Founded in 1987, UUNET is recognized not only as the first commercial Internet service provider (ISP), but it is also the world’s leading Internet carrier. The company provides a comprehensive range of Internet services to more than 70,000 business customers worldwide, including Internet access, web hosting, remote access, virtual private networking (VPN), managed security, and multicast services, among others. It owns and operates one of the most widely deployed IP networks in the world, with more than 2,500 POPs (points of presence, or primary Internet connections) providing Internet connectivity in more than 100 countries. UUNET’s parent company, WorldCom Inc., is one of the world’s largest telecommunications companies.
A Pioneering Internet Service Provider: 1987-94
UUNet Technologies Inc. (UUNET) was founded in 1987, and in 1988 it sold the first commercial connection to the Internet. For the next several years UUNET would be a pioneering Internet service provider (ISP) and offer innovative services. In 1992 UUNET developed the first commercial application–layer firewall services for IP (internet protocol) networks. In 1993 UUNET began offering T-1 connections to the Internet. In 1994 UUNET designed and installed the first virtual private network (VPN) service, the Virtual Private Data Network (VPDN) product family. The company also began offering web hosting services by joining forces with electronic publisher Interse Corporation to provide companies with a turnkey solution for putting their businesses on the Internet. The service included a T-1 connection, offered at two different speeds, from UUNET, and Interse’s World Wide Web server. Interse would also build the company’s home page using HTML (hypertext markup language) and design an interactive, multi-tiered, and graphical presentation. In 1994 John Sidgmore became UUNET’s CEO and president. He was formerly president and CEO of CSC Intelicom.
Providing Internet Access and Other Services to Corporate Customers: 1995-97
In early 1995 Microsoft Corporation was busy preparing its Microsoft Network (MSN), which would be offered with the release of Windows 95. UUNET provided Microsoft with a dedicated TCP/IP network that would allow MSN users to have dial-up access to both MSN and the Internet. UUNET would provide MSN users with a variety of high-speed service options, including ISDN and 28.8K-bps (bits per second) modem access. Microsoft planned to offer full access to the Internet by the end of 1995. At the time UUNET had 25 points of presence and planned to have 100 connections in place within a few months. According to one analyst, UUNET was a good choice for Microsoft, because it had more expertise than telephone carriers about Internet protocol network management. Microsoft also took a minority interest in UUNET, with the funds to be used to expand UUNET’s 25-city dial-up network, and also gained a seat on UUNET’s board of directors.
UUNET completed its initial public offering (IPO) in May 1995. The stock was priced at $14 a share and raised more than $50 million. Two other ISPs–Netcom On-Line Communications Services Inc. and Performance Systems International (PSINet)–also had their IPOs that month, and all were well received by Wall Street. By July UUNET’s stock was trading in the $45 range. Although none of the companies had shown a profit, investors were betting on their potential for explosive revenue growth in the coming year. At the time of UUNET’s IPO, Microsoft owned about 15 percent of the company. As it turned out, UUNET’s revenue for 1995 was $94 million, compared to $12.4 million in the previous year.
While UUNET had a smaller network than competitor Netcom On-Line Communications Services Inc., UUNET was focused on the corporate market, while Netcom was targeting the consumer market. The corporate market for Internet access was expected to grow more quickly, with the consumer market set to explode toward the end of the 1990s. The corporate market gave UUNET higher revenue streams, bigger margins, and a more reliable customer base. UUNET also offered premium services, such as network management and security, for which it could charge more. UUNET’s corporate clients included America Online and AT & T as well as Microsoft, for whom it built Internet backbones. UUNET was not ignoring the consumer market, though, and most ISPs were pursuing a hybrid business model for both the corporate and consumer markets. UUNET was in the process of building out its network and adding points of presence.
In May 1995 UUNET introduced its Internet firewall and an encryption system for sending private data over public networks. The package included LanGuardian, a hardware-based encryption system, and Gauntlet, an application gateway firewall. It would allow workgroup users to create a virtual private network (VPN) over the Internet, thus facilitating collaborative development.
