought UUnet, a large Internet service provider; Metropolitan Fiber Systems, a competitive access provider; ISPs Advanced Network Services and CompuServe; and long-distance provider Wiltel. Regulators are expected to rule on the Sprint deal by year's end.

John Sidgmore Photo by Roy Karten Network and IT managers say that much change makes it hard to generate long-term strategies. "The effect on IT of the continually changing industry landscape is that it's very difficult to plan, select, and implement telecom services, hardware, and applications," says Maralyn Rosenblatt, VP for Internet technology at Countrywide Home Loans, a $50 billion mortgage processor in Calabasas, Calif. "That's because, in the back of your mind, you're concerned about the long-term viability of not just the providers, but their services as well."

And some wonder whether the supercarriers have their best interests at heart. "With all that's going on in terms of new opportunities, it's easy for carriers to dilute their efforts by trying to do too many things," says Brian Light, CIO at Staples Inc., the $9 billion office-supplies retailer in Framingham, Mass. Instead, Light says, the effective service providers will focus on a limited number of areas and offer world-class services and customer support. "Prospective supercarriers risk being able to do this by spreading themselves too thin," he says.

According to some, they already are. "Things are definitely worse for users because, with each merger, some of their best technical and customer-service people are cut or leave," says Countrywide Home Loans' Rosenblatt.

Buddy Fiume Photo by Catrina Genovese At least one user says the most basic of services are suffering. "The single biggest problem we have is getting bills that are accurate," says Virgil Palmer, director of global telecom and networking services at Air Products & Chemicals Inc., a $5 billion provider of specialty chemical and gases in Allentown, Pa., that relies primarily on AT&T for domestic service and UUnet and BT for international service. Several full-time employees spend all their time validating telecom charges. "We send 75% of all the bills back to our carriers because they're inaccurate, especially ones for international connections," Palmer says.

The problem seems to be one of integration. "AT&T's business units appear to operate independently, with one dealing with us on traditional voice and data services, while a second approaches us about wireless, and a third sells Internet access," says Nabisco's Fiume. "UUnet appears to be a separate entity from MCI WorldCom in the same way."

Multiple mergers and acquisitions require massive integration of legacy support systems. Add to that the challenge of combining disparate services and products into a single offering, and it's easy to see why carriers are struggling with integration. "I don't see this [integration] becoming a reality for several years," says Maribel Lopez, a senior telecom analyst at Forrester Research. "They're just starting to sell bundles of basic voice services now."

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