The Internet and MCI
Nick DelRegno

Agenda

• MCI’s Internet History
• Data Communications Business
• Internet Developments
  • Internet Telephony
  • Transport Developments
  • Access Developments
• MCI/WorldCom Merger

MCI’s Internet History

• 1969 - ARPANET created
• 1986 - NSFnet created; backbone managed by MCI, IBM and Merit Network Inc.
• 1995 - NSFnet retired; Internet backbone provided by MCI, PSINet, UUNET, ANS/AOL, Sprint, others
• NSF funding very high speed Backbone Network Service (vBNS) -> 2 Gbps

Internet Backbone Bandwidth

• ARPANET/NSFnet -> 56 Kbps
• 1988 -> Upgraded to 1.5 Mbps
• 1990 -> Upgraded to 45 Mbps (NSFnet)
• MCI Today -> OC-12 = 622 Mbps
• MCI Tomorrow -> Gbps +

Internet Services

• Internet Access
  • Consumer: 300+ Cities at up to 56 Kbps
  • Business: 56 Kbps - 45 Mbps
• Business Web Hosting
• Real Broadcast Network - Real-time Media Streaming
• Intranet Services
• Virtual Private Networks (VPNs)
• vBNS

Data Communications Business

Industry Size and Growth Rates
Business Markets

U.S. Data Revenues

Global Data Revenues

Private Lines

• 1997 U.S. Revenue: $10B
  • Growth Rate (95-96): 8%
  • Growth Rate (96-97): 16%
  • Projected Revenue 2001 $16B
  • Projected CAGR (97-01) 13%
• 1997 Global Revenue: $15B
• Gross margins: 60-80%

Key applications:

• SNA Data Networks
• Broadband
• Point-to-point connectivity

Frame Relay

• 1997 U.S. Revenue: $2B
  • Growth Rate (96-97): 106%
  • Projected Revenue 2002 $9B
  • Projected CAGR (97-02) 33%
• 1997 Global Revenue: $4B
  • Growth Rate (96-97): 107%
• Gross Margins: 55-75%

Key applications:

• Enterprise Networks
• Client-server
• E-mail
• SNA Migration

Commercial Internet Access

• 1997 U.S. Revenue: $1.5B
  • Growth Rate (96-97): 42%
• 1997 Global Revenue: $5B
  • Growth Rate (96-97): 98%
• Gross Margins: 60-80%

Key applications:

• Web presence
• Extranets

ISDN

• 1997 U.S. Revenue: $1B
  • Growth Rate: (97-98): 60 %
• 1997 Global Revenue: $3B
  • Growth Rate (97-98): 63%
• Gross Margins: 50-60%

Key applications:

• Remote LAN access
• Video Conferencing
• Dial-up Internet access

ATM

• 1997 U.S. Revenue: $160M
  • Growth Rate (96-97): 154%
  • Projected Revenue 2002 $3B
  • Projected CAGR (97-02) 75%
• 1997 Global Revenue: $267M
  • Growth Rate (96-97): 145%
• Gross Margins: 55-75%

Key applications:

• Broadband access
• Large file transfers
• Multimedia

X.25

• 1997 U.S. Revenue: $1B
  • Growth Rate (96-97): (8%)
• 1997 Global Revenue: $3B
  • Growth Rate (96-97): 1%
• Gross Margins: 35-55%

Key applications:

• E-mail
• Simple transactions

Small Business

• Mostly dial up data
  • ISDN and Asynch, including Dial Up Internet; average of 3 services per company
  • 1< Private Line per company
  • 1< Access T1 per company
• Substantial Web presence
  • 58% of companies have Web presence

Middle Markets

• Highest data services growth area
  • significant demand for value-added services
• Customers leverage the Internet
  • to expand market presence
  • to “level the playing field”
• Leading embracers of virtual data services
  • Frame Relay is “technology of choice”
  • Virtual services are growing fastest in this segment

Large Business

• Intranet/Extranet applications creating new ways of operating; enabling exponential increases in efficiency
  • 92% of companies have a Web presence
• In the process of migrating from private line/SNA to Frame Relay&Intranet/IP

Keys to Success

• Short-term: capacity, Internet capabilities
• Long-term: product breadth, global coverage, integration
• Internal systems support and integration
• Intellectual capital

Internet Developments

IP Telephony Services

Today’s targets

• IP Fax
• IP Voice

Tomorrow

• Voice
• Fax
• Audio/Video
• Data
• On one network

Voice over IP (VoIP) Vendors

• Vocaltec
• Selsius
• Lucent
• Cisco
• Mediatrix
• MICOM
• Netrix
• Others...

VoIP/IPTel Protocols

ITU-T H.323

• Widely used
• Candidate for first stage deployment
• Telco Solution of Choice

IETF Session Initiation Protocol (SIP)

• New Protocol
• Leverages RTP, SDP, UDP, RSVP
• Internet Solution of Choice

IP Telephony State of the Industry

Available

• PC to PC solutions

In Development

• H.323 Gateways
• H.323-based PBXs
• IETF SIP Standard
• SIP Equipment
• SS7 ? Internet Signaling
• Roaming & Number Portability

MCI’s Position

• Evaluate emerging IPTelephony industry
• Participate in related standards bodies
• Deploy when ready and where relevant
• Continue to derive revenue from traditional voice traffic
• Plan merger of circuit switched and packet switched voice networks

Next Generation Transport

Continue to grow existing services

• Frame Relay
• ATM
• Private Lines

Develop new transport mechanisms

• IP over Sonet
• IP over Dense Wavelength Division Multiplexing (DWDM)
• Increase Bandwidth while reducing overhead

Access Developments

Business

• Fiber
• VoIP/VoFR based voice service
• High speed data services

Consumer

• Cable Modem
• xDSL
• Wireless

MCI/WorldCom Merger

• Pro Forma Revenue 1998 - $32 Billion
• Customers - 22 Million
• Employees - 70,000
• International Presence - 200+ Countries
• Local Network Facilities - 102 US Markets
• Long Distance Market Share - 25%
• Internet (MCI/UUNet) - 2000 POPs globally

MCI WorldCom Merger

Nothing Changes

• Continued emphasis on exceptional quality and value in voice
• Continued growth in Internet/Data Communications market
• Expansion into local service market
• Industry leading customer service
• Continue to create significant shareholder value