Global update: Internet spreads its reach

The dramatic growth of the Internet has propelled U.S. carriers to the world stage. Their roles in supercarrier alliances have put them in prime position to take advantage of this growth, but a few obstacles lie in the way.

An estimated 60 million to 100 million people worldwide now use the Internet, and that number is expected to surge to 175 million users by 2001, International Data Corp. predicts. Many U.S. carriers already are profiting from this boom because of their partnerships with foreign carriers.

Internet protocol (IP) telephony, with its appeal as an inexpensive bypass technology, also has bolstered much of the global Internet growth. The world market for Internet telephony based on PCs will explode from 500,000 users this year to 16 million users by 1999, IDC says.

Last year, this tiny new market segment had generated only $10 million in revenues, but Forrester Research, Cambridge, Mass., claims that number will grow to $2 billion by 2004.

Despite the rosy outlook, some international markets present persistent problems, including regulatory holdups, partnership friction, technological integration issues and even censorship concerns.

International forces The supercarrier alliances also must contend with the masses of native Internet service providers and incumbent telcos that already rule foreign roosts (see table).

AT&T, via its WorldPartners marketing alliance program created in September 1993, has established distribution arrangements with more than 20 telecom carriers, mostly incumbent telecommunications companies.

The members of the WorldPartners Association include AT&T, Kokusai Denshin Denwa of Japan, Singapore Telecom and Unisource of Europe. Unisource is an alliance composed of PTT Telecom of the Netherlands, Telia of Sweden and Swiss PTT. This group has been responsible for providing Internet connectivity for European customers.

"The development of regional backbones will create more of a balance and move away from the U.S.-centric model of Internet usage," says Joe Gerrese, director of Internet services at AT&T Unisource. Today, 80% of Internet users reside in the U.S.

Howard Hempenius, senior manager at networkMCI Internet Services, sees that usage model changing quickly. "The Internet is growing exponentially outside the U.S., and we can serve as a one-stop shop for any company. We're seeing tremendous growth in all aspects of the business," he says.

The MCI unit offers services internationally through Concert-the joint venture created by BT and MCI a few years ago-providing Internet connections to nearly 60 countries around the world.

Distributors of Concert services in Europe include Banco Santander of Spain, Portugal Telecom, Spain's Telefonica, Norwegian Telecom, Telecom Finland, TeleDanmark, VIAG InterKom KG of Germany, Albacom of Italy and Telenordia of Sweden.

MCI's future involvement in Concert is somewhat uncertain because of WorldCom's pending acquisition of MCI, but MCI will continue to be Concert's distribution channel in the U.S.

GlobalOne, the joint venture of Sprint, France Telecom and Deutsche Telekom, offers global Internet services to multinational corporations.

The company provides IP services to 35 countries with additional access via frame relay and international private line connectivity, says Stu Mathison, assistant vice president of corporate strategy at Global One.

The alliance, which has 1400 points of presence, introduced its Dial IP service in 28 countries last fall and will increase that to 52 this year, says Mathison. GlobalOne also provides intranet and multimedia applications.

GTE Internetworking and Equant (formerly Scitor) form another international Internet team. They established their relationship in 1996 to pursue the Internet services market. Before forming this relationship, Equant had entered an agreement with BBN Corp. to offer BBN Planet Internet connectivity outside the U.S. over Equant's worldwide network.

GTE acquired BBN last summer, and via GTE Internetworking the company now is using the same distribution channel to provide Internet connectivity to multinational corporations. GTE is using Equant's POPs to offer end-to-end service worldwide. The two companies provide service in 90 countries. GTE operates two superPOPs in London and Sydney and will build more to support IP traffic.

GTE Internetworking focuses on high-end Internet users because it allows them to "solve the most sophisticated networking problems on a multi-site basis," says Mark Lunardoni, international service line manager for GTE Internetworking and Equant.

This strategy extends to managing critical data security issues. Late last year, GTE Internetworking announced SitePatrol International, a managed Internet security service for foreign subsidiaries of U.S. companies.

