MCI, Sprint Make Yesterday's Deal

Outside Internet World, the buzz in New York is all about the MCI-Sprint deal.

Imagine, a $129 BILLION stock deal, and a “golden parachute” for Sprint chairman William Esrey that the Wall Street Journal reported was worth over $400 million.

FCC chairman William Kennard immediately warned the deal won’t go down without a fight, that it’s anti-competitive. You’re combining the number two and number three long distance companies with one of three national wireless licensees and maybe 60-70 percent of the Internet’s backbone traffic, he noted. If that’s not market dominance, what is?

Let me suggest that’s the wrong thing to be worried about.

A lot of bandwidth is being combined here, but bandwidth is easy to build.

Global Crossing, Qwest, and the Williams Companies are just three of the many firms building-out long distance fiber networks. Microsoft and Softbank just got together with Global Crossing on a new Asian fiber network.

Sure, those cellular licenses are valuable, but there are still plenty of alternatives, and we’re not talking about huge chunks of wireless bandwidth — there’s plenty more available. Don’t get me started on wireless fiber, wireless cable in unlicensed frequencies, or reports that there may be unlimited bandwidth available on the nation’s power lines.

The fact is the value of bandwidth is declining. MCI just paid up for something whose value is going down, like the man who spends $2,000 on a PC and then comes back weeks later to see a faster model available at $1,500.

You want competition? MCI and Sprint together have about 30 percent of the U.S. long-distance market. AT&T still has about half that market. The four remaining Bells will be going into the long distance business, even without this deal.

The U.S. has thousands of Internet Service Providers filling every possible niche in the market, and as Zona Research indicated a month ago they’re gaining share at the expense of the big boys.

Every market has two regular cellular providers, there are the three national licensees, there’s Nextel, and there are new wireless networks being put together by electrical companies, like PowerTel. Sure, there’s the local “gatekeeper” function to consider, but that’s what AT&T’s bought into through cable and what the Bells have — the new combination is just a supplicant for your local business.

What makes market dominance today is customer service, not “one-stop shopping,” and none of the companies involved here has ever been known for high-quality customer service. MCI’s response to its recent backbone outage was pitiful, especially that of chairman Bernard Ebbers, who tried to wait-out the outage before saying anything, and then finally blamed Lucent.

Big Internet customers, not just ISPs but Fortune 500 operators, remember things like that. Exodus, Above.Net, and maybe even Intel are better web hosts than MCI. Sprint’s past reputation for following industry standards is atrocious, and its own “all-in” plan, Ion, has gone nowhere.

There is one quality that can make up for all these deficiencies, and that’s the ability to move fast. But no organization of this size is going to move very fast, and combining MCI and Sprint just makes a bad situation worse.

No, I’m not worried about MCI and Sprint taking over the market. I’m worried about how long the combined companies can survive.

What I see on that score are yesterday’s clueless assumptions making a host of executives and arbitrageurs rich. I don’t see better service, and lower prices are coming anyway.

There is one piece of good news, of course. All the MCI and Sprint talent that will be losing jobs as the suits fritter away market share can take their severance packages, go into business for themselves, and eat Bernard Ebbers’ lunch.

Related reading