Broadband, Narrow Choices

The Net: Who's in Charge?

You've probably heard the Internet belongs to no one, and in many ways that's still true. In fact, the physical Net--the servers it runs on and the backbones that connect them--is far more diversely "owned" than it was a decade ago when the U.S. government and a handful of universities ran the show.

Nevertheless, the wave of consolidation among cable and telecommunications companies over the past two years threatens to change that picture. Here are some of the major deals so far:

• AT&T acquired cable provider Tele-Communications, Inc. in 1999, renaming it AT&T Broadband and Internet Services. AT&T already owns WorldNet, the third largest dial-up ISP in the nation, and the TCI purchase gave it a controlling interest in Excite@Home, the larger of two major cable modem access providers. The other large cable modem access provider, Road Runner, is co-owned by MediaOne Group--a company AT&T plans to acquire.
  
  

• WorldCom has been on a shopping spree, snapping up rival long-distance provider MCI, plus the two largest Internet backbone providers, UUNet and ANS. MCI WorldCom has also announced plans to merge with Sprint--a local, long-distance, and Internet backbone provider.
  
  

• SBC Communications (the parent company of Southwestern Bell) acquired West Coast-based Pacific Bell in 1997. In 1999, SBC became the largest U.S. local phone company with its $61 billion acquisition of Ameritech, the Midwestern Baby Bell.
  
  

As a result of these mergers, AT&T is expected to own the pipeline into over half of all U.S. cable households, though FCC rules will require the firm to reduce its market share to 36.7 percent. And by 2001, we're likely to have only four companies--AT&T, Bell Atlantic, MCI WorldCom, and SBC Communications--controlling 70 percent of the U.S. residential telecommunications market, according to Tele-Trend, a research firm.

The number of players in the traditional Internet backbone market is shrinking, too. Today, the major backbone providers include Cable & Wireless USA, GTE (merging with Bell Atlantic), Intermedia Communications, PSINet, MCI/UUNet, and Sprint. Most of the major network access points, which connect the various backbones, are also owned by communications giants, primarily MCI WorldCom and SBC.

But while Internet backbone ownership is consolidating, the number of alternative backbone providers is growing. Over the last year, the average cost of moving data over domestic or international lines has dropped 25 percent. This is in large part due to long-haul fiber-optic carriers like Qwest and Global Crossing that provide corporations and ISPs with alternate routes. The sheer quantity of new fiber optic lines, combined with optical switching technology that increases how much data can travel over each line, means the cost of bandwidth is dropping for everyone.

At the same time, there's a widespread corporate movement toward virtual private networks that avoid the bottlenecks of the Internet at large by using dedicated, secure fiber networks among corporate branches and supply-chain customers. Satellite services are beginning to beam streaming content directly between content providers and ISPs. And a nationwide network of data hubs is being built to compete with the existing Internet infrastructure.

Thus, despite the spate of recent mergers and acquisitions, a number of competitive pressures have kept the Net backbone market wide open, preventing the dominance of just one company or industry--for now.