Later in the year UUNET introduced T-3 and SMDS (Switched Multimegabit Data Services), with pricing for the T-3 service starting at $5,000 per month. T-3 service was initially available in seven U.S. cities. The SMDS option was a public-switched data offering from the regional Bell operating companies (RBOCs), which allowed users to connect to UUNET’s Internet backbone for around $1,500 a month.
UUNET’s two principal services were leased-line connections for businesses under its AlterNet program and dial-up access through its AlterDial program. AlterDial was expected to have 130 points of presence by the end of 1995. In November 1995 UUNET and Premenos Corporation entered into an alliance to build a system for electronic data interchange (EDI) over the Internet. EDI was seen to be a key element in business-to-business electronic commerce. Premenos produced a popular EDI software suite that enabled confidentiality, data integrity, user authentication, and built-in security. In 1996 UUNET began offering more services related to electronic commerce over the Internet. They included end-to-end security, FTP (File Transport Protocol) hosting, dedicated servers that companies could lease for processor-intensive tasks such as graphics applications or web-based compilation, and improved reporting capabilities. By early 1996 UUNET was refocused on the corporate market, letting other ISPs such as America Online and CompuServe concentrate on consumers. With 1995 revenue of $94 million, UUNET was the largest player in the industry.
New Owners for UUNET: 1996
At the end of April 1996 it was announced that MFS Communications Inc. would acquire UUNET for $2 billion in stock. MFS Communications paid a 37 percent premium over market value for UUNET, making 40 of UUNET’s 700 employees who owned UUNET stock millionaires. MFS Communications was based in Omaha, Nebraska, and offered local and long distance telephone service in New York and nationwide. It had built fiber-optic cable connections to 7,400 buildings in key financial districts in the United States and Europe. Together, the two companies would be able to offer end-to-end voice, data, and Internet services. Following the announcement UUNET extended its AlterDial service to 92 international cities.
In mid-1996 UUNET picked up GTE as a corporate customer when GTE introduced GTE Internet Solutions, which used UUNET’s existing network to offer Internet access service in 250 cities in 46 states. At the time GTE was the largest local telephone service provider in the United States. Its Internet access service would be offered to consumers for $19.95 a month. At the same time UUNET formed an alliance with USConnect Inc. that would combine UUNET’s national network with USConnect’s systems integration expertise. The partnership would provide businesses with a single source for integrating their LANs with the Internet.
Later in 1996 UUNET became the first major commercial ISP to offer web hosting services for Windows NT 4.0. UUNET’s hosting service included a personalized domain name for the customer, servers housed at UUNET with guaranteed power backup, constant web site monitoring, daily tape backups, monthly server traffic reports, and third-party audit services. UUNET priced the service at $3,000 a month, with a $5,000 start-up fee for the dedicated server. If clients required assistance with web site design, UUNET referred them to third-party content developers who were part of the Team UUNET program. UUNET first offered web hosting services in 1994 using the Unix platform and claimed to have more than 800 customers. Web hosting was one service that ISPs could offer to distinguish themselves from their numerous competitors. In late 1996 UUNET began offering another service, ExtraLink, a package of extranet services that would enable companies to share information with customers and suppliers over a virtual private network (VPN). A related service, called ExtraLink Remote Access, allowed remote workers to access the corporate network without a large bank of modems.
For 1996 UUNET’s revenues were estimated to be $216 million. Before the end of the year WorldCom Inc. acquired MFS Communications for approximately $12 billion in stock. Sidgmore remained CEO of UUNET and became vice-chairman and chief operating officer (COO) of WorldCom.
Prospering Under WorldCom: 1997-2000
With WorldCom as its parent company, UUNET was able to offer a pioneering service guarantee in early 1997. The company guaranteed uptime of more than 99.9 percent for intranet and business-to-business services. The guarantee applied to sites that were connected to one another by the UUNET network. It covered more than 300 locations in the United States and 500 in Europe and Asia.
