CPT reply comments in Worldcom/MCI merger

[James Love <love@cptech.org>]

I wish I could have put more time into these, because I think the
MCI/Worldcom merger is a pretty important issue.  We have asked DOJ to
oppose the merger.  These comments will be filed on Monday with the FCC.

-------------------

           Before the Federal Communications Commission
                   Washington, DC 20554


In the Matter of

Applications of Worldcom, Inc.     CC Docket No. 97-211
and MCI Communications 
Corporation for Transfer 
of Control of MCI Communications 
to Worldcom, Inc.    
	

      Reply Comments of Consumer Project on Technology

The Federal Communications Commission (FCC) should reject the proposed
Worldcom/MCI merger on the grounds that it is anticompetitive.  As
pointed out by several parties in the initial round of comments,
Worldcom and MCI are competitors in nearly every aspect of their
operations, including long distance telephony over the public switched
network (PSN), provisioning of private lines for voice and data, local
exchange service, providing Internet access and backbone transport and
other related services.  The merger will combine two of the four
facilities based long distance companies and give the merged entity
immediate control of 40 to 60 percent of Internet backbone traffic.  The
reduction in competition will harm consumers, and merger will give a
single firm too much power to shape the future of the Internet.

Our comments will be brief.

Worldcom is only the fourth facilities based long distance telephone
company of any national consequence.  The Commission should evaluate the
impact of Worldcom's relatively recent emergence as a facilities based
long distance competitor on the rate of change in prices for long
distance service.  The Commission should specifically determine if
Worldcom destabilized cartel pricing by AT&T, MCI and Sprint, and if
Worldcom's discounts to resellers played an important role in the large
decreases in long distance rates since 1995.

Worldcom's market share was less than 2 percent in 1993, but grew to
nearly 5 percent by 1995 (based upon toll service revenues).  A quick
look at revenues per minute for all IXCs, net of access fees, show a
decline of 3.6 percent from 1993 to 1994, and decline of 7.5 percent
between 1994 and 1995.  Comments from several of the parties in the
first round indicate that Worldcom has become an important supplier of
lines to price cutting resellers.  Entry barriers for facilities based
long distance service are non-trivial, judging in part by the very long
delays before Worldcom emerged as the fourth significant player in this
market.  The merger by Worldcom and MCI would combine the numbers 2 and
4 firms, and change Worldcom's role from an aggressive outsider seeking
to expand its market share to one of the established members of the
cartel.

Even more troubling is the increased control over Internet backbone
traffic.  Several of the first round of comments addressed the fact that
the merger would give Worldcom/MCI from 40 to 60 percent of the Internet
backbone traffic.  Such a huge concentration of critical Internet
infrastructure facilities raises all sorts of alarms.

We are particularly concerned about the ability of a highly concentrated
group of backbone operators to impose (particular) systems of
settlements or other changes in the economic models of the Internet
which suit the interests of Worldcom/MCI, but which may not have been
feasible in a more competitive market structure.

The Internet's astonishing success is based upon the fact the no one
entity has been able to exercise excessive market control.  This merger,
if approved, will change that.

Worldcom, the senior partner in the merger, is the owner of UUNET, a
firm engaged in controversies over Worldcom's very aggressive attempts
to restrict peering, and to raise other barriers making it difficult for
smaller ISPs to survive.  Worldcom predicts the number of Internet
Service Providers will fall from 1,800 in 1995 to less than 100 in two
years. (http://206.65.84.57/investor/keynote/Sidgmore2.pdf) 

We asked persons who are knowledgeable about Internet backbone issues to
identify areas where the larger ISPs currently create entry barriers and
unlevel playing fields, which would be made worse by the merger.  The
following are some of the comments we received:

1.  Operational requirements for new peers that are not required of
existing peers, or holding new peers to higher technical standards. Some
potential areas for unlevel requirements are: packet-counting
architecture, routing protocol architecture, disaster planning and
contingency equipment, and security architecture.

2.  Claiming a public policy of not routing CIDR masks below a certain
length, and holding new peers to this policy.  However, short masks are
routinely routed for existing peers, who are grandfathered in.

3.  Starving new entrants of IP address space to assign to their
customers.  Failure to reallocate scarce address space away from old
peers and evenly among all peers.  This may not apply to backbone
carriers, who probably should be getting addresses from the NIC.

4. Arranging routes between existing peers so new entrants' packets
travel an unnecessarily long path.  Intentional failure to reengineer
routes as new peers connect, producing same result with less liability.

5. Non-disclosure agreements that prevent public price disclosure,
comparison, or advertising.  For instance UUNET's insistence on a
non-disclosure agreement before the prices and terms for a backbone
peering arrangement are disclosed.

6. Lack of independent technical audit data to validate claims of how a
potential new peering arrangement will perform.

7. Pricing a new peering arrangement higher than the rate for existing
peers, then claiming all peering arrangements are custom deals so prices
can't be compared.

8. Refusing to sell available service to new entrants on the grounds it
isn't available, yet selling it to existing peers.  Or temporarily
refusing to sell available capacity at all and waiting for new entrants
to starve.

9.  Selectively selling bandwidth below cost to destroy new entrants. 



For these and the reasons stated by parties in the first round of
comments, CPT opposes the Worldcom/MCI merger.


Sincerely,

/s/

James Love
Director
Consumer Project on Technology
P.O. Box 19367
Washington, DC 20036
http://www.cptech.org
202.387.8030
fax 202.234.5176
love@cptech.org