Combo threatens Internet shakeup

The second- and fourth-largest U.S. long-distance carriers have a great deal to live up to, if expectations are any indication. MCI WorldCom could become the model for a new wave of integrated carriers and could change the economics of the Internet, analysts said last week.

The Internet is a key piece of the proposed merger because internetMCI, together with WorldCom's UUNet and ANS Communications, would control an estimated 50% of the wholesale national Internet service provider market, according to an International Data Corp. analysis.

WorldCom/UUNet started the contentious practice of charging smaller Internet service providers for so-called peering arrangements, in which network operators send along each other's traffic. The procedure had been free until WorldCom started making smaller ISPs pay for access to its backbone in June. MCI has no plans to charge for its peering arrangements.

Yet the peer-charging practice on a larger scale might not be such a bad thing, even though it's sure to attract the U.S. Justice Department's antitrust scrutiny. That's because a joint MCI WorldCom could push tiered pricing and differing qualities of service end-to-end into the Internet mainstream, said Christine Heckart, vice president of TeleChoice.

The carriers' control over Internet traffic is less important than the peering issue, another analyst said. Although MCI and WorldCom are large Internet backbone carriers, they compete with 29 others to provide scarce capacity.

The merger could even promote competition by creating a player with the size to challenge AT&T in providing managed data services, said Dan Taylor, director of global telecommunications research at The Aberdeen Group, Boston.

However, putting the Internet networks together, especially at the Layer 2 level, will prove difficult and slow, giving other carriers a chance to meet market niches, Taylor said.

The difficulty stems from the sheer complexity of the carriers' infrastructure, although both have OC-12 (622 Mb/s) on their backbones. UUNet, which got its start connecting Unix machines, has a frame relay infrastructure, while MCI, known for pushing capacity, uses a switched asynchronous transfer mode infrastructure.

Taylor sees a grander plan at work. MCI and WorldCom have put together an "all-star team of telecommunications" that could offer one-stop shopping.