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March 19, 1996

MCI Answers AT&T's Internet Services Challenge


It's not quite Coke vs. Pepsi, but MCI and AT&T are turning the Internet into a tit-for-tat marketing battle, complete with catchy promotions and breathless claims of low, low prices.

MCI Communications said Monday that it would expand its Internet business by tripling the capacity of its network, offering more consumer services, and giving customers five free hours of use a month through the end of May. MCI's move comes three weeks after AT&T introduced a low-cost Internet service that has generated great consumer response.

Executives at MCI noted that the company had offered access to the Internet for more than a year, mostly to business customers. But after AT&T's debut, MCI seemed to be playing catch-up: In promoting the new service, MCI executives invoked the sort of verbiage the two companies have hurled at each other for years in fighting for long-distance business.

"AT&T seems to be building its Internet service out of newspaper headlines," said Vint Cerf, who has the title of MCI senior vice president of data architecture. "MCI's service is built on a foundation of fiber."

Cerf, who was one of the founders of the Internet, acknowledged that his company's service, Internet MCI, had not made major inroads among residential customers. But with the temporary promotion and an offer of unlimited Internet access for $19.95 a month, MCI hopes to attract the same sort of consumers who have been flocking to AT&T.

More than 200,000 people have signed up for AT&T's Worldnet service since that company introduced it on Feb. 27. AT&T is so worried about overburdening its network that it has delayed the shipment of start-up software to most of those customers as long as a month.

MCI, however, declared that because its network had been up and running for more than a year, it was ready for an onslaught of customers -- no matter how large.

"What's different from AT&T is that we can provide this service, and they can't yet," said Bert Roberts, MCI's chairman, in remarks at a computer trade show in Tucson, Ariz. "We've been at it a year while they've taken about four right-angle turns."

For all the bravado, MCI's strategy is more cautious than AT&T's in at least one respect. AT&T is offering five free hours of Internet use a month for the entire year, while MCI's offer only runs through the end of May. Cerf said MCI wanted to gauge the level of consumer response before it sponsored a longer promotion.

MCI would not disclose how many subscribers Internet MCI had -- saying only that more than two million people had gained access to the Internet through its fiber-optic network. Several other Internet service providers lease capacity on MCI's network to offer their own access.

Greg Wester, director of Internet research at the Yankee Group, a telecommunications research firm in Boston, said MCI's Internet service had reached a plateau of 10,000 to 15,000 subscribers. But Cerf insisted that this estimate was far too low.

He said Internet access already generated $100 million in annual revenue. As part of the company's new campaign, Cerf said MCI hoped to build Internet access into a $2 billion business by the turn of the century.

Several industry analysts, however, said MCI had not presented a clear vision of how its service would appeal to non-business users.

"They'd like to position AT&T as a relative newcomer," said Emily Green of Forrester Research in Cambridge, Mass., "but I don't think that's relevant to the millions of consumers out there."

MCI's content offerings are still under development. The company recently switched its support from an on-line service being developed by News Corp. to a rival service from Microsoft Corp. Monday, though, customers who dialed toll free to order Internet MCI were being offered software with the Navigator browser from Netscape Communications.

Executives at MCI said that Microsoft's browser, the Explorer, would soon be the preferred navigator on its service. The company said it also planned to offer editorial content from Microsoft's on-line service, MSN. MCI said it was open to alliances with other content providers, but was not currently in negotiations with any other company.

AT&T was quick to point out Monday that MCI was responding to its aggressive prices. "I do find it interesting that when we made our announcement in late February, they said they were happy with their prices," said Marshall Ball, general manager of Worldnet.

Both companies now offer unlimited Internet access for $19.95 a month to their long-distance customers. Under MCI's old plan, customers received 20 hours of use a month for $19.95. For non-AT&T or non-MCI customers, both companies charge $24.95 for unlimited use.

MCI is only the latest telephone company which has entered, or expanded, its involvement in cyberspace. Analysts predicted that most, if not all, the regional Bell companies were likely to offer an Internet service.

With as many as nine telephone companies competing, some marketing experts said that Internet-access was rapidly becoming the same as long-distance phone service or other commodity-type businesses. Consumers can thus expect a replay of the long-distance wars that have raged since the government broke up AT&T in the mid-1980s.

"This is going to be a marketing battle, not a technology battle," said Jack Trout, president of Trout & Partners, a marketing consulting firm in Greenwich, Conn., "The companies who will win are the ones who will spend the most advertising dollars."

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