The challenges haven't kept AT&T and MCI WorldCom from driving harder into new markets, in particular Internet-enabled areas such as E-services and E-business. "As fast as we think we're moving, our customers are moving at Internet speed because their CEOs are focusing on reinventing their companies using the Web," says Rick Roscitt, president of AT&T Business Services. "We're locked in a footrace that's continually driving us forward."

AT&T has several initiatives under way to help it cash in on the Internet. It has begun quadrupling the OC-48 (2.4-Gbps) bandwidth of its Internet backbone to keep pace with demand for IP services, much of which comes from midsize and smaller companies. AT&T says 80% to 85% of its 1999 IP services revenue came from dot-coms and emerging companies.

"If we're ahead of demand, we're just ahead," says Ken Sichua, president of growth markets at AT&T. He's responsible for all but the carrier's 600 largest business customers. "We have companies coming out of garages and ordering OC-12 [622-Mbps] pipes so they can build their business on the Internet." Bandwidth usage grew 400% last year, says Kathleen Earley, president of data and Internet services at AT&T. "It'll probably grow more this year," she says.

AT&T's Internet-access and Web-hosting business topped $1 billion in revenue last year with four hosting centers online, Earley says. But AT&T has ambitious plans for Web hosting--up to 26 hosting centers, representing 1 million square feet of space, by the end of next year.

All of MCI WorldCom's Internet services are handled through its UUnet subsidiary. UUnet plans to spend $1.2 billion this year on co-location and hosting centers. So far, UUnet has nine hosting centers on its global IP backbone, with most linked to its OC-48 U.S. network. MCI WorldCom's Internet revenue for 1999 was $3.5 billion, up 57% from the previous year.

There are clear benefits to locating a Web site on a major Internet backbone. The Web servers reside right on the carriers' networks, which eliminates delays. The carriers also own the network, so they can better manage it and control costs. Exodus Communications Inc., in contrast, resells AT&T's backbone services so customers are one step removed from the backbone operators.

Still, the expertise of companies that specialize in Web hosting is hard to beat. The supercarriers "have a lot to prove when compared with companies like Exodus, which specialize in this area and have more experience with customers," says Staples' Light.

AT&T and MCI WorldCom are offering E-services consulting, rounding out their packages with vendor partnerships to provide expertise. AT&T appears to have a slight edge, thanks to a deal it signed in October with IBM to offer a package that includes IBM servers, software, managed Internet-access service, and professional services.

AT&T's initial plan is to continue to partner with software and hardware vendors to provide complete E-commerce packages to its customers. AT&T could serve as the E-services source provider, project manager, and a single point of contact for its customers, Roscitt says. "We want to move rapidly up the value chain in E-services." Eventually, AT&T would like to lessen its reliance on others by bringing as much expertise and assets in-house, he adds. "It's a slow process," Roscitt says, "because we have to retrain internal people." The company is hiring E-services talent, he says, but that takes time.

MCI WorldCom's E-services strategy, outlined last month, calls for an internal group of consultants to help customers get started. The carrier will partner with others starting in supply-chain management, sales, marketing, and customer-relationship management. It also plans to serve as project manager and as a single point of contact. That, along with MCI WorldCom's Internet backbone and Web-hosting facilities, can be part of an all-inclusive package, says Ron McMurtrie, VP of business product marketing.

How seriously do IT executives take AT&T and MCI WorldCom as E-services providers? Some say thumbs-up. "I applaud carriers focusing on Web hosting because it shows they have done a good job measuring what's important to users and what's hot," says Will Weider, CIO at Trinity Regional Health System in Rock Island, Ill. "We would feel comfortable working with them because we have strong, long-standing business relationships and have found them to be more responsive than most of our computer and software vendors. And by their emphasis on areas such as Web hosting, we're presented with a wider range of options, which drive innovation." Others have doubts. "For all intents and purposes, they're still long-distance companies," says Countrywide Home Loans' Rosenblatt. "We would go with an established player that can deliver a breadth of services and customer references."

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Illustration by William Rieser
Photo of Light by Stephen Sherman