Marketing Expenses Hike Network Service Costs

NEW YORK (05/11/2000) - If the cost of network services seems high, you can blame that on the amount of money spent selling it to you. At least that's the case at MCI WorldCom Inc., according to Vice Chairman John Sidgmore.

Sidgmore shared this insight last week at the BusinessWeek e-Networks conference in New York, where MCI WorldCom sponsored an event aimed at corporate CEOs and chief information officers.

Sidgmore claimed 49% of the telecom giant's service costs to customers can be traced back to marketing. In contrast, 34% of cost stems from paying local-access charges, 11% for operational support systems and 6% for switching and transport equipment.

"Everyone assumes network cost is connected to technology," Sidgmore said. "But it's all selling and marketing."

Marketing is not the only hidden cost: "It also costs twice as much to bill the service as it does to provide it," he said.

Despite MCI WorldCom spending an enormous amount of money on print, TV and phone marketing, Sidgmore said he is dissatisfied with the results. In the future, as more people are connected to the Internet, MCI WorldCom intends to place more emphasis on getting consumers and businesses to look at Web advertising, which could be less expensive, he said.

Sidgmore is also hopeful that one day advertising will be pushed out to customers carrying the new generation of Web phones.

That might not happen for some time. Sidgmore pointed to recent data from Morgan Stanley Dean Witter & Co. which found that only 27% of families in the U.S. regularly use the Internet. "The myth is that everyone is on the Internet, while the reality is that hardly anyone is on the Internet," he said.

Sidgmore told the audience he spends half his time trying to convince regulators to let MCI WorldCom operate around the world. Regulatory agencies tend to treat MCI WorldCom as a dominant player after acquiring 75 companies in the past few years.

"Thank God for Microsoft (Corp.)," Sidgmore said. "If it weren't for Microsoft, we would be the most hated company at the Justice Department."

MCI WorldCom's vice chair ended his keynote address on an upbeat note.

"I really believe that 40 years from now, everyone will look back and say this was the Golden Age of communications. We're lucky to be part of it because it doesn't get any more exciting than this," Sidgmore said.