MCIWorldCom Solidifies Lead in Wholesale

Posted: 12/1998

MCIWorldCom Solidifies Lead in Wholesale

By Jennifer Knapp

Two months after its merger, the MCI WorldCom Inc. combination has rolledout its new
wholesale strategy, solidifying the leadership position of its predecessors WorldCom Inc.
and MCI Communications Corp., which held the No. 1 and No. 2 spots, respectively.

The pair now will effectively control 35 percent of the wholesale telecommunications
market, says Dr. Judy Reed Smith, CEO of Boston-based strategy consulting firm,
ATLANTIC-ACM.

While both companies separately held the top two positions in wholesale market share
for the past two years, MCI has had an "on-again, off-again" strategy toward
resellers and had begun making conscious cutbacks in its wholesale program. The merged
entity, however, will follow WorldCom’s strong wholesale push, rather than continuing
MCI’s premerger downsizing efforts, Reed Smith says.

MCI WorldCom’s stratagem for its wholesale arm is making good on this vision. In
addition to the creation of a new international wholesale division based in Amsterdam, a
domestic wholesale division will bring together the legacy product sets from both
companies. Data and voice services will be handled by separate account teams. The voice
services offerings will be segmented by switchless, facilities-based and emerging markets,
such as Internet and wireless products.

Together, the carriers now have the resources not only to provide focused support for
both data and voice segments, but also to seek out emerging segments and product lines for
resale, says Rick Gibbens, vice president of wholesale marketing.

Wholesale data services include domestic and international private line services, MCI’s
SONET services as well as WorldCom’s Internet and virtual data products, including
asynchronous transfer mode (ATM) and frame relay services.

The company’s wholesale voice services will combine switched and dedicated inbound and
outbound service offerings of each of the companies, including WorldCom’s
"postalized" and Transcend products as well as MCI’s toll-free and Prism 1
services. While the postalized product offers resellers a nationally standardized rate
plan, Prism 1 is priced based on local exchange carrier (LEC) access fees, which vary from
region to region. In contrast, Transcend unbundles LEC charges from transport service. In
addition, Transcend includes a software program that allows carriers and resellers to
examine calling patterns and to audit the LEC charges.

MCI WorldCom also will offer a local resale product announced by WorldCom in May. The
service is still in beta test and is expected to be generally available next year.

Available value-added voice services will include WorldCom’s international toll-free
services and MCI’s Connections cards, debit cards and conference calling services.

Williams Offers Wholesale Switched Services in 1999

By Khali Henderson

History is repeating itself not once, but twice for the Williams Companies, which
reprised in January the carrier’s carrier strategy of its WilTel unit–sold to WorldCom in
1995–and now plans to mirror its move into the wholesale switched services business.
Williams plans to offer switched services to resellers by April 1999.

"Initially when we announced our re-entry into the wholesale telecommunications
business, we did not have plans for switched services," says Ron Harden, vice
president of marketing and business development-network. "One of the first things our
customers asked was for switched services."

Harden says the company will offer a full range of switched voice services, including
outbound, inbound and calling card services. In a saturated switched services market,
Harden says the carrier will set itself apart by offering service over a multiservice
network based on an asynchronous transfer mode (ATM) backbone and by focusing on customer
care. Additionally, he says, the company will remain wholesale-focused and will not
compete with its customers for retail revenue.

Williams plans to install switches starting in June 1999, and will offer switched
services under a resale arrangement until its switched network is built, says Harden,
adding that the company has not yet determined which or how many wholesale carriers it
might partner with.

According to Harden, Williams will install 13 switches in major metropolitan areas over
the next 18 months. Tentatively, switches are planned to cut over in 1999 in Atlanta;
Chicago; Houston; Kansas City, Mo.; Los Angeles; New York; and San Francisco. In 2000, the
following cities are expected to come online: Boston; Denver; Miami; Tampa, Fla.; Seattle;
and Washington.

National Directory Assistance Battle Heats Up

By Jennifer Knapp

In October MCI WorldCom Inc. introduced its national directory assistance (DA) service,
one of the latest offerings in an escalating battle between interexchange carriers (IXCs)
and local exchange carriers (LECs) for lucrative number lookup calls.

