Williams Communications Group, Inc. Business Information, Profile, and History

Company Perspectives:

We recognize and enthusiastically accept our responsibility to the communities we serve, through acting as a good neighbor and through involvement and support for community activities. We are committed to protecting the public, the environment and our natural resources by operating in a safe, reliable manner. We maintain a corporate culture that values originality, invention and creativity, and that nurtures these qualities through openness and reverence for the entrepreneurial spirit. The Company's willingness to take risks in deploying new technology and investing in large capital projects is central to its culture and its success. Efficiency means the difference between success and failure. We will relentlessly pursue a more efficient way to do everything we undertake.

History of Williams Communications Group, Inc.

Headquartered in Tulsa, Oklahoma, Williams Communications Group, Inc., a subsidiary of The Williams Companies, Inc., owns, leases, and operates a nationwide fiber optic network focused on providing voice, data, Internet, and video services to communications services providers. The company also sells, installs, and maintains communications equipment and network services that address the voice and data needs of organizations of all sizes. In the early 1990s, as Williams Telecommunications Systems, Inc. (WilTel), a subsidiary of The Williams Companies and the nation's fourth largest long-distance carrier, the company pioneered advanced data services such as frame relay and asynchronous transfer mode (ATM). WilTel was the first carrier to put traffic on a public network frame relay overlay in early 1991 and offered limited ATM service by the fall of 1993, ahead of both AT & T and MCI. By 1999, Williams Communications Group had facilities serving 50 of the top market segments and was expected by the year 2000 to expand into 125 cities nationwide with its new 32,000-mile network. The fully integrated architecture of the Williams Multi-Service Broadband Network couples ATM core switching with advanced optical networking technologies to provide carriers with data, voice, and Internet services over any platform. Its customers are companies that require large bandwidth capacity to deliver their own brands of products or services such as voice, data, Internet, or broadcast media services to end-users.

Successful Subsidiary of The Williams Companies Begins Business: 1985

In 1908, the two Williams brothers, S. Miller, Jr., and David, opened a construction business called Williams Brothers that later grew into the world's leading pipeline engineering and construction firm. Their company went public in 1957 with a net worth of about $8 million. In 1985, the company entered the communications business when it began turning decommissioned petroleum pipelines into conduits for fiber optic cable. The idea was that of Roy Wilkens, then president of Williams Pipeline Co., who, after attending a Harvard University program for mid-career executives, was inspired to start the new subsidiary. The Williams Companies committed $50 million to the project and made Wilkens chief executive officer of a team that began stringing fiber in the pipelines to start up its long-distance telecommunications company, Williams Telecommunications Systems, Inc. Four years later, through a combination of construction projects and acquisitions, WilTel had built approximately 11,000 miles of network in the mid-continent and upper Midwest to become the fourth largest digital fiber optic network in the United States.

Wilkens, who had an affinity for high-tech gadgets, such as the company's 30-foot conference table, which, at the press of a button, changed to a podium and four separate tables, or its video-conferencing room with walls of polarized glass that could be controlled to become opaque, nonetheless reported feeling some doubt about the new subsidiary's success. 'It was a scary move and we didn't know if it could be done. We really knew nothing about the telecommunications industry going into this thing,' he confided in a 1992 article in Networking Management. Wilkens served as president and chief executive officer of WilTel from 1985 to 1997.

Fortunately for WilTel, it was able to move quickly enough to exploit the two key industry drivers at play in the mid-1980s: fiber technology and regulatory change. Fiber had just entered the scene on a commercial basis; deregulation, in turn, had led to the breakup of AT & T and the creation of opportunities for other long-distance carriers. WilTel early on provided a surprising challenge to industry giants AT & T, MCI, and Sprint. WilTel Network Services, set up in 1990, geared its fiber optic network to medium- and high-end business customers, providing them with reliable, highly secure private lines and data network solutions. WilPak frame relay service, a unit of WilTel, debuted with seven switches in 1991, and by 1992 had cornered approximately 40 percent of the frame relay market; by 1994, its frame relay network expanded to include approximately 30 switches. In 1993, WilPower, another unit of WilTel, offered outsourcing of a firm's internetwork implementation and operations management. WilTel International simultaneously began to develop international private-line services via fiber. Vyvx, WilTel's subsidiary, focused on broadcast and closed-circuit or business television systems, promoting point-to-point or multi-point videoconferencing. It began backhauling broadcasts (transferring the voice and video data) for the Super Bowl in 1990. Among other traffic, Vyvx carried more than three-quarters of the major league sports seen on television.

