Backbone Dominance
Even without acquiring Sprint, MCI WorldCom already dominates the Internet's backbone - and may effectively control the core, according to industry veteran Jack Rickard.
MCI WorldCom already handles one-third of all backbone connections for Internet service providers (ISPs), according to Boardwatch, the magazine Rickard once published. And adding Sprint would bring another 10 percent of all connections.
That kind of dominance likely means MCI WorldCom has just bought itself ongoing regulatory oversight, akin to that facing local telephone carriers.
Rickard now takes special interest in MCI WorldCom as owner of 40,000 shares, and believes the company already has shown it is big enough to dictate terms and pricing to other data network operators. "They have converted competitors from peers at peering points to paying customers. Ultimately, this leads to control of the Internet through peering," he said, referring to the company's practice of charging for access to its backbone. Prior to two years ago, ISPs simply regarded each other as "peers" and exchanged traffic free of charge at peering points.
"It may be over, without Sprint," he continued. "They may very well own the Internet and just haven't informed everyone by e-mail of it yet. It is not an Internet any more; it is a UUnet [Technologies], and I think that is a bad thing for everybody."
Backbone ownership is the key
Regardless, backbone ownership could be a key merger issue. European regulators are the only ones with stated views on limiting backbone ownership. The Justice Department investigated WorldCom's takeover of MCI last year, but worked with and deferred to the European Commission, which forced the sale of MCI's Internet operation. Justice officials were unavailable last week, but an EC official commented on condition of anonymity.
His remarks indicate combining the MCI WorldCom and Sprint backbones would run into trouble - at least using Boardwatch's figures showing MCI WorldCom with 33 percent of ISP connections, Sprint 10 percent and third-place Intermedia Communications only 8 percent.
"The market share figure that raises the odd eyebrow in Brussels is approximately 40 percent," the official said. "In the MCI-WorldCom case we assessed all kinds of information and found that the merging entity would be able to squeeze smaller players out of most Internet-related markets by simply threatening to cut their clients off.
"This ability to behave how one pleases regardless of competitors because one is a 'must' in the market we call 'dominant position' - and under [European Union] merger rules, whenever that is the likely outcome of a merger we must block it."
The Europeans cobbled together partial, approximate and proprietary data and concluded MCI and WorldCom together would have at least 50 percent market share, and much more than Sprint.