Phone giants view Internet from widely different angles


AT&T; Chairman Robert E. Allen and MCI Chairman Bert Roberts were both given a bully pulpit last week -- the chance to address the heavyweight Networked Economy Conference in Washington at a time when the long-distance industry is in the legislative fight of its life in Congress.

Mr. Allen chose to focus on the telecommunications legislation and new foreign markets. Mr. Roberts decided to talk about the Internet -- a word that did not pass Mr. Allen's lips.

To some extent, Mr. Allen had already made Mr. Roberts' case against the pending telecommunications bills. Still, the speeches revealed something about the attitudes of the two chief executives toward the Internet and why MCI has leaped ahead in the race to exploit its opportunities.

How the leaders of AT&T; Corp. and MCI Communications Corp. view the worldwide network of computer networks is important because the Internet is at a turning point in its existence. Once a digital Eden populated by dreamers, researchers, small entrepreneurs and cranks, the Internet is rapidly becoming a battleground of telecommunications giants.

These corporate rivals include all of the nation's largest long-distance companies and the seven regional Bell companies, but none has been more aggressive in seizing territory than Washington, D.C.-based MCI.

"MCI is definitely moving much more aggressively," said Tom Brennan, senior consultant at TeleChoice Inc. in Verona, N.J. "They're almost staking their business on electronic commerce."

But a quick start is no guarantee of success in what is likely to be a long, drawn-out struggle for supremacy in cyberspace.

"CEO to CEO, Bert Roberts understands what's going on hands down over Bob Allen" said Jerry Michalski, an analyst with EDventure Holdings in New York. "Down in the bowels of the beast, AT&T; might be better equipped."

There is little question that as of now, MCI is placing a higher priority on developing the Internet as a commercial opportunity. During his talk before the conference last week, Mr. Roberts cited the Internet's growth rate of 150,000 users a month, adding that if that pace continues there will be 300 million users worldwide by the end of the decade.

"Even if you wanted to ignore it, you can't ignore it. You have to be a player in the world of Internet," said Mr. Roberts.

In November MCI became the first large telephone company to offer Internet access services to businesses, invading a market previously served by small entrepreneurial companies. In March, opened an "electronic shopping mall" on the World Wide Web, becoming one of the first companies to offer secure transactions over the Internet. It also offered customers use of the Netscape "browser," which has become the industry standard for navigating the World Wide Web, the fastest-growing segment of the Internet.

In May, MCI made its boldest move into the on-line market when it formed a partnership with Rupert Murdoch's News Corp., which set as its first project the creation of interactive products for the Internet. And recently it announced a groundbreaking venture with First Union Corp. of Charlotte, N.C., to offer banking over the Internet without requiring any special software.

John Houser, an MCI spokesman, said that next month the company expects to extend its Internet access service to homes in about 60 cities around the country. "We would like people when they think of the Internet to think of MCI," said Mr. Houser.

While MCI was rushing ahead, button-down AT&T; remained wary of the anarchic Internet, preferring to concentrate on more structured on-line projects. "AT&T; for a long time was very hostile to the Internet, and it's only in the last two years that it's changed," said Anthony M. Rutkowski, president of the Internet Society in Reston, Va.

While MCI was grooming an impressive stable of Internet talent in house, led by Internet co-founder Vinton Cerf, AT&T; was developing "amazingly little" Internet talent, said Mr. Rutkowski.

Thus, when AT&T; finally made its move into cyberspace in June, it formed a partnership with BBN Planet, a subsidiary of Bolt Beranek and Newman Inc. of Cambridge, Mass., to provide Internet connections to its business customers. It was not until last week that it announced the first three customers of its access service.

Mike Miller, an AT&T; spokesman, said the company plans to begin field testing its dial-up access service for residential customers by Oct. 15. Like MCI, it has licensed the Netscape software and plans to offer a variety of enhanced services.

