The $129 billion (€123 billion) offer which MCI/WorldCom has made for US telecoms rival Sprint should ultimately lead to cheaper rates for Irish customers, WorldCom's managing director in Ireland has said.
Mr David Hughes said MCI/WorldCom was missing a wireless element to its business and the acquisition - the largest business deal ever contemplated - would provide this. The rise in mobile telephony and the development of wireless devices that connect directly to the Internet have prompted MCI/WorldCom's move.
Mr Hughes says MCI/WorldCom currently delivers its traffic to customers in the US over fixed lines. Sprint, a rival long distance carrier in the US, will also bring wireless infrastructure and expertise to the deal. Wireless technology can be a much more cost-efficient way of transmitting data, says Mr Hughes.
The US is the second most significant destination for telecommunications traffic from Ireland. "Irish customers will be sending data, Internet or voice traffic to the US. I think the biggest benefit to the consumer will be our reduced cost base in terms of voice and data products, because we will be terminating traffic back into a much more significant network, using a combination of fixed and wireless infrastructure."
MCI/WorldCom, which will be renamed WorldCom, is renowned for being acquisitive - it snatched MCI from under the nose of British Telecom more than a year ago - and is also noted for being strong on costcutting. It is predicted that the merged companies will make annual cost savings of $1.9 billion in 2001 and up to $3 billion by 2004.
The merger, which will make WorldCom the second biggest telecommunications company in the US with a market capitalisation of $230 billion, will also provide "an expanded product set" which can be offered in Ireland, according to Mr Hughes. However, he notes that it will take at least 12 months to get all the necessary regulatory approvals for the deal.
WorldCom began life in Ireland four years ago as TCL Telecom, later becoming WorldCom and then MCI/Worldcom following completion of that merger last year. The company has about 1,500 customers and concentrates on the corporate market. It provides high speed data, voice and Internet services. The company has laid an 18kilometre fibre ring around Dublin and has a national infrastructure, using third party carriers, which in turn delivers WorldCom customers' traffic to the US company's global network.
One would think that a company as big as WorldCom would consider Ireland small-fry in the global scheme of things. Mr Hughes disagrees. It thinks its "great", he maintains.
"WorldCom has a lot of what we call `big end' customers. What happens is one of our counterpart companies in the US or Britain is selling services into a big multinational who have a presence in Ireland and we just have to service their needs locally.
"Ireland has such a high concentration of big companies - particularly of US multinationals - that we are in the very fortunate position of having business referred into us," he says.
Mr Hughes says IDA Ireland has done an excellent job in attracting overseas companies and that the State is also seen as being very e-commerce friendly. He believes there is some confusion about what creates an e-commerce environment. "Naturally providing broadband connectivity is part of it and having the right kind of service providers in the marketplace is part of it," he says.
"But the entrepreneurial mentality of Irish business people has been much more encompassing of the benefits, and has been much more able to recognise the potential of e-commerce technology.
"I think Ireland is miles ahead of some of the more developed and bigger marketplaces," he adds.
He says when he talks to his WorldCom colleagues overseas, they cannot believe the amount of e-commerce development which is taking place. He points out that the Republic is not in the most ideal geographic position, nor does it have a really strong indigenous industry. "What we do have is a very highly qualified workforce with a very strong business/entrepreneurial ethic. "I think it is now well-recognised that Ireland's geographic position should in no way be a hindrance to running a successful international company. And I think e-commerce is just a massive facilitator of that." WorldCom currently employs 110 people in Ireland - Mr Hughes was in fact the eighth employee four years ago - and this figure will rise to 140 by the end of 1999. The company expects to employ 200 by the end of 2000.
Mr Hughes says the company will roll out more fibre next year, covering business parks in Dublin such as Clonshaugh, Citywest and Sandyford. The company is also considering providing its own fibre in business parks in Limerick, Shannon, Cork and Galway and will spent up to $20 million, with a further £5 million to £10 million (€6.35 million to €12.70 million) buying capacity from suppliers such as Global Crossing.
"At present we have no plans to put a national network connecting urban or rural centres to Dublin. However, we are in discussions with other parties . . ."
He says that because there are so many parties providing infrastructure it is leading to more co-operation between so-called competitors.
"There is a degree of reciprocal business and at times it makes sense to open up your plans to someone else - and say this is what we are thinking of doing, do you want to join in to cut costs?"
Mr Hughes says WorldCom is very focused on the corporate market and stresses that although the company has a US parent, it is staffed by Irish people. It sees itself as the next biggest alternative provider after Esat Telecom.
Esat, he says, is extremely competitive, but the two companies do some business together.
In common with other providers, Mr Hughes says WorldCom will focus more on the small and medium enterprise sector, known as SMEs. These will not be consumers of advanced services such as ATM, but they do want good, reliable broadband, voice and Internet services.
He says voice telephony is becoming very much a "price commodity - margins are becoming very tight". However, data and Internet-related services are "more margins friendly" and this is where the growth is, although, he adds, it is still very competitive.
On Internet developments, he contends that the freeserve model (where using the Internet is subscription-free) is "changing the whole arena". This only allows the Internet provider to make money on the revenue it receives from interconnect rates from Eircom or from calls to the providers' help desks.
However, Mr Hughes says WorldCom provides services to other Internet providers.
"We are seen as the ISPs' ISP, so we are somewhat protected from the volatility of the freeserve model and the fact that those ISPs have to come to us for bandwidth."
The increasing number of infrastructure providers in Ireland is welcome, Mr Hughes says. However, he is critical of Eircom which, he claims, is still very slow to provide leased lines or circuits. He says once ordered, the delivery time involved in getting circuits varies wildly and has even reached as much as 26-30 weeks. "We can't tell our customers when we can expect delivery," he says, adding that the situation can result in lost revenues for his company.
He says the Office of the Director of Telecommunications Regulation (ODTR) is due to introduce what is known as a service level agreement (SLA) next month. This will set out performance targets for delivery and service which Eircom must abide by. However, Mr Hughes maintains the fines (£500-£1,000) which can levied if performance is not up standard, are not a sufficient deterrent.
He forecasts that WorldCom will grow its business in Ireland by 125-150 per cent next year. The company should be generating $100 million-$150 million in annual revenues by 2004, taking 5-10 per cent of the Irish telecoms market. This is in line with targets set for other WorldCom subsidiaries. WorldCom's Irish operations, he adds, are currently profitable "at the gross margin level" and will become earnings positive in 2000-2001. At present the company is not yet being driven to make a profit locally.
"We should be earnings positive by 2000-2001," he predicts.
