Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.
Nothing’s the same at WorldCom. There’s a new CEO, a new board, a new senior management team, even a new de facto headquarters. Obviously there’s also a new commitment to ethical management practices. The company is talking openly about “a top-to-bottom restructuring of the company.” I’m sure this includes close examination of all businesses, all target markets, all products, all assets, and all operations.
But one thing hasn’t changed. The company’s core competitive strength is in its ability to serve the world’s largest businesses. WorldCom had better figure out how to defend this strength, or the company won’t be worth saving.
The WorldCom story has been told many times. A small company in Mississippi selling cheap long distance to consumers and small businesses, through a series of dozens of acquisitions, became one of the world’s largest corporations. Along the way, Bernie Ebbers and team piled up a very impressive array of assets: the world’s largest Internet backbone, the most extensive global communications network, the greatest global collection of local fiber networks, the nation’s second largest collection of consumer long distance customers, a portfolio of strategic business customer relationships, and an army of talented employees to operate these assets and serve these customers.
However, these strengths are under tremendous attack. You’ve heard of the supposed fiber glut and the very real commoditization of bandwidth which has significantly devalued WorldCom’s network assets. You’ve watched the Regional Bells’ relentless march to dominate the consumer telecom landscape. And you’ve seen the decimation of WorldCom’s valuable workforce in response to its financial tragedies.
But there’s a stealthy threat that hasn’t caught the headlines. WorldCom’s ability to overcome this challenge will determine whether or not the company survives.
WorldCom can, and should, surrender the consumer marketplace. Any talk of reverting to the glory days of MCI is foolhardy. MCI was fundamentally a consumer-focused company and the Telecom Act of 1996 has unwittingly ceded the consumer marketplace to the Baby Bells.
WorldCom can, and should, surrender most of their network assets. The new networks built (nearly for free, thanks to bankruptcy proceedings) by upstart companies like Global Crossing, Genuity, and WilTel operate at such a fundamental cost advantage that it’s cheaper for WorldCom to buy capacity than it is to operate their own networks. The company should find a buyer for many of these assets while it’s still in a strong enough position to negotiate sweetheart relationships that can be leveraged into long-term strategic advantages.
But the one asset that WorldCom had better find a way to defend is their high end business customer base. The Bells are claiming to own these customers, but only WorldCom and AT&T have developed truly strategic telecom relationships with these companies. These customers demand customized solutions that can be delivered everywhere that they operate. A “regional” Bell, by definition, struggles to meet these needs, and the upstart network operators lack the depth of capabilities and range of products and services required to assemble the complex solutions being demanded.
These customer relationships are the one gem worth defending, and it would appear that WorldCom’s position is unassailable. However, the core foundation of these relationships is starting to crumble, and there’s a new set of competitors tunneling up from within to steal this treasure.
For the past decade, the fundamental definition of telecom has been changing. Ten years ago, the vast majority of telecom spending and traffic was for voice communications. Computers existed in a separate world, managed by a separate corporate division, operating with a separate budget, and controlled by separate decision makers. However, since that time, local area networks have become global networks, data traffic has far surpassed voice traffic, and a company’s computer network connectivity has become the most critical aspect of their communications infrastructure.
Along the way, the telecom concept of “demarcation” has become obsolete. Traditionally, the telephone company defined a point at which their responsibility for the network stopped and the customer’s responsibility began. With computer networks, especially the Internet, this distinction is meaningless. If a service provider doesn’t understand my internal computer networks, then I can’t trust them with my global computer networks.
And WorldCom doesn’t understand internal computer networks.
They used to. MCI had purchased a company called SHL Systemhouse and WorldCom became owner and operator of this global computer consulting business upon acquisition of MCI. But Ebbers and team had no interest in it and quickly sold it to EDS.
And now, EDS and IBM are positioned to shut WorldCom out of their most lucrative accounts. There’s no essential component of WorldCom’s solution set for large corporations that EDS or IBM couldn’t either duplicate using newer and cheaper technology, or lease for cheap from a commodity provider. IBM and EDS already have the strategic customer relationships. They’ve been beefing up their capability sets by picking up distressed operations. All that’s left is to turn their attention on completing the telecom service set and they could be unstoppable.
WorldCom needs to act fast. The company needs to find a credible way to move beyond the mythical “demarc” and start taking data center share from EDS and IBM. Obviously, a company in bankruptcy doesn’t have financial currency, but there are a number of assets not worth saving that could finance the acquisition of computer management smarts.
The company’s ability to turn on this dime could be the opportunity for WorldCom’s new management team to prove their worth and readiness.
If the company is unwilling to get smart in the corporate data center, then the best move may be to sell its high end customer base to IBM. But then again, I don’t know what that would leave as a sustainable business for WorldCom.
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Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over a dozen years in the telecom industry, serving in many technical, marketing, and strategy roles. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through Business Reform’s online services.