MCI WoldCom’s 10-10-9000 national DA service offers dial-around calling, making it
accessible from any telephone in the nation, as well as distinguishing it from other
national DA services that are available only from the service provider’s presubscribed
line. AT&T Corp. introduced in September 1997 its "00" national DA service
for presubscribed customers. The service also is accessible by dialing 1-800-CALL-ATT,
extension #174. A spokesperson for Sprint Corp. said the No. 3 long distance carrier has
opted not to offer a single-number national DA product primarily because it does not want
to try to compete with MCI WorldCom’s dial-around offering.

MCI WorldCom’s and AT&T’s national DA offerings are attempts by the IXCs to take
back the revenues they are losing to regional Bell operating companies’ (RBOCs’) 411
national DA offerings, says Custis Dunn, vice president of Insight Research Corp.,
Parsippany, N.J. Traditional long distance directory lookups, accessible by dialing one
plus the city area code and 555-1212, were offered by IXCs under contract to the RBOCs and
other LECs, such as GTE Corp. Inflated DA costs and LEC aspirations to compete in long
distance markets prompted AT&T and other IXCs to begin outsourcing look-ups to
third-party vendors in 1995. While the cost structure became more tenable, the quality of
the lookups has been criticized as service bureaus did not have access to LEC databases
and often relied on outdated telemarketing lists.

The Telecommunications Act of 1996, however, ordered that LEC databases be made
available to competitors. Fearing even more loss of revenue from competing services as a
result of the new law, the LECs responded by introducing their own national DA services
based on the 411 format used to offer intraLATA (local access and transport area) DA.
Ameritech Corp. was the first to introduce a national 411 DA service in September 1996.
While 411 national DA is not available to every phone in the United States, state-by-state
rollouts from the RBOCs currently are underway.

Early difficulties accessing Bell operations support systems (OSSs) left early LEC
entrants as well as competitors at the mercy of third-party lists. However, GTE announced
in October that its new national DA product is wholly based on LEC data. "One big
difference with our [service] is [that] we are the first phone company in the nation to
use listings that are our own and bought directly from the regional Bell companies,"
says Larry Cox, state manager, public relations for GTE California. "There are no
third-party listings in here," he adds.

GTE’s hesitant entrance into national DA stemmed from the company’s desire to offer a
high-quality service to its customers. Provisions of the Telecom Act have made these
standards easier to meet, Cox says.

The revenues these operator service providers (OSPs) are competing for reached $8.5
billion in 1997, according to Mountain View, Calif.-based Frost & Sullivan Inc.

All the national DA services cost about the same (around 95 cents for two lookups), but
cost may not be the deciding factor on which number callers will dial, analysts say. The
competition now hinges on which number customers will remember.

"From a competitive standpoint, you have to change the consumer’s dialing
habits," says Insight’s Dunn. "This means if you want to find some way to ensure
that callers show up with your DA, then you have to work really hard to get the message
out."

While the RBOCs are getting the message out to their communities through billing
inserts and local press coverage, AT&T’s regional newspaper advertising campaign
caused Bell Atlantic Corp. in September to issue a warning to the IXC saying, "Kill
the ’00’ Ads." The RBOC was concerned that the advertisement, which placed a large
"X" over 411 and 555-1212, implied these numbers no longer could or should be
used.

While IXCs combat the LECs, wireless carriers are attempting to grab a portion of the
DA market share as well. Insight Research projects by 2002, wireless carriers will bring
in $1.5 billion from their DA service offerings. Nearly half of these revenues are
expected to come from enhanced operator services such as reverse search by address,
keyword search and geographical search.

Agent Sues UniDial for $30 Million

By Ken Branson

A sub-agent of UniDial Communications Inc. has sued the Louisville-based reseller for
$30 million, charging that UniDial deliberately misled him to expect a wholesale agreement
and $5 million worth of stock in UniDial after UniDial went public. UniDial, which remains
a privately held company, denies the charges.

David Branch, president and CEO of Pride America Inc. of Sarasota, Fla., filed suit in
the U.S. district court in Tampa Sept. 25. UniDial has not formally responded to the suit,
and a spokeswoman says UniDial was not served formally with the suit until Oct. 15.

