December 12, 1996 12:00 PM ET
UUNet chief sees telecom/ISP mergers as the wave of the future
By Margaret Kane

  NEW YORK -- In a speech that was part pitch and part prognostication, UUNet Technologies Inc. CEO John Sidgmore discussed why his company's merger with communications services provider MFS Communications Co. Inc. was the right move and where he thinks the telecommunications industry will end up.

In the past six months, UUNet has not only merged with MFS but also has announced a proposed merger with long-distance carrier WorldCom Inc. The joining of two telecommunications companies with an Internet company is the wave of the future, Sidgmore told an Internet World audience here this morning in a keynote address.

ISPs (Internet service providers) that do not control their facilities will not survive, he predicted.

Sidgmore based his pronouncement on the exploding demand for bandwidth, which brings with it exploding costs for ISPs.

"UUNet alone will have an Internet [backbone] in three years that is 1,000 times the size of the whole Internet network today," he said. Because bandwidth accounts for roughly 54 percent of an ISP's total cost, the only companies that will survive will be those that are part of a core telco.

"We don't see how to escape from the arithmetic here," he said.

Sidgmore agreed with analysts' predictions that the number of ISPs will drop sharply in the near future, predicting that companies would split into two markets: ISPs that own their own networks, like UUNet, and ISPs that provide value-added reselling of those network services.

But UUNet will not get out of the service business. Indeed, Sidgmore took time to announce the introduction of a pair of "extranet" services that will allow businesses to employ Internet protocols to share information with associates and partners. ExtraLink is a VPN (virtual private network) with full Internet connectivity based on UUNet's backbone and MFS' local access. ExtraLink Remote will allow users with a VPN to permit secure, remote dial-up access to mobile users or affinity groups. The services are slated to be available commercially in February.

The demand for bandwidth will not just affect ISPs, Sidgmore continued. Telcos also will be changed by the Internet, mainly because of how cheap it is to send faxes over the Internet.

Sidgmore said faxes make up 50 percent of international telecommunications traffic. That puts telcos in a vulnerable position, he said, citing the cost of a 42-page fax sent from New York to Los Angeles. By fax, it's about $10. By Internet, it's about 10 cents.

"The Internet is not about being 10 percent better or 10 percent cheaper," he said. "It's about being 10 times better and 10 times cheaper."

"Think about the vulnerability of the core telecom companies. What's at stake is not the $20 billion voice market, it's the $900 billion market worldwide," he said. "That's why all the telecom companies worldwide have scrambled to derive Internet strategies."

Not surprisingly, Sidgmore said the one thing that could hurt the growth of the Internet is the government.

"How can we screw it up? One way is to get them involved," he said, to applause from the crowd. "You could argue that they had the chance. The government had control of the Internet for 25 years, and nothing happened. We think the government should declare success, and move on to health care."

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