WORLD: Telstra tells FCC - Merged MCI would dominate Net.
19/01/98 ARIANET

By David Molony - Washington DC.
A merged MCI-WorldCom would have an anti-competitive strangle-hold on the Internet, according to international carrier Telstra Corp.
In the first indication of international concern over the implications of the deal for the global information infrastructure, the Australian company has called on the U.S. Federal Communications Commission to reject the merger without first forcing an unbundling of the various elements of Internet provision.
In a formal submission to the FCC, Telstra said it fears MCI-WorldCom would force overseas Internet service providers to pay inflated prices for international links to the U.S. Net backbone.
Analysts say foreign carriers look to the FCC's new chairman William Kennard to ensure that global telecoms liberalization extends to international Internet facilities.
Telstra does not oppose the merger per se, but states "the competitive provision of global Internet services requires at a minimum that the transfer of control of MCI be conditioned upon the agreement by MCI-WorldCom to unbundle and separately to tariff terms and conditions including cost-based rates for certain facilities and services required by Telstra and other ISPs."
In particular, the company wants to see the cost of the international leased line separated from access to MCI-WorldCom's network access points and domestic Internet leased-line infrastructure.
In fact, Telstra said U.S. carriers are already using network control to impose higher rates on the Australian route by insisting on bundled rates for the end-to-end delivery of Internet traffic. The carrier says it is clear from comparison with U.S. domestic Internet operators' rates that U.S. carriers are charging well above cost for international half circuits.
"When U.S. carriers offer a bundled rate, there is a large mark-up on the half circuit at the U.S. end," said John Stanton, Telstra's regional manager Americas. "The (international private lines) included in the bundled rate are the largest cost item in the bundle."
Stanton would not give details of the rates Telstra was paying MCI for Internet traffic delivery.
Officials at the International Telecommunication Union in Geneva confirmed that U.S. carriers' control of international circuits was keeping prices high, especially on Asia-Pacific routes. "Unbundling may help to ensure that there is a more competitive market for leased line resale," said Tim Kelly, head of operations analysis at the ITU.
However, FCC officials said there were alternatives for carriers wanting to deliver Internet traffic into the United States, and the MCI-WorldCom deal did not change this. "There are more than 30 Internet backbone providers in the United States who can provide alternative routes," said an FCC insider. "Telstra's problem is the way they designed their international circuits."
Stanton conceded that there are many backbone providers in the United States. "But we are restricted to using the small number of players with the overall cable capacity," he argued. He said Telstra uses only three U.S. carriers to deliver Internet traffic into the United States, including MCI, which carried more than 50% of such traffic.
Telstra has attempted to share the cost of international line provision by leasing so-called "half circuits" from U.S. carriers. Telstra said the cost should be shared since the Internet traffic flows both ways across the link, benefiting U.S. Internet users as well as Australian users.
But U.S. carriers say most of the traffic is coming into the United States, so they charge more for half circuits leased for Internet access use than for those leased for other services.
"It's true about 70% of international Internet traffic goes into the U.S.," said John Hibbard, Telstra's managing director, international business.
"But I have to buy 100% of the new capacity that's needed. The U.S. gets free use of that infrastructure."
Hibbard estimated that non-U.S. operators would be spending $12 billion - $15 billion on building new infrastructure for Internet access in 2000, of which $3billion-$5 billion would be used to carry outbound U.S. consumer traffic free of charge.
Analysts said U.S. carriers want to use international revenues to subsidize development of their domestic network build costs. U.S. Internet carriers "need international traffic like they need a hole in the head," said Robin Duke-Woolley, consultant at Schema Ltd. in London. "They have all the traffic they can cope with in the domestic market ... and they are using international traffic as a way of paying the heavy costs of Internet build."
An MCI spokesperson said the company would comment on Telstra's submission in due course.
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COMMUNICATIONS WEEK INTERNATIONAL 19/01/98 P3 Source : Reference : _W91998011900008 Company Codes : TELSTRA CORPORATION LIMITED (AUSTR); WORLDCOM INC (USA)Topic Codes : Monopolies & Competition; Legal Issues; Products & Services; CORPORATE NEWSArea Codes : Industry Codes : Data Communications & Networking; COMPUTERS; Telecommunications; TRANSPORT and COMMUNICATION; Computer Services; FINANCIAL and BUSINESSTelecom3 19/01/98 M1 .