Because of U.S. restrictions on the export of cryptography, GTE had to obtain approval from the U.S. State Department and the U.S. Department of Commerce to distribute SitePatrol internationally, says Lunardoni. SitePatrol may be distributed to foreign corporations that are affiliates of U.S. companies in certain countries. SitePatrol also can be imported into 18 countries.

Not all the international market forces are new carrier alliances. Since 1970, Infonet, based in El Segundo, Calif., has been a key player in the international data communications market. Today, the company's backbone network is deployed around the world. The network is based on three backbone protocols: X.25, TCP/IP and frame relay.

In December 1997, the global network services provider announced Global Internet Services, a comprehensive set of Internet services for multinational corporations. The company plans to offer global roaming, e-mail and Internet fax. Infonet expects to leverage its worldwide network of dedicated and dial access POPs and in-country support personnel in 57 countries.

Europe leads the way The largest foreign Internet markets are in Europe, and the most prolific are the United Kingdom, the Netherlands and Germany. France and Italy have been slower to adopt the Internet as a business tool because of the cost of local telephone lines. Residential use has not been as dramatic as in other parts of Europe.

The most successful U.S. carrier in Europe has been UUNet Technologies, a subsidiary of WorldCom. UUNet, Fairfax, Va., has built a Pan-European network largely through acquisition. It initially acquired Pipex, the largest ISP in the U.K., in December 1995. Subsequently, the company bought EUNet in Germany and NLNet in the Netherlands and purchased two ISPs in Canada.

WorldCom's plan to acquire MCI will further strengthen UUNet's position offshore in the Internet services market. The company provides access to more than 1000 POPs throughout the United States, Canada, Europe and the Asia-Pacific region.

ISP PSINet's network comprises more than 350 POPs worldwide. PSINet Europe was established in Geneva, Switzerland, in October 1997 to serve and support markets in Austria and Germany.

In November 1997, PSINet acquired iStar Internet, a Canadian ISP. The company also has offices in Belgium, France, Italy, Luxembourg, the Netherlands and the U.K.

PSINet Europe remains the company's only overseas peg. The division actually is a partnership with an investment group led by The Chatterjee Group, an affiliate of Soros Fund Management, to build a $100 million Internet network across Europe and to begin offering PSINet Internet-related services. But venture partners have disagreed over strategy, according to several sources.

Since the acquisitions of UUNet by WorldCom, BBN by GTE and Netcom by ICG Communications, an Englewood, Colo.-based competitive local exchange carrier, many analysts are watching PSINet, which has been an acquisition target. The ISP has not accepted a suitor, however.

PSINet negotiated a partnership with IXC, an Austin, Texas-based long-distance provider, but the company has not developed other network operator ties. In fact, it recently announced a strategy to build its own voice telephony network, a radical departure from the philosophy of other ISPs.

Promise in Latin America Great Internet-related opportunity may lie in Europe, but the global Internet frontier is in Latin America. It may sound surprising, but that region is showing early signs of a data market revolution.

The region's personal computer market grew by almost 20% from 1996 to 1997. Better infrastructure and enhanced connectivity, coupled with the availability of Internet access, have created unprecedented growth.

The most lucrative markets in Latin America for Internet services are Mexico and Brazil. The deregulation of these markets has led to more competition that creates opportunities for new entrants, particularly in the data networking sector.

In Mexico, several new long-distance providers are offering Internet services to business users in the triangle made by Mexico City, Monterrey, and Guadalajara. InterVan, the first frame relay network built in Mexico, is providing IP connectivity, as is Telmex, the dominant long-distance company.

Avantel, MCI's joint venture with Banamex, is building an IP backbone. Most of these carriers terminate their traffic in the U.S. because more than 80% of outbound traffic from Mexico goes to the U.S.

Brazil's communications market is worth an estimated $14 billion, representing nearly 40% of the total Latin American communications market.

The largest concentration of multinationals in South America is in Sao Paulo, Brazil. More than 800 ISPs offer a wide array of services. Embratel, the international telecom provider, carries most of the traffic to foreign locations because it is the only licensed international long-distance carrier. Internet services over satellite are used in parts of the country that lack landline infrastructure.

