Tech Industry

WorldCom exec banks on MCI deal

Effectively showing his hand, a top WorldCom executive says he is confident that his company's acquisition of MCI will pass regulatory muster.

Effectively showing his hand, a top WorldCom (WCOM) executive today said he is confident that his company's acquisition of MCI (MCIC) will pass regulatory muster and that the deal will double its Internet business.

"Some people say we did this deal just for the press," John Sidgmore, WorldCom's chief operating officer, said at the NationsBanc Montgomery Securities investment conference today. "We felt it was critical to bring network solutions skills to our business. Financially, this is a phenomenal deal, and strategically this increases our network capacity."

Sidgmore noted that the combined company will be able to leverage the long distance, local, and worldwide assets of MCI. As a result, Sidgmore said, the deal is expected to add $1 billion to WorldCom's revenue stream.

Sidgmore said WorldCom continues to invest capital in building out its network while it waits for the deal to go through.

"We are building local access as fast as we can," he said. "We more than doubled our fiber lines last year and increased the scope of our Internet network by ten times."

"We are moving as quickly as possible and expanding internationally. We are building aggressively overseas," Sidgmore added. "We can't overlook this opportunity."

Before it gets ahead of itself, however, WorldCom must clear the scrutiny of the government, which is investigating antitrust issues with regard to the MCI acquisition. MCI agreed last year to be acquired by WorldCom for a whopping $37 billion in stock and cash.

Before WorldCom's bid, federal authorities gave the thumbs-up to MCI's proposed merger with British Telecommunications. MCI and WorldCom now are waiting for the approval of antitrust regulators and the Federal Communications Commission.

Sidgmore, however, is unfazed by the swirl of regulatory and antitrust activity surrounding high-tech mergers and acquisitions of late.

"Our position hasn't changed," he said. "We're convinced the facts will come out and we think the government will look at this in a rational way, but I can't say it won't take a while. Our industry is so filled with hype that it is hard to get the facts."

Sidgmore also talked about the growth of the Internet and the expected change in the cost structure of Internet access.

"I don't see any way this will slow down. This industry will continue to improve faster than anything else," he said. "This is where the most intelligent people want to work."

"If you look back to 1994, hardly anyone knew what the Internet was. Now everyone I meet considers themself an expert," he continued. "It is a very young industry and has a long way to go. There has never been an industry that has the kind of exponential growth that is happening in this space."

Sidgmore said his company's backbone capacity has grown by two times every three months, boosting its growth to 1000 percent per year. "What does that do for our industry?" he asked. "By the year 2000, 50 percent of all bandwidth will be dedicated to the Internet."

He predicted that, in ten years, 99 percent of telecommunications networks will be intended for Internet access, with the remaining 1 percent being used for voice transmissions. With the coming of multimedia applications, he noted, more bandwidth will be needed to support voice and video online.

"We are now in a significant critical mass," he said. "To grow at 1000 percent every year for ten years, the technology doesn't support it and we are going to find a way to solve this. It is an enormous challenge."

Indeed as the bandwitch needs of companies increase, a new pricing tier is likely to emerge to make pricing in general more level. Sidgmore said that if one business customer sends 45 megs, and the other is sending 1, it doesn't make sense to charge both the same rate because either way, one customer is getting seriously overcharged or seriously undercharged.

As for the company's international expansion, Sidgmore said WorldCom has completed local agreements with the European Community.

"We went out and signed binding interconnection agreements with companies in the U.S. and all the major countries in Europe," Sidgmore said, noting that the company is set to connect 70 percent of businesses in the United States and 70 percent of businesses in Europe.