Branch says he was a sub-agent of PSI Networks Inc. of Mission Viejo, Calif. A UniDial
spokeswoman says PSI is an authorized agent. Branch insists he dealt directly with UniDial
frequently; UniDial insists it did not deal directly with Pride America, but only with
PSI.

"UniDial lured people like me in with the carrot of a public offering,"
Branch says. "They never intended to make a public offering. Then, last month, they
cut that deal with Williams. It left us all in the cold. It completely destroyed the
momentum of our company."

On Oct. 5, UniDial announced that Williams Communi-cations, the Tulsa-based
communications division of the Williams companies, paid $27 million for a 10 percent stake
in UniDial.

Branch says Pride America is essentially out of business, as the company was an agent
to no other long distance company. Branch says the wholesale deal he expected to close
with UniDial would have allowed him to resell MCI WorldCom’s service with Pride America’s
brand. Pride America had already begun preparations for branding its calling card and
billing system with its own name when, after waiting for six months, UniDial informed him
that it would not make a wholesale agreement with Pride America, Branch says.

Andy McKay, chief operating officer of UniDial, says UniDial decided not to conclude a
wholesale agreement with Pride America "because they [Pride America] did not satisfy
the conditions necessary for UniDial to sign such an agreement, including providing us
with a letter of credit or down payment."

Branch says he did obtain a letter of credit.

According to Branch, UniDial had talked about going public as early as 1996, but the
details were laid out for agents in May of 1997. Branch says J. Sherman Henderson III, the
president and CEO of UniDial, invited him and other agents to attend the Indianapolis 500
auto race that spring, and told them the company would go public with the assistance of
Salomon Smith Barney in the next few months. There followed a series of delays, Branch
says, and the initial public offering (IPO) was never executed.

McKay says his company has discussed the possibility of an IPO with several bankers,
but that UniDial will not go public "when the market, especially for telecom IPOs, is
so uncertain."

McKay also says that UniDial sponsored a race car during 1996 and 1997, and that the
company invited agents to attend races. He also says UniDial has discussed the possibility
of going public with its agents. "But no promises were made, and no specific date was
ever named."

AT&T Plans First-Ever Voice Services Agent Program

By Khali Henderson

Under the influence of channel-friendly leadership of its new CEO C. Michael Armstrong,
AT&T Corp. will debut its first-ever voice services agent program in January 1999.

The AT&T-branded agent program will build upon the one it acquired with the July
1998 acquisition of competitive local exchange carrier (CLEC) Teleport Communications
Group Inc. (TCG), Staten Island, N.Y. The program will offer a full spectrum of local and
long distance voice services as well as data products, according to Alex Walker, national
director for independent sales channels.

New contracts and plans were expected to be distributed in early December following a
trial by a dozen agents during November, Walker says.

The carrier is developing "agent-friendly" systems, such as web-based order
processing and a real-time agent care center for price quote and technical support via
phone. An agent support team of order processing specialists will be put in place to
ensure accuracy, Walker adds.

AT&T also will beef up its existing AT&T/TCG agent training programs from a
three-day "boot camp" to include levels of certification, Walker says. AT&T
will offer agents basic certification in telephony and data services generally as well as
special certification for specific products.

Through the TCG acquisition, AT&T has an existing agent base in more than 20 cities
where TCG has networks. A number of those agents are experienced long distance agents
acquired by TCG in its April 1998 acquisition of ACC Corp. Walker says the addition of the
AT&T branded long distance services is expected to help the company expand that base
"significantly" in 1999.

Ted Shuman, president of agency U.S. Telebrokers, Scottsdale, Ariz., says the AT&T
brand is an attractive option for agents if the price is right. "If we’re having to
sell at 13 [cents] or 14 cents per minute, then the brand isn’t going to help," he
says, adding that although he has not seen the details of the program yet, he has been
told that the pricing for the long distance product is less than 10 cents per minute.
AT&T would not confirm the rate.

