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This merger will require backbone

British Telecom looks at MCI and sees the key to becoming the world's dominant Internet provider: backbone.

It will take backbone to put together the announced merger of British Telecommunications and MCI Communications (MCIC). Literally.

A key inspiration for British Telecom's buyout of MCI is the need to build a global, privately owned, Internet infrastructure and a desire to become the world's dominant Internet provider, according to industry analysts. BT was Great Britain's monopoly carrier before the government began deregulation of the market, and it remains the country's dominant player. (See related story)

"Backbone" networks are the interstate system of the information superhighway, carrying the majority of the traffic from coast-to-coast and connecting local Internet connections.

The backbone infrastructure is invisible to Internet users, but its expansion is crucial in dealing with the congestion that some observers see as a major threat to the Net. MCI, AT&T, and Sprint all own vast stretches of backbone and charge smaller Internet service providers a fee to carry data. BT and MCI's merger will allow them to travel those stretches of backbone without paying any tariffs.

British Telecom needs access to more backbone because overseas subscribers to online and Internet access services will more than double to 21 million by 2000, including 13 million in Europe and 5 million in Japan, according to market research firm Simba Information.

The buyout builds on a joint venture the two companies launched this summer. Called Concert InternetPlus, the alliance is a unified and expanded worldwide network of wires, switches, and other hardware that transmits data across the globe at hundreds of megabits per second. British Telecom already owns 20 percent of MCI.

By absorbing MCI, British Telecom will have a powerful reach that could push Net access prices even lower, since its costs will be lower, analysts said.

"The combined entity would give the MCI and BT guys resources that in some areas, certainly in Europe, could exceed AT&T," said Rob Enderle, senior industry analyst at Giga Information Group. Europe is a fast-growing market for Net access.

Enderle speculated that another global telco merger on the horizon could unite Sprint and Japanese giant Nippon Telegraph and Telephone.

The BT-MCI merger is also a coup for Rupert Murdoch's News Corporation, which recently teamed up with British Telecom to create an ISP in Europe called "Springboard." Murdoch previously had ties to MCI, and now he has closed the loop and increased his company's global clout.