[iwar] [fc:Bracing.for.an.Internet.disaster]

From: Fred Cohen (fc@all.net)
Date: 2002-07-22 20:46:06
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Date: Mon, 22 Jul 2002 20:46:06 -0700 (PDT)
Subject: [iwar] [fc:Bracing.for.an.Internet.disaster]
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Bracing for an Internet disaster

By Rachel Konrad
ZDNet News July 19, 2002
<a href="http://zdnet.com.com/2100-1105-945050.html">http://zdnet.com.com/2100-1105-945050.html>

Like many companies near seismic faults in Silicon Valley, eBay has
emergency plans in case an earthquake destroys critical Internet
connections. But these days another kind of tremor is a more imminent
danger.

The costly disruption or slowdown of service because of financially
strapped telecommunication providers is the latest major concern for
companies.

"We talk about natural or financial disasters and don't necessarily
distinguish between the two," eBay spokesman Kevin Pursglove said. "If
the service ain't there, it ain't there. That's the bottom line. It
doesn't matter why or how it happened. We just need contingency plans to
take care of customers."

To prepare for the deluge, eBay beefed up its co-location facilities,
spread out important applications such as e-mail on different servers,
and found backup providers for Web hosting and other critical jobs.

It isn't the only company to equate telecommunication providers' crises
with capricious acts of nature. Companies around the world are
developing co-location facilities, interviewing backup vendors,
bolstering wireless capabilities and adding emergency clauses to
business contracts in wake of the accounting troubles gripping WorldCom.

WorldCom is $32 billion in debt and hovering near bankruptcy after
announcing it had improperly booked $3.8 billion of operating expenses
over the past five quarters. Now the Justice Department and the
Securities and Exchange Commission are conducting investigations on the
Clinton, Miss.-based company, whose assets include MCI, the No. 2
long-distance provider, and UUNet, a unit that carries the bulk of the
Internet's traffic.

Even short of bankruptcy, which would dwarf Enron's and become the
largest corporate failure ever, major changes to WorldCom's business
could result in service disruptions--especially if no buyer steps
forward for WorldCom's assets, analysts said. Although experts doubt
that WorldCom, the No. 2 U.S. long-distance carrier, would shut down its
network with a flip of a switch, they are warning customers to prepare
backup plans.

"Although we do not expect any immediate cessation of WorldCom services,
its financial straits along with the pending layoff of 28 percent of its
work force will result in diminished service levels," according to a
recent report from research firm Meta Group. "User organizations stuck
with WorldCom agreements will struggle through the sell-off and
dissolution period, experiencing problems including move, add, change
and circuit installation delays, as well as unresolved trouble tickets."

WorldCom's woes cap more than a year of high-profile struggles among
telecommunications providers. Bermuda-based Global Crossing, which filed
for Chapter 11 bankruptcy protection in January, is being investigated
for allegedly creating network-swapping agreements with some of its
peers, improperly booking swaps as revenue and shredding related
documents. Qwest Communications International began selling some assets
in May, and in June the board of directors forced out CEO Joseph
Nacchio. Federal securities regulators are investigating both companies.

Few players in the global telecommunication sector seem to be immune
from negative earnings restatements and discoveries of accounting
irregularities, and Wall Street is increasingly scrutinizing powerhouses
such as Verizon Communications and SBC Communications. Michael Powell,
chairman of the Federal Communications Commission, said this week that
the industry was in a state of "utter crisis" and that he was bracing
for more bad news.

The disgracing of vaunted names in the sector and talk of a broader
meltdown has prompted a sense of imminent disaster at companies that
rely on Internet, phone or wireless connections for revenue and employee
productivity. The prospect of a telecommunications collapse now ranks as
the most likely disaster to assail Corporate America, and executives
have adopted a bunker mentality.

"Viewing the financial disasters as acts of God--it may seem extreme,
but it's actually a very appropriate analogy and makes perfect sense to
me," said Tom Jenkins, a telecommunications analyst and vice president
at TeleChoice in Tulsa, Okla. "We know that the small providers are in
trouble, but how much better off are the Sprints, Qwests and AT&amp;Ts? It's
not a matter of switching from one to the other; it's a matter of
protecting yourself from everyone. You can't predict anything anymore."

Storm brewing in Europe Executives' fears have escalated since May, when
the pace of disintegration in the telecommunications sector picked
up--particularly in Europe. Some experts say the continent's
connectivity woes should serve as advanced warning for what could happen
in the United States.

The situation appears dire for KPNQwest, a joint venture between Dutch
national carrier KPN and Denver-based Qwest. Bankruptcy court trustees
have until the end of the day Friday to find a buyer for Europe's
largest fiber-optic network, which carries one-quarter of the region's
Internet protocol data, or the remaining pieces of the network may be
shut down.

