UUNet Ripe for the Picking

While WorldCom mitigates and litigates its way through a $3.85 billion accounting scandal, experts focus on UUNet, attempting to access its value and understand its role in the national infrastructure.

by Patricia Fusco Managing Editor of ISP-Planet [July 15, 2002]

The WorldCom accounting scandal has tarnished the company's reputation and could possibly lead it into bankruptcy. Unlike many recent telecom headline-makers, however, WorldCom operates an established voice and data network with significant market share and revenue.

Specifically, WorldCom's UUNet business unit generated $4.7 billion in Internet revenues from access and hosting in 2001, three times more than its closest competitor.

The global backbone operator could be ripe for the picking, although WorldCom Chief Executive Officer John Sidgemore denies any plans to sell off the embattled carrier's UUNet division. But it may not be up to him—such decisions may ultimately belong to the company's creditors.

Based in Washington, D.C., TeleGeography, Inc. has been analyzing the bandwidth, network connections, and annual revenues of major backbone operators on an annual basis since 1989.

Alan Mauldin, TeleGeography research analyst, said WorldCom offers a wide range of Internet services, but its backbone access operation occupies a particularly strong position in the market.

"WorldCom is the largest Internet backbone on many levels including its expansive, international network, large customer and revenue base, and rich interconnection relationships," Mauldin said.

As a result of its global positioning, WorldCom is able to charge a premium for connectivity to its network—an enviable position for any Internet services company, particularly when its rivals are engaged in a price war.

Valuing UUNet and understanding its role in national infrastructure is no simple matter, however. Ferocious competition, rapid network deployment, and turbulent market conditions have made the U.S. backbone market a complex snarl of overlapping networks.

TeleGeography's latest research on U.S. backbone deployments untangles the mess a bit and provides key insight into how WorldCom stacks up against the competition. The report, U.S. Internet Geography 2003, presents an exclusive picture of WorldCom's role. Key findings include:

• WorldCom operates 30 percent of the bandwidth on the 20 largest U.S. Internet backbone routes—more than the next four providers combined.
• WorldCom connects over 3,400 networks throughout the world—Sprint and AT&T each connect less than half as many.
• In 2001, WorldCom accounted for at least 30 percent of the wholesale U.S. backbone access market—three times more than its largest rival.

Speculation is rife concerning the potential breakup of world WorldCom's assets as the company has less than three weeks to decide whether it will pursue bankruptcy or some other type of financial reorganization.

WorldCom has been in talks with its lenders to secure a $5 billion funding package, so interim financing plus a major internal reorganization remains an option for the Mississippi-based firm. Sidgmore has also hinted that the company is considering a potential debt-for-equity swap with bond holders, but no formal discussions have started.

According to TeleGeography, one-third of the weight of the world's Internet traffic rests on WorldCom's future.

— End