WorldCom sets UK phone sector buzzing

In the wake of sealing its $37bn bid for MCI and thus stealing MCI out from under the nose of BT two weeks ago, WorldCom, the upstart American telecoms company run by former basketball coach Bernard Ebbers, is storming into Britain.

"The buzz is incredible," said WorldCom's full-page recruitment ads in the British computer trade press last week. The hint was obvious - now that WorldCom has dramatically raised its profile in the UK it intends to take advantage of the fact and invade BT's home market.

In two years WorldCom has already come from nowhere to become a major contender in the juiciest segments of the UK market. The latest Oftel figures show WorldCom snapping at Cable & Wireless as the third-ranked provider of international calls. In the first quarter of 1997, WorldCom had an 18.1 per cent share of international business calls from the UK, up from 16.6 per cent the previous quarter and 15.7 per cent the quarter before that. "Pretty bloody good going," says David Roffey, telecom consultant at PA Consulting.

How do you become a player in a market where telephones are ubiquitous? WorldCom's answer was to acquire and build small, high-tech networks and target the most profitable customers. "It's primarily about being fleet- of-foot and keeping prices down," Mr Roffey said. "It's about relationship- building rather than technology."

Although no slouch with technology, WorldCom would agree. When it arrived in the UK, it set about converting premium city office space at Fleet Place, opposite the Old Bailey, into a telephone exchange. Physically the 2m-high ranks of switching equipment could be sited anywhere. But WorldCom wanted to show its first customers, mainly City firms needing high-speed links for computer and video screens, that it offered more than a sharp sales team.

The formula worked. WorldCom arrived in 1993 with one employee, and now has 750 positions. "Not all are filled," says Mark East, international marketing manager. Mr Ebbers' payroll in the UK also includes 200 people working for the Internet company UUNET, acquired last year. About 20 per cent of the staff work in sales.

According to Eric Owen, telecoms analyst with International Data Corporation (IDC), WorldCom has made an impact in three areas:

q International calls. This was the core business. If approved, the MCI link will create new opportunities for deals between Europe and the US. The company says that, by April 1998, a seamless, fibre-optic network owned and managed end-to-end by WorldCom will stretch from Paris to Los Angeles.

q City-centre fibre networks. The acquisition of MFS Communications last year gave WorldCom a broadband optical fibre network stretching 140km from Stratford in East London to Uxbridge in the West.

q Internet "backbones". WorldCom's 1996 takeover of UUNET (known as Pipex in the UK) made it a major player in the infrastructure that links Internet service-providers (ISPs, in the jargon). While this is a low-margin commodity market, it is growing quickly. IDC estimates that the number of Internet access lines for business is growing at 38 per cent a year. But this figure under-estimates traffic: most new lines are broadband digital, which can handle several users at once.

The question is how long WorldCom can sustain this growth. One hope lies in 0800 freephone numbers. Companies offering freephone services can now switch to another telecoms operator while keeping the number. Harrods already buys its 0800 numbers from WorldCom. The hope is that this market will explode along US lines, where 60 per cent of all long-distance calls are on freephone numbers.

The second growth area is in data communications. Today, 80 per cent of WorldCom's revenue comes from Pots (plain old telephone services) and 20 per cent from high-speed data. "I can see that turning through 180 degrees within a few years,"says Mr Weeks.

Finally there is the consumer market, graveyard of so many hopes. The company's strategy is to rely on resellers rather than selling directly. A decade after the market was liberalised, BT is still supreme, with at least 90 per cent of the market.