Latin American countries, particularly Brazil, Mexico, Chile and Colombia, have contributed to the Internet's explosive growth worldwide, says Nadia Mansour, vice president, Latin America and Caribbean Operations for Ascend Communications.

"The large concentration of ISPs in these markets has contributed significantly to Ascend's overall international growth," she says.

With a population of more than 400 million, the region has been targeted for seamless services.

Last September, 22 Latin American and Caribbean ISPs joined iPass, a consortium that enables customers to access the Web from outside their calling region. ISP customers will now be able to access the Internet in cities such as Rio de Janeiro and Sao Paulo, Brazil; Buenos Aires, Argentina; Santiago, Chile; Caracas, Venezuela; Panama City; Mexico City; San Juan, Puerto Rico; and Santo Domingo, Dominican Republic, by placing a local call to a third-party iPass partner ISP.

Success, risk in Asia Beyond Latin America, Asia already is having progressive and regressive effects on the global Internet market.

The region is led by Japan, which is second to the U.S. in Internet use. About 2000 ISPs in Japan serve 7 million to 10 million subscribers, according to local sources. NTT PC Communications, a subsidiary of NTT, has the largest backbone network supporting many of those ISPs and serves about 1 million subscribers.

"There is an enormous market for the Internet in Japan because of the country's large population and because Japan is such a technology-driven society," according to Tema Razavi of Nihon Information Co., a Virginia-based consulting firm.

Less than 10% of Japan's population is using the Internet so far, and most of those users are business customers, she says. But forecasts for 2000 predict that the number of Internet subscribers in Japan will triple.

A rise in Internet advertising among Japanese firms will push that growth. In 1997, Japanese advertisers spent more than $32 million, up 250% from the year before.

Also, Japanese companies are introducing new services. NTT is installing 100,000 units of "next generation public pay telephones" throughout the country that will enable users to send and receive e-mail.

Users will be able to send messages written on notebook personal computers or personal digital assistants. The telephones, which will be in restaurants, hotels, convenience stores and airports, also will let users retrieve e-mail messages using special cards issued by ISPs.

But culturally, the Internet-particularly e-mail-has not taken off as quickly as in the U.S. because the Japanese prefer to send hand-written notes to personal acquaintances. This is changing quickly as is shown by the arrival of CyberNet cafes in metropolitan areas.

Elsewhere in Asia, deregulation in India is creating new opportunities for home-grown and foreign ISPs. Coaxed by liberal policy in India, MTNL, a new ISP, is poised to become a strong competitor in New Delhi and Mumbai (formerly Bombay), while incumbent VSNL works to establish a new Internet subsidiary.

In addition to local providers, CompuServe became the first U.S. on-line content provider to offer local dial-up service to Indian subscribers in Mumbai, Delhi, Bangalore and Madras. The company negotiated a joint venture with Madras-based networking company Satyam InfoWay.

In other parts of Asia, regulatory and censorship issues persist. After Hong Kong reverted to Chinese rule, ISPs created their own "code of ethics" to head off any intervention by Beijing. In mainland China, the government has tried to restrict Internet use.

In Thailand, the new Internet law continues to face criticism because of the restrictions that it has placed on local ISPs regarding content.

Thrive and survive The global Internet scene remains a realm of high potential, but also one that presents different hurdles and risks-economic, technological, cultural and otherwise-from those faced by U.S.-based carriers and ISPs. While the Internet has been global in nature for some time, the lack of comprehensive backbone network capacity and widely available access leaves much to be desired.

U.S. network operators can be one of many forces of change in this regard. Global Internet strategies are gaining more importance on these carriers' agendas, and even the U.S. government has coaxed foreign deregulation and promoted the role U.S. carriers can play.

"Developing nations need access to advanced telecommunications technologies," says Larry Irving, assistant secretary for communications and information at the U.S. Department of Commerce's National Telecommunications Information Administration."A large part of our job is educational since most telcos are still state-owned or are largely controlled by their governments," he says.

Still, the good intentions cannot make every obstacle go away. For example, service quality issues still haunt IP telephony and other areas of carrier performance.

Such issues may have some effect on how successful international ISPs and supercarriers can be in the global Internet marketplace-or at least how soon they will succeed.