WilTel's initial growth came at a time when many were predicting a glut in fiber. However, WilTel was able to make use of The Williams Companies' construction experience to lay its fiber optic network quickly and less expensively than most companies. As a result, it offered prices about 20 percent below that of its competitors. Its cables, shielded by pipeline and coordinated by a network control center with an alarm system similar to that used on its energy pipelines, were more reliable than most. WilTel also grew at a time when public networks were undergoing a major transformation to broadband and to technology that could combine voice, data, and video traffic at lower cost and more efficiently. Having already become the fourth largest long-distance carrier, WilTel determined to be out of the gate early with asynchronous transfer mode (ATM) services and deployed switches in eight cities in 1993, eight more in 1994, and another seven in 1995. It also began to package its service with on-premises equipment for customers.

Wholesaling in the Mid-1990s, the Company's New Core Competency

By 1994, WilTel had its heaviest presence in the South, the upper Midwest, and along the East Coast. Its success prompted Long Distance Discount Service (LDDS) to make a move to buy the company for $2 billion as a means of competing with the industry's three long-distance giants: AT & T Corp., MCI, and Sprint. WilTel initially staved off the takeover, then agreed to sell the long-distance portion of its telecommunications business in January 1995, when LDDS renewed its intentions, for $2.5 billion in cash, or about 28 times WilTel's earnings.

Williams signed a three-year non-compete agreement with LDDS (which later became WorldCom, then MCI WorldCom), which restricted WilTel from providing any tariff-based pure voice and data services. However, it retained a single strand of its 24-strand optical fiber through the 11,000-mile network, which it turned over to its newly created WilTech Group, whose mission was to implement new multimedia transmission technologies. It also kept its systems integration and videoconferencing subsidiaries, Solutions and Vyvx. Vyvx, as WilTech's main subsidiary, used the strand to focus on multimedia applications such as video and the Internet. Howard Janzen, from Williams's energy side, was named president of the WilTech Group.

Janzen had joined Williams Pipe Line in 1979, after earning a master's degree in metallurgical engineering from the Colorado School of Mines and completing the Harvard Business School Program for Management Development. In 1987, he moved up to the position of vice-president of the pipeline; in 1991, he became vice-president of operations at Williams Natural Gas Co., and, in 1993, its senior vice-president and general manager. Janzen and Keith Bailey, chief executive officer of The Williams Companies, set about almost immediately to engineer WilTel's 1998 return.

Unlike the old WilTel, whose business had been 80 percent retail and 20 percent wholesale, Williams planned to concentrate on the wholesale end of business as its new core competency and to compete for a larger share of the communications services market. Beginning in 1994, it began to buy up systems integration companies to put together complex networks that combined voice and data communications: ICG Wireless Services in 1995, and Global Access Telecommunications, the nation's second largest reseller of worldwide satellite video transmissions, in 1996.

In 1997, management created The Williams Communications Group, combining its communications and network technology units, Williams Telecommunications Systems, Inc. (WilTel) and The WilTech Group. Janzen became president and chief operating officer and advanced to chief executive officer a few months later. The new subsidiary planned to reemerge as a single-source provider of national business communications systems and international satellite and fiber optic multimedia services. It targeted as new customers service provider-interexchange carriers, incumbent and competitive local exchange carriers, Internet service providers, and cable television companies.

The new Williams Communications chose to organize itself differently than the original WilTel had. It pronounced autonomy its core value and reduced its number of units from four to three: Williams Communications Solutions, Williams Vyvx Services, and Williams Communications Network Applications. Planning for the multi-unit entity was assigned to the business council, made up of the heads of the business units, which dealt with day-to-day operational issues and put recommendations forward to the chief executive officer's cabinet. Both council and cabinet met once a month to discuss larger, long-range issues of management. The rationale behind this decision was to achieve fast decision making, an entrepreneurial spirit, and a sense of accountability at all levels. Williams's Communications also set out to expand services to customers.

