UUnet - Worldcom Invests In Uunet, 1997-2001

WORLDCOM INVESTS IN UUNET (1997-2001)

With WorldCom as its parent company, UUNET was able to offer a pioneering service guarantee promising uptime of more than 99.9 percent for intranet and business-to-business services. The guarantee applied to sites that were connected to one another by the UUNET network. It covered more than 300 locations in the United States and 500 in Europe and Asia.

UUNET received $300 million from WorldCom to upgrade its Internet backbone in the United States and quadruple its capacity. Company officials estimated that the load on UUNET's backbone doubled every quarter, which meant the company needed to increase its capacity tenfold within a year and a hundredfold within two years. UUNET expected to have to spend about $300 million a year on network expansion for the next four or five years. UUNET's principal ISP customers were Microsoft, GTE, EarthLink, and America Online.

In 1997 UUNET began offering global Web hosting facilities to help multinational companies overcome the problem of narrow bandwidth between continents. During the year UUNET introduced IDSL connections, which offered high-speed Internet access over standard phone lines. IDSL provided small and medium-size businesses with direct connections to the Internet at a low cost.

Reliability became an issue for UUNET when two UUNET hubs—in Los Angeles and Tyson's Corner, Virginia—failed. To ensure the reliability of its customer's Internet connections, UUNET introduced a Shadow Support Program that provided a secondary T-1 or T-3 line to businesses. Network administrators could then redirect traffic if there was a line outage or other problem, thus avoiding an interruption of service.

UUNET expanded its global network to nearly 1,000 points of presence in 1997 with the acquisition of NLnet, the leading ISP in the Netherlands. NLnet's 45 points of presence there provided comprehensive local-dial access throughout the country. At the time the Netherlands was one of the top five countries for Internet usage on a per capita basis.

Other services introduced in 1997 included UU-Casting, the first commercially available multicasting service to give Internet content providers a way to reach hundreds of thousands of users without having to invest in their own T-3 lines. Before the end of 1997 UUNET became the first ISP to offer OC-3 service, which provided users with 155Mbps direct access to UUNET's Internet backbone, the fastest speed then available and faster than anything being offered by other ISPs. OCDirect was only offered in the San Francisco Bay area, Washington, D.C., and New York City, mainly to ISP resellers, large Web-hosting services, and large corporate users.

In 1998 WorldCom reorganized into two main divisions to consolidate the acquisition of three other ISPs: ANS Communications Inc., CompuServe Network Services, and GridNet International. One division, UUNET WorldCom, emphasized packaged services, while WorldCom Advanced Networks provided Web hosting, intranet and extranet, VPN, and data security services. UUNET Worldcom was headed by Mark Spagnolo, UUNET's president and COO, while WorldCom Advanced Networks was headed by former CompuServe Network Services president Peter Van Kamp. Both reported to John Sidgmore, WorldCom's vice chairman and UUNET's CEO. Following the reorganization UUNET Worldcom had about 3,000 employees and Worldcom Advanced Networks about 1,700 employees. In November 1998 WorldCom completed its acquisition of MCI Corp. for $40 billion. John Sidgmore became vice chairman of MCI Worldcom and remained CEO of UUNET.

A mid-1999 survey of ISPs by Data Communications magazine revealed that UUNET was the largest, serving 178 of the 500 largest domains. UUNET was also ranked the best overall ISP and received the magazine's User's Choice Award. In 1999 UUNET increased the capacity of its national network backbone and quadrupled its network speed to stay ahead of increasing demand for Internet bandwidth. It also expanded its DSL service to include more than 1,000 points of presence in 850 cities. UUNET strengthened its presence in the Web hosting market by expanding Web hosting centers in San Jose, California, and Washington, D.C., and announcing plans to build seven others, giving UUNET a total of 15 data centers. The overall Web hosting market was projected to grow from $4.4 billion in 1999 to $14.4 billion in 2003, according to The Yankee Group. During the year UUNET also began offering a managed global VPN service called UUsecure, which included network design, construction, management, and monitoring.

In 2000 UUNET upgraded traffic between major hubs in its U.S. network to OC-192 (10 Gbps, or 10 billion bits of information per second) using Juniper Networks Inc.'s new M160 routers. The company also introduced turnkey Internet services to small businesses under its Business Essentials program. Under UUNET's ISP Program, a different set of turn-key Internet services was offered to small telecommunications companies and emerging Internet players that wanted to offer Internet access to their customers or expand their ISP offerings.

During 2000 UUNET invested heavily in building data centers, where application, Internet, and Web-hosting service providers could co-locate their services. The first two data centers of the $1.2 billion program were opened on the East Coast to service demand from New York City. UUNET also upgraded its VPN service to offer both dial-up access service for remote workers and dedicated lines for site-to-site networks. The new VPN service also added wider geographic availability, bandwidth prioritization, and improved service-level agreements (SLAs).

Internationally, UUNET expanded into Latin America by establishing a Latin American regional headquarters in Sao Paulo, Brazil. UUNET's parent company, WorldCom, held a controlling interest in Embratel, Brazil's former state-owned long-distance company. UUNET planned to take advantage of Embratel's infrastructure and presence in Brazil to enter the ISP market there, then expand throughout Latin America. At the time UUNET operated in 114 countries and served more than 70,000 businesses around the world.

Backed by the resources of parent company WorldCom, UUNET will likely continue to expand globally, develop new services, and upgrade existing services to maintain its leadership position as an ISP. Some new services may be developed internally, while others could come from acquisitions made by UUNET's parent company. When WorldCom acquired Intermedia for $6 billion in 2000, it added Intermedia's Web hosting subsidiary Digex to its group of companies. The demand for more speed and more bandwidth among Internet customers will put industry-leader UUNET in a strong position in the future.