A Change in Tone
WorldCom’s proposed merger with MCI Communications, if consummated, could accelerate the emergence of what has become the Holy Grail of the Internet world: a worldwide network capable of handling telephone calls and videoconferencing as easily and cheaply as regular e-mail.
“It’s pretty clear that the integration of voice and data is inevitable,” says Yuri Pikover, co-founder of Calabasas-based telecommunications start-up Xylan. “This deal will make it happen much faster.”
The stakes are high. The world’s traditional telephone companies, with their army of suppliers, generate hundreds of billions of dollars in annual sales--and much of that could be siphoned off by the providers of Internet services and computer network equipment if voice begins to travel on these new computer networks.
Already there are hobbyists and a few businesses that use the Internet to make long-distance phone calls for the cost of a local call. And analysts predict it won’t be long before shoppers on the Web will click on an icon to talk to salespeople for more information about the purchases they want to make.
But making phone calls on the Net is awkward and time-consuming. You need a computer and special software. And on the Internet, information is sent in little “packages” that don’t always make it to the other end on time--meaning the quality of the sound can’t compare to the tried-and-true public phone network built by Ma Bell.
Although the quality of Internet phone calls has been improving as the overall network improves, it is also hampered by the fact that any given call is handled by numerous companies operating on different equipment and standards.
“You need quality guarantees, but you are dealing with multiple backbones and service providers,” says Dave Schriftgiesser, a director at Lucent Technologies.
A merger of WorldCom and MCI could help change that.
In contrast to some of the “old guard” phone companies that see the Internet as a threat to their voice networks and thus have been dragging in taking advantage of it, “WorldCom and MCI are aggressive companies, and they have been very strong supporters of [Internet-style] environments,” says Alex Mendez, vice president of Cisco.
Analysts believe the two companies could combine their Internet and public phone infrastructures to create a powerful single communications infrastructure that could competitively offer voice, data and other services to their business customers.
“Today there are two different universes, the public telephone system and the Internet,” says Sanjay Mewada, an analyst at Boston-based market researcher Yankee Group. The merger, he argues, would be a catalyst for WorldCom to combine the two networks into a seamless whole so telephone calls would automatically be routed through the best and cheapest pipe.
“You can’t really delay this. It is imminent,” Mewada says.
Equipment providers--at least those with a good business in data communications gear--are also excited about the merger possibility.
“It’s a given that you can use the same infrastructure for voice and data, but a lot of the [traditional phone companies] have been holding back,” says Hans Schwarz, a senior vice president at Siemens Business Communications Systems, the Santa Clara, Calif., subsidiary of German telecom giant Siemens. With the merger, he says, “the whole industry will be ready to move a lot faster.”
There are still skeptics. Some argue, for example, that WorldCom, once it is tied to MCI, will be much less willing to make the aggressive moves in the Internet world that it has made in the past, because MCI has a huge investment in traditional voice services.
Because the telephone infrastructure was designed to carry voice, the skeptics argue, it will always do a better job than information-processing networks.
Telephones are also cheaper than computers, the key tool in communicating over the Internet today. Eli Noam, director of Columbia University’s Institute for Tele-Information, argues that it will be at least 10 years before it becomes common for people to make phone calls over an Internet-style network.
By then, Noam argues, it will happen not because the Internet does a better job of handling voice, but because consumers will demand video phones and other multimedia services. When those services are available, service providers will be likely to throw in free telephone calls.
Once quality phone service is available over data networks, says Cisco’s Mendez, corporations will be able to consolidate their various voice, data, fax and Internet lines onto a single pipe for substantial savings.
