First Union Corp. has signed two three-year agreements with MCI for voice and data communications services.

The financial terms of the deals were not disclosed. MCI Telecommunications Corp. will provide voice services to all of First Union's 2,000 branches, including those of First Fidelity Corp., which First Union acquired last year.

MCI also will provide data communications services for the 750 branches of the former First Fidelity. That service will be rolled out by early May.

First Union, which operates an extensive satellite network among 1,242 branches, elected to use MCI's frame relay service, which transmits packets of data of various sizes over telephone wires.

Frame relay is considered well suited to the sometimes heavy data traffic that is generated by workstations and servers in a client/server environment.

The frame relay service, called Hyperstream Frame Relay, will not replace the satellite network "until the branches' need for bandwidth exceeds (the satellite network's) capacity to provide it," said George E. Mattingly, senior vice president of the automation division, at Charlotte, N.C.-based First Union.

First Union also will continue to manage its own networks.

The bank considered extending its satellite network to include the First Fidelity branches, but decided against that route.

Though frame relay is more expensive than satellite communications, it provided much higher bandwidth - something that First Union thought it would need as it installs more client/server applications.

With the addition of First Fidelity, First Union's data load increased by almost 50%, Mr. Mattingly said.

"We took frame relay because we believe the demand for bandwidth in the branch will exceed the ability" of the satellite network to fulfill that need economically, Mr. Mattingly said.

"As you begin to migrate increasingly sophisticated applications, the need for bandwidth goes up dramatically."

Mr. Mattingly said that when offices are receiving more than five or six kilobits per second of data - typical with many new consumer banking applications - satellite technology is no longer cost effective.

First Union is currently reengineering its consumer bank, and it plans to roll out its commercial banking system, a client/server application developed with Andersen Consulting, to First Fidelity branches.

Mr. Mattingly noted other limitations of satellite networks. "It's a problem when the snow gets higher than the antenna," he said.

"Here in the South we have VSATs on two-foot poles on the ground. If you had a two-foot pole on the ground in Shelton, Conn., last week, you had a problem."

Mr. Mattingly said that 80% to 85% of sites in Maryland or farther south could use the satellite network, while to the north of Maryland, only 60% to 65% of sites could do so.

That reduced the cost effectiveness of the very small aperture terminal, or VSAT, satellite network.

Though the cost of frame relay service from long-distance carriers such as MCI has declined over the last year, the most expensive part of frame relay service continues to be the local access service provided by companies like Nynex and Bell Atlantic.

The local exchange carriers serving the areas where First Fidelity has branches "don't have the least expensive service out there," he said.

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