Global Internet Dream Teams

Telcos and computer companies are forming international powerhouse alliances

Last week's alliance announcement by set-to-merge British Telecom and MCI Communications Corp. with Microsoft Corp. underscored the point that only powerhouses with both telecommunications and computer networking expertise will be able to stay in the fight.

While there are many notable smaller players, such as BBN Corp. in Cambridge, Mass., and LCI International in McLean, Va., two dream teams have been formed: BT/MCI, Microsoft and Digital Equipment Corp. versus AT&T, IBM and Lotus Development Corp.

These powerhouse arrangements are shaping up against a backdrop of increasing international telecom competition. While no one is sure how the battle will shake out, the emergence of these teams shows how important telecom expertise, a global reach and a concentration of systems integration will be to compete for Internet and intranet market share.

The global telecom market now has three main competitors: Concert; Unisource, which includes AT&T; and Global One, which is an alliance of Sprint, Deutsche Telekom and France Telecom.

Even those groups are adding new members. Cable & Wireless, a British company, is said to be in talks with Global One to form a partnership that would directly compete with Concert.

"The stakes are high here," said Stephen Von Rump, vice president of enterprise marketing at MCI, in a conference call with reporters. "Overall by the end of the decade intranet will make up over half of the Internet market."

Analysts agree that the intranet industry has almost overwhelming promise. The intranet server market is expected to grow from $476 million in 1995 to $7.8 billion in 1998, according to Zona Research, Redwood City, Calif. By contrast, the Internet market is expected to increase from $622 million in 1995 to $1.9 billion in 1998.

Specifically, BT/MCI and Microsoft announced the companies will jointly develop new intranet services that will be based on Internet standards. Concert, which will be the name of BT and Washington, D.C.-based MCI if the merger goes through, will offer networking and Microsoft, Redmond, Wash., will come up with software. A previously announced alliance with Digital, which adds the customer service and support element, gives the Concert group a one-stop-shopping offering.

"With the global presence of Concert, we have the ability to serve as the single point of contact," said Von Rump.

"We have the ability to manage a complete Internet service," said Tom Iannotti, vice president of sales and marketing, multivendor customer services at Digital.

British Telecom and MCI together already carry 40 percent of worldwide Internet traffic. "We own and manage our own network," said Peter Erskine, president and CEO of Concert, in the conference call.

Industry observers have wondered how MCI Systemhouse, an integrator previously called SHL Systemhouse, will play into the plans, especially with Digital in the game. Those involved in the MCI/BT/Microsoft conference call said SHL won't have a direct role in this latest alliance. "MCI is looking for system support," said Iannotti. "This is not an area SHL focuses on."

Iannotti also points to the global stature of his team. "MCI before BT was really a North American provider. They have stepped up to be a global provider."

While the Concert alliance is powerful, a similar grouping of IBM, AT&T and Lotus will also be a heavy hitter. "Companies like AT&T as they form alliances will appear to be significant competitors," admitted Iannotti. This is clearly not a battle one company can fight on its own.

AT&T and IBM have had a long history of partnerships, which include developing interoperable communications products. In March, AT&T said it would integrate Lotus Notes with the telco's Internet service.

The so-called Notes Server is used for electronic commerce. That announcement came after AT&T Network Notes, which was a proprietary collaborative work group product, was abolished the month before. The new service uses Internet protocol. "Notes ... combined with the services offered by AT&T, will enable corporations to move quickly to deploy strategic Web applications," said John Thompson, IBM senior vice president, in announcing the Notes Server alliance.

While AT&T has significant networking expertise, IBM has been building its own electronic commerce system through what it calls "content hosting" on the Internet. Microsoft earlier this month began shipping its own electronic commerce server, known as Merchant Server.

Meanwhile, AT&T has just bought 15 percent of a German telephone company to be formed by Mannesmann AG and Deutsche Bahn AG, which will directly compete with Deutsche Telekom. To further add to the telecom soap opera, Deutsche Telekom just went public in the largest stock offering ever. Telecom companies are consolidating, merging and allying at a rapid pace -- and this is only the beginning.

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