AT&T;'s move into Internet services was more a reaction than an initiative.

"We were really, like in a lot of things, being led by what we heard from our customers," said Mr. Miller.

There's a consensus in the industry that AT&T; made the right move by teaming up with BBN Planet, a company rich in Internet expertise, but the partnership hasn't erased doubts about AT&T;'s commitment to the market.

Clyde Heintzelman, chief operating officer of Beltsville-based Digital Express Group, said he was not impressed by AT&T;'s investment of $8 million in BBN Planet or its agreement to sell $120 million in Internet access lines over three years.

"An $8 million investment for AT&T; is nothing. They spill more than that every day," said Mr. Heintzelman, whose company will compete with AT&T; in the Internet access market.

But analysts warn that even if AT&T; was slow, it is still AT&T; -- the most formidable brand name in U.S. telecommunications.

"They're in the market relatively late but not too late. The scale of what they want to do is pretty ambitious," said Mr. Michalski, who praised AT&T;'s deal with BBN as "a great move."

hTC One advantage AT&T; will have is that, except for MCI, few of the major players in telecommunications are much farther along than it is.

Sprint, for instance, has been a major provider of Internet "backbone" connections to Internet access providers for many years, but so far it has announced no plans to step out of its wholesale role in order to provide services directly to customers. Robin Carlson, a Sprint spokeswoman, said the company has assembled an internal task force to decide whether to expand its Internet role.

Mr. Brennan said that of the seven regional Bell companies, three have moved into the Internet access business -- Chicago-based Ameritech, San Antonio-based SBC Communications and California's Pacific Telesis. He said Pac Tel has raced far ahead of the others by forging a partnership with Ascend Communications to provide service to business customers and is moving into the residential market.

Bell Atlantic Corp., the regional Bell that serves Maryland, has so far been quiet on the Internet front. At the Networked Economy conference last week, Chairman Raymond Smith said only that Bell Atlantic plans to "bundle" Internet service with other telephone services at some time in the future.

"Bell Atlantic has a reputation for being pretty advanced, but I don't see it," said Mr. Michalski, adding that the company's intense focus on providing video services might have distracted it from opportunities on the Internet.

Mr. Heintzelman noted that the regional Bells are legally forbidden to carry traffic across long-distance lines in their regions. That prohibition would be lifted if a telecommunications deregulation bill passes, but until then they will be hamstrung in their efforts to compete, he said.

Still, Mr. Heintzelman argues that the Bells would be wise to form partnerships with access providers and start learning the business now.

But for now, it's MCI that is clearly the leader among the large Internet players that are challenging the on-line services and access providers that currently dominate the market for Internet connectivity.

In his speech Tuesday, Mr. Roberts said MCI was committed to an "open system" as opposed to a proprietary on-line network. "If you can get to the 'Net, you can get to us," Mr. Houser explained.

Mr. Houser said MCI is signing up new retail companies almost weekly for its MarketplaceMCI "mall" and is increasing the customized services it is offering to businesses. As of Oct. 1, it will be offering residential Internet access as a local call for $9.50 a month for five hours of service and $2.50 an hour above that. Ultimately, he said, it's likely that MCI will bundle Internet access with long-distance service and use it to attract customers.

But Josh Harris, chairman of Jupiter Communications in New York, said he's no more impressed with MCI's game plan than he is with AT&T;'s. He said AT&T; has so far shown a "black thumb" with its on-line ventures and that MCI essentially agreed to hand $2 billion to Mr. Murdoch to invest for them as he wishes.

Mr. Heinztelman agrees, contending that MCI was thoroughly outnegotiated by the wily Mr. Murdoch. And he said he's been able to compete with MCI's offerings by offering lower prices and salespeople who are Internet specialists.

So bring on the giants of the industry, Mr. Heintzelman said.

"Bigness gives you deep pockets, which they have," he said. "But bigness gives you millstones around your neck when it comes to corporate fleet-footedness."

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