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RealTime IT News

Will WorldCom's Woes Engulf UUNet?

Holding court yesterday with reporters after a terrible week for his company, WorldCom CEO John Sidgmore made clear the company was too big to fail. Exhibit No. 1: its UUNet subsidiary, an Internet backbone provider that routes over half of the world's e-mail messages.

While admitting a WorldCom bankruptcy is a real possibility, Sidgmore vowed UUNet would remain steady.

"I honestly don't think that under any of the scenarios under discussion there'd be a blip in the level of the service," he said. "I don't see any chance of the UUNet network going dark, under any circumstances."

Founded in 1987, Fairfax, Va.-based UUNet holds the distinction of being the first commercial Internet service provider (ISP). Its Internet network currently spans more than 2,500 PoPs in North America, Europe and Asia, boasting over 1.6 million modem ports. As the largest backbone provider to ISPs of all sizes, including AOL and EarthLink, UUNet is key to the Internet's inner workings. However, with the telecom industry's long instability, ISPs have hedged their risks with multiple backbone providers, analysts said.

"It's fair to point out to that the big bandwidth providers have hedged their bets really well," said Seth Libby, an analyst with Yankee Group.

Libby said, despite WorldCom's peril, UUNet would remain the undisputed backbone leader, with an impressive record of delivering high-quality services.

"UUNet's customers will continue to stay with UUNet," he said. "I don't think there will be an interruption of service to existing customers."

Sidgmore, who took the CEO reins two months ago from longtime WorldCom chief executive Bernie Ebbers, knows UUNet quite well. From 1994 until 1997, he headed UUNet, building it into the world's largest Internet provider with an annual revenue base of $300 million. During its acquisitions binge, WorldCom acquired UUNet through its $12.5 billion deal in 1996 for MFS Communications, which had bought UUNet for $2 billion months earlier. (IDT Corp.'s reported $4 billion bid today for WorldCom's MFS unit would not include UUNet.)

"My opinion is that being from UUNet he would work very hard to preserve it," said Giga Information Group analyst Lisa Pierce. "But none of us know what the bankers have in mind."

Pierce and other telecom watchers said bankruptcy would not be a catastrophic situation for UUNet, since the industry is littered with bankrupted companies, from Global Crossing to Williams Communications to XO Communications.

"If you're the first kid on the block with a Mohawk, you might be a little nervous," said Probe Research Chief Operating Officer Allan Tumolillo. "But if everyone has a Mohawk, you're OK."

However, analysts warn the instability at WorldCom could spill over to UUNet. WorldCom has already announced 17,000 layoffs, and Sidgmore said market conditions could lead to more cuts, although none were planned.

"The concern is more slippages in network service and customer support," Pierce said. "Those are reasonable concerns. Can you imagine cutting 20,000 people and not impacting service?"

Tumolillo echoed those concerns, adding that bankruptcy, depending on how WorldCom would file it, could present its own set of complications, making expenditures for network upgrades susceptible to a judge's approval.

While Sidgmore picks through the 75 acquisitions WorldCom made during the heady days of the late 90s for the ones with the most value, UUNet would be one of WorldCom's most attractive assets, analysts said.

"UUNet stands out as one of the jewels in its crown," Libby said.