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September 4, 1997updated 01 Sep 2016 4:47pm

LAND OF THE GIANTS

By CBR Staff Writer

During 1996, MCI Corp and AT&T Co came from nowhere to crash into the top ten of America’s biggest internet service providers with first and fourth place respectively, according to internet analysts, The Maloff Company. Only the big online service suppliers, America Online Inc and CompuServe Corp, had more customers. The fast growth of MCI and AT&T was fueled by cut- price offers to existing telephone and data communications customers. They undercut the smaller, independent ISPs to such an extent that even relatively large suppliers, such as PSINet Inc and Netcom Online Communications Inc, pulled out of the consumer market altogether. AT&T was the first to offer the $19.95 ‘all you can eat’ policy which so tied AOL up in knots when it adopted it at the beginning of the year. AT&T and MCI are applying the skills learnt in the deregulated long distance telecommunications market to the internet, leveraging their national coverage and their closer links to business. Neither the local telephone companies – ‘baby bells’, nor the cable companies can compete with this. We have the ability to go in and sustain ourselves in new markets because we’re already there with other voice or data services, says AT&T product director, Keith Foster. AT&T and MCI have also been able to provide local call access since the 1996 Telecommunications Act and this is likely to enhance their position. To win share, AT&T has set up specialist sales teams aimed at small, medium-sized and global businesses. AT&T has also adopted a policy of forging partnerships with third-parties aimed at developing packaged internet services.

Micropayments

Two agreements have already been announced. One is with Mondex, the electronic cash consortium now controlled by Mastercard International. The system is intended to make micropayments – typically those under $10 – viable – that is, cost-effective – over the internet. Another agreement will see AT&T combine with Wells Fargo Bank to offer a service for businesses setting up store fronts on the internet. AT&T will provide site hosting and transaction services, Wells Fargo credit card processing. MCI’s target is to achieve annual internet revenues of $2bn by 2000, compared to just $97m in 1996. To that end the company last year invested $60m upgrading its entire backbone network to 622 mbps megabits per second OC-12 ATM asynchronous transfer mode technology, giving it one of the fastest backbone networks in the world. The company claims growth is running at 30% a month. John Scarborough, director of MCI’s internet services business, says that although the lion’s share of MCI’s internet revenues today comes from pure access, over the next three years web hosting and intranet management will take an increasingly large share. America’s smaller national and regional telcos generally have the most defensive strategies, rushing to offer Internet access to customers no longer captive with the passing of the 1996 Telecommunications Act. Pacific Bell on the West Coast – which has complained to the Federal Communications Commission that internet usage could soon bring its system to a halt – has been offering free net access to customers who buy certain other services. Forrester Research believes that few of the ‘baby bells’ will rise to prominence, noting that only Pacific Bell has signed up more than 100,000 users. GTE and WorldCom, neither of which was part of the old AT&T system, are also moving ahead aggressively, reflected in their respective takeovers of BBN and MFS Communications. Both now own US local, national and internet operations. BBN brings to GTE a collection of fibre optic city networks which GTE can exploit, while MFS owns the international ISP UUNet. When BT’s merger with MCI is complete, the company will be the third largest telco in the world behind AT&T and Japan’s Nippon Telegraph and Telephone NTT. Neil Mellor, head of internet services at British Telecommunications Plc, says the company expects profits to roll from the value-add services that can be sold around internet access. Web hosting services, web design and build, consultancy, systems integration particularly when implementing intranets, legacy systems integration, integrating networks and application development. Those are the services that make the internet valuable to the customer, says Mellor. Cable & Wireless Plc claims to have interests in more than 50 countries on five continents. It manages this global coverage by following a strategy of joint ventures with local partners rather than one of setting up a number local subsidiaries.

Global backbone

Even the companies it is most closely associated with, Hong Kong Telecom and UK-based telco Mercury Communications, are not wholly-owned. Chris Jenkin, manager of online services, claims that C&W is one of the few telecommunications companies with a global backbone network. This puts the company in a favorable light alongside giants AT&T, British Telecom and MCI which all have yet to complete their networks. C&W’s drive into the corporate internet access business is being led by value-added services, to which end the company is developing relationships with intranet, extranet and security software providers. On the consumer side, C&W is largely invisible but that will change when the merger of Mercury Communications with the cable television networks of Nynex CableComms, Bell Cablemedia and Videotron is completed, promises Jenkin. C&W will retain a 52.6% stake in the new company and could offer Internet access alongside cable television and telephony services to British households. Despite being one of the world’s most profitable telecommunications companies – according to figures from telecommunications analysts at Analysys – Deutsche Telekom’s approach is far more cautious than that of the Anglo-Americans. In Germany it is already the number one internet Service Provider, but its international activities are channeled through its Global One alliance with France Telecom and Sprint of the US. Global One offers voice, data and internet services to a predominantly European clientele. Big name customers include pharmaceutical giant SmithKline Beecham and car-maker Volvo. But Julian Culhane, senior associate with information technology merger specialist Broadview Associates in London, says Global One is weak outside France and Germany.

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