WorldCom builds a powerhouse

The Internet. Long distance and local telephone service. International expansion. WorldCom (WCOM) is putting together all these pieces in an effort to build a worldwide communications powerhouse.

Over the weekend, the company

WorldCom's John Sidgmore on the Internet's future

finished its $1.2 billion acquisition of CompuServe from H&R Block, and its acquisition of ANS Communications from America Online. Meanwhile, its $37 billion buyout of MCI Communications (MCIC) is waiting in the wings.

WorldCom is bringing together a variety of services in an effort to become a one-stop provider of communications services and compete with the regional telephone companies (RBOCS) in their own territory while leveraging the power of the Internet.

CNET's NEWS.COM talked to John Sidgmore, WorldCom's chief operating officer, about plans for the combined company--from its backbone expansion and its dealings with antitrust concerns, to its role in the growth of the Internet and its potential to be a growing telecommunications provider.

NEWS.COM: Where is WorldCom's focus?
International and the Internet. Those are the fastest growing pieces of our industry, and we are going to be intensely focused on those two segments. We really want to be the first integrated provider of services, where we can deliver local, long distance, Internet, and international services seamlessly to a customer--all through our own facilities. We are also focused on making sure we continue having a robust growth rate. That, generally speaking, means attacking the fast-growth pieces of the industry over time. We are very bullish about the Internet and the impact it is going to have on the industry over time. We have put an awful lot of capital to work to support the growth in bandwidth that the Internet brings, and we will continue to do that. We think that the Internet is really the critical piece of the communications industry over the next couple of years. Having said that, international expansion is also important to us. Our international business has been growing at over 70 percent per year.

What is your perspective on the future of the Internet?
I think the Internet is going to be the most important technology change of the century. It is going to enable communications--between people, between businesses, between businesses and people--that never existed before. It makes it possible for small companies to advertise nationwide at a reasonable cost. It changes business models like nothing before, and it brings the world much closer together and moves it much faster. I think bandwidth demand is the proof of that. The amount of capacity actually determines the bandwidth. The demand on the backbones are growing at 1,000 percent per year. We have the voice business growing at less than 20 percent per year.

Why did WorldCom decide to buy MCI?
The rational for the MCI deal really had nothing to do with the Internet,

Sidgmore on WorldCom's backbone becoming monopolistic

although it had Internet benefits in there. That deal is really about merging long distance networks and combining them with the local access networks that come from Brooks Fiber and WorldCom's MFS business. As you merge together local and long distance, you form a very powerful financial position that we think creates the first company that can stand up and compete with the RBOCs in their own territory. We also get to leverage the large long-distance footprint of MCI. We leverage the international assets that we at WorldCom have developed over the last couple of years. That really is about the core communications business, and not really about the Internet.

Is WorldCom's backbone becoming monopolistic?
That focus has been most loudly aimed at the Internet. It is hard for us to imagine anybody controlling the Internet. The Internet is such a diverse and fast-moving environment. You've got more than 4,000 Internet providers in the United States. You've got all the major telephone companies in the United States and around the world entering the market right now. It has got a very low cost of entry, and the numbers we have seen about our market share are wildly exaggerated. When the facts come out, I think the regulators will see the facts for what they are. Those facts would support that this merger is procompetitive, not anticompetitive. At the end of the day we will pass through.

Do you think the company is bound to be a target of antitrust probes?
This is the biggest merger in world history. Given that, you know that this is going to get a lot of attention and a lot of focus. We have already been through several reviews. We just closed our deal with CompuServe and ANS, and we went through a review with the Department of Justice on it. We made them comfortable...we don't have anything like a controlling position on the Internet and I think we'll prove it again.

How would you say the acquisitions change the landscape for other access providers?
I don't think the CompuServe acquisition changes the landscape for access providers because...only a very small piece of their business was providing access. Most of their business was providing value-added services in the Internet space. I don't think the MCI deal will change the competitive landscape a bit. Other telephone companies have looked at what WorldCom's done recently and said they may be missing the boat and realized they need to put more attention on their Internet strategy, but I don't think it is going to have any real impact on competition.

Will WorldCom continue to pursue acquisitions, or do these past two acquisitions put WorldCom at ease for a while?
The industry is changing at revolutionary speed, and we are very aggressive in our vision for what can happen here in the next few years. Therefore, we are going to be very aggressive in expanding. That doesn't necessarily mean acquisition. We are expanding by deploying our own facilities also. We put billions of dollars to work in fiber over the past couple of years, and I would suspect that we are going to continue to do that. But at the end of the day acquisitions will be a part of our strategy. If you just look back over the past few years, Worldcom, and UUNet, and MFS Communications, on a combined basis, has made over 50 acquisitions in the last four years. It is genetically part of our bloodstream, so it is hard to imagine that we would stop. But the goal isn't to make acquisitions. The goal is to expand our position and fill in the pieces we don't have and that will be done by a combination of building our own and also acquiring.

Some analysts have said that WorldCom should not be spending so much on acquisitions. What is your reaction to that?
I think we have proven over time that acquisitions are a core competency of ours. We have done a very good job, in my opinion, of merging lots of diverse operations together. We have a track record of beating our synergy estimates on all of these acquisitions. We have made our profitability forecasts and the Street's expectations for profitability pretty consistently over time, and we've got an extremely strong growth rate. So our track record would say that, if you had to bet on somebody to pull off a strategic acquisition of the kind we are talking about, I think WorldCom would be a pretty good company to bet on.

How will WorldCom benefit from deregulation in the United States?
We believe in competition, and we believe all segments of the business

Sidgmore on international deregulation

should have robust competition. If you look at the United States, there is tremendous competition among the Internet networks, but there is not as robust a competitive environment in the local access world. The Telecommunications Act tried to help solve that, but we had a lot of complaints and resistance from the RBOCs. We are strongly in favor of competition. We believe that quick-changing, agile, aggressive competitors like WorldCom will succeed very strongly in a competitive environment.

How is the EC holding up the approval of the WorldCom/MCI deal?
At this point no one is holding up anything. We are still months away from our goal of closing it, which was summertime or the third quarter. The proceedings are going on. There are multiple agencies that are involved here, so we don't see this as a hold-up at this point.

And the U.S. approval process?
It is basically on track. We've got hopes, but we have learned over time that you can?t quite predict the government.