Will OzEmail sale grow MCI's enterprise share?

Will OzEmail sale grow MCI's enterprise share?

MCI claims to have sold OzEmail in order to grow its enterprise and wholesale offerings, though analysts are not so sure.

"OzEmail was and is a good business. It is a powerful brand name. Historically it has performed well. However, the real issue for us is our core business which is wholesale and corporate services," said MCI spokesperson Les Kumagai.

Kumagai said the sale of OzEmail is part of a bigger alignment with the company structure.

"The only other country where we serve the residential market is in the US. All our global operations are enterprise focused."

"Our global strategy is to make MCI the leader in IP services worldwide. We will basically be working from the network layer right up the value stack."

Kumagai said that when MCI bought OzEmail in 1998 it was looking to expand its presence in Australia and New Zealand.

"The OzEmail we bought is a different OzEmail to what we have sold," he said.

"At the time of purchase it had a strong business and government arm and also a strong network infrastructure. These aspects have now migrated to MCI and what we are selling is purely the residential arm and brand name."

Kumagai said MCI will now be able to focus undivided resources on the enterprise market and significantly upgrade IP infrastructure throughout the Asia Pacific.

Telecommunications analyst Paul Budde believes the OzEmail sale makes sense for all sides and that it will open up competition in the broadband market.

"While it is good to have hundreds of smaller ISPs in the country, it is also good to have more than one or two strong players in the market to open up competition. iiNet and OzEmail combined are now positioned as a third player [behind Optus and Telstra] which is great."

Budde believes this large acquisition may be a precursor to further consolidation in the telecommunications space in the next few years, though mostly at the higher end of the market.

"The consolidation will happen at the commodity and access levels where there are lower margins, but there will be increased scope and opportunity for providers with specialization in areas with higher margins such as triple play [video, voice and data], for example."

While the sale is a good thing for the market, Budde is less sure about MCI's plans to grow its enterprise space.

"I don't think the OzEmail sale will necessarily see an MCI expansion in the enterprise market here, rather just business as usual. There is a lot of uncertainty surrounding MCI's future here because of its [planned] merger with Verizon," he said.

"They will have to sort out what is going to happen in the US before they make any changes to their business abroad."

IDC Telecommunications analyst Landry Fevre has similar opinions.

The sale definitely won't have a negative impact on MCI's business, and might not impact much at all, according to Fevre.

"MCI's future in Australia is unclear as we do not know how the merger with Verizon will affect things yet."

Fevre said that the result may, over the longer term see MCI grow its enterprise presence, but this is an increasingly tough market and Telstra is a very dominant player.

"I think the sale is more to do with them coming back from bankruptcy than any proposed expansion in the enterprise space," he said.

Kumagai denies that the MCI merger with Verizon will have any impact on its business in Australia.

"MCI's Australia and New Zealand organization -- like the rest of our international operations - is continuing to operate business as usual now and for the foreseeable future," he said.

"Because MCI corporate policy prohibits comment on rumours or speculation, I can not respond to the analyst's speculative remark ... but it would be interesting to know how that theory was formed."

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