Capellas Ponders Competition, Economy, Online Privacy

Speaking candidly to a small pool of journalists following his keynote address at NetWorld+Interop in Las Vegas, Capellas, the former chief of Compaq and WorldCom, elaborated on several points made during his speech, and addressed other issues only weeks after MCI emerged from bankruptcy, and one day after it announced the layoffs of 7,500 employees.

Capellas said fierce competition among carriers to reduce the price-per-minute of connection rates had dealt the industry a different paradigm when it came to wooing customers, and that services and quality--not price--were fast becoming the main differentiators for customers when choosing a carrier.

"The low prices mean there are no economics to switching [carriers]," Capellas said. "Now it's services. I think you will see customers saying who [among the carriers] can put applications and networking together?"

As for what types of applications customers will be looking for in the near term, Capellas said, "Security will be hot, managed services will be hot, integration of contact centers with the Web will be hot, global collaboration will be hot."

Capellas said MCI is already seeing customers move away from the rate-per-minute mindset. "Now what you really see is the mindset of the CIO and the IT director change from 'Gee, I want 2/10th of a cent off the rate' to 'What are you doing in these other service areas?' Because the economics are so low that the differentiation is no longer price."

As for the overall economy, Capellas said, "The traditional notion of telecom recovery has been as employment rises, telecommunications recovers. And that is because it is the simplest notion in the world--the more jobs you have, the more phone lines you have, the more phone lines you have, the more data lines you have. We do see employment starting to recover. And I do think like most, and that is that job growth will be slower and it will take time for it to catch up. And there will have to be an extended period of economic recovery before we see the job market pick up, because business is naturally cautious."

Capellas called Monday's announced layoffs of an additional 7,500 MCI employees--made as the company completed the layoffs of 4,500 workers, announced in March--part of the current "economics of the industry."

"The notion of the industry requiring [the layoffs] is sort of a given," he said. "We have been very careful about putting automated tools in. We have been very careful about customer service. You can guess that customer service would be our number one priority. Nobody ever likes layoffs. Our number one criteria when we have to pick this path is customer service. Reliability and customer service, we still believe, are our differentiator."

Coming off a week plagued by the global threat of the Sasser worm--a week that left some analysts questioning the sense of the anonymous Internet user log-in capability--Capellas said that because the capability to monitor Internet users from session start to finish existed, a trade-off between security and privacy would continue to hang in the balance.

"This is an inherit philosophical question. No matter what we do, there is a trade-off between privacy and security. Do you want to do a retina scan when you are going into an airport? Or do you want to do identification of everything on the Web?" he said, adding that although MCI follows the current rules of privacy to the letter, "technologically, we can add multiple levels of security. We certainly can do a tremendous amount of scanning. We go end-to-end, so we can have great visibility into who enters the network, where they enter, where they go. And there is a trade-off on privacy. It's a difficult trade-off for which there is no easy answer. The more you want to be secure, you will make the trade-off in privacy.

"This is the next great foray of where does privacy stop on the Internet. We have the tools. We have an end-to-end network. But these are difficult decisions," he said.