Williams Rides Again

When The Williams Companies, a $4 billion enterprise, sold their national fiber optic network in the beginning of 1995 after 10 years of operations, it was thought that they had turned their backs on running a full-service, fiber optics-based telecommunications business. The returns were not great enough to match those in their other businesses-gas/oil exploration, production, distribution, and marketing. It was also believed that the U.S. fiber network was overbuilt and that a period of frenzied competition and lower margins was setting in.

They sold their network to what was to become WorldCom for $2.5 billion, keeping a single fiber throughout the network to operate a national video transmission business, Vyvx. They spent the ensuing three years building a business in telecommunications customer premises equipment with system integration services. That involved a strategic partnership with Nortel that now covers 122,000 customer sites in North America. They also bought business services companies that provide video/audio conferencing and distance learning services.

Penetration into businesses and multimedia application vantage points gave Williams insight into the opportunity represented by deregulation of the local exchange markets, as well as the growing demand of the Internet and corporate intranets. They were ready to get back into the full-service telecommunications network business, and they did on January 5.

What is the Williams strategy for becoming a major player in the communications services industry? Well, it has three major elements:

1. To exploit the current relationship in business enterprises.Williams Communications will leverage their position in providing customer premises equipment and high-bandwidth business services to sell transmission services in an integrated offering.

2. To grow owned assets for communication services. Industry leadership lies in owning large amounts of fiber that crisscross North America. This provides the basis to be a low cost provider. One can horse trade this asset for other links to extend network coverage and provide redundancy. It can be offered to companies in other communications services segments, such as the Internet backbone, in exchange for a percent of revenue. Such arrangements will lead to control ownership if not ownership of those companies eventually. The key to developing low-cost fiber networks is obtaining rights-of-way cheaply and using routes with low construction costs. The vast network of gas pipelines Williams has acquired over the years, especially the lines from Houston to New York and from Salt Lake City to the Pacific Northwest (acquired with the funds from the sale of the first fiber optic network), provide the basis to implement this strategic element.

3. To acquire a prominent position in the market outside the large- to medium-sized enterprises. It is important to be a leader in this market because, as companies include their suppliers and customers in extranets and as telecommuting grows, a total solution for communications will come from the company with total coverage. While other telecommunications companies duke it out with each other and spend large amounts to acquire coverage in each local area, Williams, through its relationships in the gas business with local and regional electric utilities, is seeking alliances within that industry. Such companies have the same customer base as the local telephone company, have a better reputation for reliability, have an infrastructure that could be the base for offering telecommunications services, and are motivated to provide additional services such as telecommunications when their industry is deregulated.

An analysis of the past two years' actions by The Williams Companies will show how this strategy has been playing out.

This report is extracted from a study being prepared at Technology Futures called Separated at Birth-A Tale of Two Networks with the Same Parentage. It will analyze the actions taken by both WorldCom and The Williams Companies since the sale of the latter's fiber network in 1995 and will suggest some possible next actions from these companies.

If you believe that TFI could be of assistance to your organization in identifying and evaluating new product opportunities and in developing strategies for bringing these products to the marketplace, please contact Bill Kleinebecker, John Vanston, Larry Vanston, David Smith, or any other member of the TFI consulting staff. (800) 835-3887.

Copyright © 1998, 2000, Technology Futures, Inc.
All rights reserved. Published January 1998. No part of this white paper may be reproduced in any form or by any means, other than short quotes to be used in reviews, without express permission from the publisher.