KPNQwest declared bankruptcy in May, after its founders announced they
would not invest more money into the joint venture. The network, which
once spanned 18 countries from Finland to Portugal, has seen its market
capitalization sink from $42 billion to about $4 million.

Court-appointed bankruptcy trustees want to sell the network in one
chunk to maximize proceeds. But most potential bidders, including U.S.
telecom giant AT&amp;T, have backed out. It's unclear what will happen to
the assets--or to Internet connectivity in Europe if the network is
turned off.

Mid-week, a bulletin appeared on the KPNQwest site saying, "During this
week you can already expect outages to happen that we cannot solve any
more. At the end of this week we expect that larger parts of the network
will be down."

Even though most have created elaborate backup plans in case of
slowdowns or disruptions, European companies and divisions of foreign
companies that rely on KPNQwest are approaching a state of panic,
according to Vincent Rais, founder of European telecommunications
consulting firm Rais Associates. According to documents filed with
regulators and published on its Web site, KPNQwest international
customers include Nokia, Dell Computer, Cable &amp; Wireless Service's
Exodus, Terra Lycos and National Semiconductor.

Executives in North America and Asia are also monitoring the situation
for clues to what might happen in case of a similar outage of UUNet's
Internet protocol services.

Eric Paulak of Gartner Research said in a recent research note that
WorldCom customers' fate is "not as dire--yet" as the fate of KPNQwest
customers, but WorldCom's plans to cut 17,000 workers will dent customer
service and reliability of the network. Paulak issued bullet points for
all WorldCom customers that don't already have extensive contingency
plans:

• Don't sign contracts for long-term WorldCom services until its
financial situation is clearer.

• Sign six-month extensions for expiring contracts.

• Duplicate and investigate alternative hosts for Web sites hosted by
WorldCom or Digex.

• Evaluate how a second Internet service provider (ISP) might be used
for Internet access and develop a virtual private network.

• Where there is no alternative ISP, order back-up dial-up ISDN
(integrated services digital network) services for key locations.

Many companies have redundant systems or contracts with multiple
providers--despite the cost--just to protect against this sort of
problem. Internet service provider EarthLink, for example, buys network
access from WorldCom, Sprint and Level 3 Communications.

A spokesman for Palo Alto, Calif.-based Hewlett-Packard said the
computer giant wouldn't need to offer customers excuses--even though
WorldCom supplies some voice and data services. The company's recent
merger with Compaq Computer gave it two independent networks that offer
some redundancy should one fail. It has also mapped out plans to
redirect voice and data traffic to alternative service providers in case
of a sudden WorldCom collapse.

"Certainly we've been monitoring the WorldCom situation, as everyone
would expect," spokesman Arch Currid said. "We are prepared in the event
that WorldCom discontinues its services."

Janis L. Gogan, assistant professor of computer information systems at
Bentley College in Waltham, Mass., said companies must extend existing
contingency plans to incorporate potential telecommunications troubles.
Gogan, who also teaches e-commerce strategy at Harvard University, said
most Internet-dependent companies bolstered emergency planning to
prepare for the Y2K bug and again after the Sept. 11 terrorist attacks.

She said it would be unrealistic for e-commerce companies--particularly
cash-strapped dot-coms--to have 100 percent redundancy to avoid any loss
of service in case of an outage. She recommended that companies assess
how much money would be lost during an outage--then determine how much
they can afford to leave to chance.

E-commerce companies, which perform transactions and customer service
online, lose anywhere from $1 million per hour to $1 million per minute
when the power goes off, according to analyst estimates. In one
high-profile outage, Seattle-based retailer Amazon.com suffered a series
of disruptions during the Thanksgiving weekend in 2000. Investment firm
Thomas Weisel Partners estimated that the one 20-minute outage deleted
20,000 product orders and $500,000 in revenue.

"Ask yourself, what are the consequences of being down for one hour, one
day, one week?" Gogan said. "There really aren't many large companies in
this country that would be OK if they were without Internet access for a
week. But if you'd have a dramatic loss of revenue or productivity if
access was down for one hour, you need a more elaborate plan."

"Get creative" with contingencies Gogan also recommended reviewing the
disaster plans for companies or divisions based in India and adopting
them for use in the United States and Europe. Offices in India have
relatively comprehensive emergency planning, she said, in part because
of the higher incidence of weather storms and the country's less
reliable power grid.

"If you don't already have a contingency plan, you should find one
immediately," Gogan said. "It might help to get creative in where you
look or how you pull it together."

Brian Turley, president of business continuity consulting firm Strohl
Systems, recommended companies tap at least two alternatives to any
telecommunications vendor they have or are considering.

"Establish relationships with those alternative companies and literally
let them know that, if anything happens, you'll come calling," Turley
said from his office in King of Prussia, Pa.

"Clients' sole concern is that their vendor has promised them service
and it's not provided anymore. They don't want to hear, 'Hey, it's not
my fault.'"

News.com's Troy Wolverton contributed to this report.

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