UUNET also received $300 million from WorldCom to upgrade its Internet backbone in the United States and quadruple its capacity. Company officials estimated that the load on UUNET’s backbone doubled every quarter, which meant the company would need to increase its capacity tenfold within a year and a hundredfold within two years. UUNET expected to have to spend about $300 million a year on network expansion for the next four or five years. UUNET’s main ISP customers at the time were Microsoft, GTE, and EarthLink, with America Online also leasing a small portion of UUNET’s network.
At the Internet World show in March 1997, UUNET announced it would offer global web hosting facilities to help multinational companies overcome the problem of narrow bandwidth between continents. UUNET planned to provide local web hosting through peer web service providers in Canada, Germany, the United Kingdom, and Taiwan. UUNET also announced the availability of IDSL technology, a combination of ISDN and DSL developed with MFS Communications and Ascend Communications Inc., that would provide small and medium-size businesses with direct connections to the Internet at a low cost. IDSL, which offered high-speed Internet access over standard phone lines, would first be deployed by the regional Bell operating companies (RBOCs), starting in California.
With the ISP market evolving and businesses demanding better quality and faster throughput, the large Internet backbone providers–including UUNET and Sprint–announced they would no longer carry traffic for mid-size ISPs free of charge. In some cases, the traffic-exchange agreements would be terminated, while in other cases the mid-size ISPs would be charged a fee. Costs were expected to be passed along to the consumer. To further ensure that its Internet traffic reached its destination, UUNET introduced a Shadow Support Program that provided a secondary T-1 or T-3 line to businesses. Network administrators could then redirect traffic if there was a line outage or other problem, thus avoiding an interruption of service. At the time of the announcement, UUNET had been dealing with a growing number of customer complaints after two UUNET hubs in Los Angeles and Tyson’s Corner, Virginia, failed.
In mid-1997 UUNET announced it would begin offering an Internet fax service by the end of the year. Called UUFax, the service was based on technology developed with software maker Open Port Technology Inc. and remote access hardware provider Ascend Communications Inc. Instead of sending faxes as analog traffic over telephone lines, UUFax would turn faxes into IP packets and deliver them via UUNET’s global Internet backbone. By sending faxes over the Internet, companies could save the cost of a long-distance call. In September 1997 UUNET acquired NLnet, the leading ISP in the Netherlands. NLnet’s 45 points of presence there provided comprehensive local-dial access throughout the country. At the time the Netherlands was one of the top five countries for Internet usage on a per capita basis. With the acquisition UUNET had nearly 1,000 points of presence in the United States, Canada, Europe, and the Asia-Pacific region.
Also in September UUNET introduced multicast services for mass Internet broadcasting. Called UUCasting, the service allowed content providers to send only one stream of audio, video, or text data to UUNET, which would then deliver the content to large numbers of users. The service utilized 60 Cisco System routers that were dispersed throughout the UUNET network. UUCasting was the first commercially available multicasting service to give Internet content providers a way to reach hundreds of thousands of users without having to invest in their own T-3 lines. UUCasting became available in December 1997. Later in the year UUNET became the first ISP to offer OC-3 service. The program, called OCDirect, was introduced at the 1997 Networld+Interop trade show. It would provide users with 155 mbps (megabytes per second) direct access to UUNET’s Internet backbone, the fastest speed currently available and faster than anything being offered by other ISPs. OCDirect was only offered in the San Francisco Bay area, Washington, D.C., and New York City, mainly to ISP resellers, large Web-hosting services, and large corporate users. In November 1997 UUNET and BellSouth Corporation began offering 56K-bps dial-up services to provide faster access to the Internet and corporate LANs. UUNET’s 56K-bps access was immediately available through 415 points of presence, to be expanded to 500 POPs by the end of 1997. AT & T was the first to provide 56K-bps service, starting in October 1997 and available in 11 U.S. cities. BellSouth’s 56K-bps service would be offered in four Southern cities. Following the adoption of the V.90 standard for 56K-bps modems in February 1998, UUNET upgraded 300,000 of its dial-up access ports in more than 700 U.S. points of presence by mid-1998, with an additional 200,000 upgrades planned by the end of the year.