Deals

Image: Deals

Resale Coalition Formed to Advance Competition

Resale and facilities-based telecom companies have banded together in Massachusetts to
form Breakthrough Massachusetts, a coalition dedicated to opening local competition.
Members include Covad Communications Co., CTC Communications Corp., Intermedia
Communications Inc., MCI WorldCom Inc., Sprint Corp., USN Communications Inc., WinStar
Communications Inc. and the Telecommunications Resellers Association (TRA).

New Hampshire PUC Grants CTC Petition for Relief

In mid-October, the New Hampshire Public Utilities Commission (PUC) granted Waltham,
Mass.-based CTC Communications Corp.’s petition for emergency relief, ordering Bell
Atlantic Corp. to permit CTC to assume customer service contracts entered into prior to
Oct. 7, as well as to stop charging CTC’s contract customers a termination-of-service fee.

This ruling follows a September decision in CTC’s favor from the New York PUC regarding
the same charges against Bell Atlantic. Similar petitions are pending review in Maine,
Massachusetts, Rhode Island and Vermont.

WorldxChange Completes Private Placement

In a continuation of its financing activities, WorldxChange Communications Inc., San
Diego, has completed a private placement involving the purchase of $30 million in common
stock by Gold & Appel Transfer S.A. and Atocha L.P. The placement follows the sale, in
August, of an aggregate $55 million in subordinate promissory notes to Tel-Save Holdings
Inc., New Hope, Pa.

Citizens, AT&T Sign $54 Million Wholesale Agreement

Stamford, Conn.-based Citizens Communications has formed a three-year, $54 million
network services agreement with AT&T Corp. AT&T will provide Citizens with 1+
domestic transport and termination from its 12-state local service area, as well as some
international traffic.

Telegroup Scales Back Wholesale Services

Pointing to a potential decline in wholesale gross margins, Telegroup Inc., Fairfield,
Iowa, has scaled back its wholesale carrier services business and will defer plans to
deploy an asynchronous transfer mode (ATM)-based network. The company will focus its
resources on its core retail business of providing national and international long
distance services to customers in the United States, Western Europe and Australia.

"Although providing traffic to wholesale customers was a growing part of our
business, our view is that gross margins in this business segment will decline. Therefore,
further investment of capital and management resources is not justified," said CEO
Cliff Rees in a statement. "However, we have developed an expertise to target
profitable opportunities within the wholesale segment and will focus our future wholesale
activities on the most profitable routes."

The wholesale division now will be more margin-driven than revenue-driven, says Gary
Eisenberger, director, North American sales.

ADDS MOVES CHANGES

Julie Hill has been named director of communications for the Telecommunications
Re-sellers Association (TRA). In this capacity, Hill will direct the Washington-based
trade organization’s communications efforts, including public relations, marketing and
advertising.

Dave McCarty has joined Teleflex Systems Inc., Boca Raton, Fla., as a part of
the billing provider’s sales and marketing team. McCarty joins Teleflex from his position
as president of Cybercard International–Cyberlight International’s prepaid calling card
division.

GST Telecommunications Inc., Vancouver, Wash., has appointed Joseph Basile CEO.
Basile joined GST in March 1997 as president and chief operating officer, prior to which
he was chief operating officer for Cable & Wireless.

FCC Names Brown Chief of Staff

Just five months after her appointment as the Federal Communications Commission’s
(FCC’s) Common Carrier Bureau (CCB) chief, Kathryn Brown has been named FCC chief of
staff. Brown’s swift move to her new position at the FCC may be political, Washington
sources say.

Prior to her appointment with the FCC, Brown was the associate administrator in the
policy analysis and development office for the Commerce Department’s National
Telecommunications and Information Administration (NTIA), where she was responsible for
executing the Clinton administration’s implementation of the Telecommunications Act of
1996.

"She’s smart, competent and knows the issues," a source says. "And she
shares the same political agenda as [FCC Chairman William] Kennard and [Vice President]
Gore, who’s widely considered the godfather of most of these telecom issues."

Her new position "could possibly have been a suggestion from the White
House," the source says.

According to an FCC spokesperson, "Bill [Kennard] wanted her for that job."

Lawrence Strickling will replace Brown as chief of the CCB. After joining the FCC in
1997, Strickling served as deputy chief of the CCB as well as associate general counsel
and chief of the Competition Division of the Office of General Counsel.