The new Williams Communications also shifted its focus away from industrial training with the 1997 decision to divest itself of Williams Learning Network, the leading provider of learning technologies and training services for business and industry. Believing that the communications industry would continue to evolve away from vertical integration, it adopted a strategy it called 'eConstruction,' targeting for itself the segment of the telecommunications market that provided businesses with connectivity. In 1997, the company became the first interexchange carrier to offer end-to-end frame relay service with its network-to-network interface (NNI) between its own frame relay services and local exchange carriers. Together with Nortel Communications Systems, it created WilTel Communications L.L.C. to sell and maintain telecommunications and networking equipment. Vyvx continued its own innovative work, developing the first mobile, fiber optic switching facility which broadcast the Timothy McVeigh trial from outside the courthouse. In 1996, Vyvx had provided news coverage of the Olympics, the O.J. Simpson trial, and the NATO Summit in Paris.

Debut of New Fiber Optic Network: Late 1990s

As January 1998 approached, Vyvx began to use Transco's right-of-way to install a fiber network between Houston and Washington, D.C. It joined forces with Montana Power Co. and Houston-based Enron Corporation to form FTV Communications, which launched a project to build a long-haul fiber optic network linking Portland and Los Angeles. On the eve of its reentry into the wholesale long-distance market, Williams Communications announced the formation of the Williams Network, a new fiber optic network. It simultaneously began offering capacity to US West Communications, a local exchange carrier called Intermedia Communications, and Internet protocol services provider Concentric Network Corp. Combined, the company had more than $1 billion in contracts to provide long-haul services to these three service providers on the day of its debut. In February 1998, Williams announced plans to build another national fiber network with 32,000 miles of routes, fed by $4.7 billion in investments. It later raised an additional $680 million through its October 1999 initial public offering and an additional $750 million from large blocks of common stock to Intel Corporation, SBC Communications, and Telefonos de Mexico (TELMEX), all of whom planned to use Williams as a preferred provider for one or more of the services it offered.

Originally, the Williams Communications Group considered building its network just like the one it had operated as WilTel, with a traditional infrastructure that included overlay frame relay and ATM networks. However, advances in network and applications technologies combined with a more open regulatory climate had significantly altered the industry landscape since 1995. Most of the traffic on the WilTel network had been voice; now data was becoming predominant. Seizing upon the opportunity to start over with a clean slate, Williams tried to avoid the limitations of using gear that could rapidly become obsolete. It chose to focus instead on a network based on ATM because this was the best technology to provide a multi-service network. Its decision did not go unnoticed. Williams Communications received the InfoVision award of the International Engineering Consortium in 1999 for its innovative public network architecture. It also garnered the SuperQuest award from the SuperCOMM conference for best-built bandwidth and the America's Network readers' choice award for best bandwidth wholesaler.

In mid-1999, Williams Communications sold Williams Conferencing for $39 million at about the same time The Williams Companies began construction on a new facility in downtown Tulsa to house itself and its several subsidiaries. Williams Communications' reentry into the voice market took place in August on a wholesale-only basis with long-distance telephone services to its customers reliant upon the company's own switches. Williams Communications focused its future expansion on the aggressive expansion of its new ATM-switched network, which it expected to complete in 2000 with 32,000 route-miles of fiber. With increased capacity, the $2 billion company aimed to achieve 20 percent of the domestic telecommunications market and to branch out into the global market.

Principal Subsidiaries: Williams Communications Solutions; Williams Communications Network Applications; Williams Vyvx Services; Global Access Telecommunications; Williams Network; Telemetry.

Principal Competitors: AT & T Corp.; Qwest; Sprint Communications Company; MCI WorldCom; Level 3 Communications.

Chronology

• Key Dates:

• 1985: The Williams Companies commits $50 million to launch its long-distance telecommunications company, Williams Telecommunications Systems, Inc.
• 1990: WilTel Network Services begins operations; Vyvx carries its first Super Bowl.
• 1991: WilTel is the first carrier to put traffic on a public network frame relay overlay.
• 1993: WilTel begins offering limited ATM service.
• 1995: LDDS purchases WilTel for $2.5 billion; WilTel signs a three-year noncompete agreement; WilTel creates WilTech.
• 1997: Williams creates the Williams Communications Group; Williams Communications Group and Nortel create WilTel Communications L.L.C.
• 1998: Williams Communications Group forms the Williams Network and reenters the wholesale long-distance market.
• 1999: Williams Communications Group holds its initial public offering.