Following the acquisition by WorldCom of three other ISPs–ANS Communications Inc., CompuServe Network Services, and GridNet International–WorldCom announced it would consolidate them with UUNET and reorganize into two main divisions: UUNET WorldCom, which would emphasize packaged services, and WorldCom Advanced Networks, which would provide Web hosting, intranet and extranet, VPN, and data security services. UUNET Worldcom would be headed by Mark Spagnolo, UUNET’s president and COO, while WorldCom Advanced Networks would be headed by former CompuServe Network Services president Peter Van Kamp. Both would report to John Sidgmore, WorldCom’s vice-chairman and UUNET’s CEO. The reorganization was necessitated in part by the need to stop providing overlapping Internet services from the different ISPs WorldCom had acquired, and also in part by its pending acquisition of MCI. Following the reorganization UUNET WorldCom would have about 3,000 employees and WorldCom Advanced Networks about 1,700 employees.
In August 1998 UUNET became the first ISP to offer a service-level agreement (SLA) that guaranteed customers 100 percent end-to-end network availability. To qualify companies had to have at least one-year contracts for frame relay, dedicated 56K-bps, T-1, T-3, or OC-3 Internet access services. UUNET also provided other SLAs covering problems with installation and transmission delays.
In November 1998 WorldCom closed its acquisition of MCI Corporation for $40 billion. John Sidgmore became vice-chairman of MCI WorldCom and remained CEO of UUNET.
In 1999 UUNET increased the capacity of its national network backbone from OC-12 to OC-48, quadrupling network speed from 644Mb/s to 2.4Gb/s. With more than 60,000 miles of OC-48 in its backbone, UUNET was attempting to stay ahead of increasing demand for Internet bandwidth. The company also upgraded its UUCast service by increasing the number of supporting router ports from 500,000 to one million and by offering transmission speeds up to OC-3 (155 mbps). In 1999 UUNET began offering a managed global VPN service called UUsecure. The service, which would be available in 14 countries by the end of 1999, included network design, construction, management, and monitoring. Managed global VPN services represented a newly developing market, but competing services were already being offered by companies such as IBM, AT & T Corp., GTE Corporation, and Equant Network Services.
A mid-1999 survey of ISPs by Data Communications magazine revealed that UUNET was the largest, serving 178 of the 500 largest domains. UUNET was also ranked the best overall ISP and received the magazine’s User’s Choice Award. In 1999 the company expanded its DSL service, which it introduced in 1998, to include more than 1,000 points of presence in 850 cities. It also reasserted its presence in the web hosting market, expanding its hosting centers in San Jose, California, and Washington, D.C., and announcing plans to build seven others, which would give UUNET a total of 15 UUhost Data Centers. The overall web hosting market was projected to grow from $4.4 billion in 1999 to $14.4 billion in 2003, according to The Yankee Group.
For 2000 UUNET planned to upgrade its U.S. network to OC-192 (ten gbps, or gigabytes per second) using Juniper Networks Inc.’s new M160 routers. The company also began targeting small businesses, offering them a turnkey set of Internet services. Dubbed Business Essentials and Business Essentials Plus, the packages included the services and equipment most often needed by small businesses to use the Internet.
Later in 2000 UUNET established a Latin American regional headquarters in Sao Paulo, Brazil. UUNET’s parent company, WorldCom, held a controlling interest in Embratel, Brazil’s former state-owned long-distance company. UUNET planned to take advantage of Embratel’s infrastructure and presence in Brazil to enter the ISP market there, then expand throughout Latin America. At the time UUNET operated in 114 countries and served more than 70,000 businesses around the world.
For the future it was likely that UUNET would continue to expand globally and develop new services to maintain its leadership position as an ISP. For example, the company announced it would offer a bundled group of services called Access Choice, which was aimed at remote users and offered them wired as well as wireless access. While some new services would be developed internally, others might come from acquisitions made by UUNET’s parent company, WorldCom. For example, WorldCom acquired Intermedia for $6 billion in 2000, which added Intermedia’s web hosting subsidiary Digex to its group of companies. Tapping the resources of its parent company, UUNET was also well-positioned to build out its network, to increase the number of data centers it operated for web hosting and co-location services, and generally to invest $2–$3 million a day in its infrastructure.