(FORTUNE Magazine) – Telecom used to be all about voice. Soon it will be all about data, and this once obscure long-distance outfit could become the giant to beat.

WorldCom CEO Bernie Ebbers strides into the meeting room in Washington's Hyatt Regency Hotel wearing his special tan suit. A very long cigar is clamped between his teeth. He is about to announce an operating alliance with Spanish telecom giant Telefonica, extending WorldCom's reach into South America--the first such alliance in the history of his company, a company he built not by cozying up to competitors but by acquiring them, some 40 in the past decade. After the Spanish CEO jests awkwardly that Ebbers has absolutely no interest in actually buying Telefonica, Ebbers says: "I have never worn this suit and not at least started a merger." The laughter that follows is tentative. No one knows whether he is joking.

His public performances may make Ebbers, 56, seem like a stereotypically arrogant mogul, but the impression is misleading. If the WorldCom story is about anything, it is about transformation--of WorldCom, which just five years ago was struggling to survive as a cut-rate long-distance company, and of Ebbers, a college washout who left his native Canada to get a fresh start in Mississippi.

The transformational event that comes to mind when people think about WorldCom is the merger Ebbers improbably forged with MCI--a $37 billion deal, the largest in business history, which shareholders of both companies heartily embraced in March. If the merger is consummated--it awaits regulatory approval--the new MCI WorldCom would have annual revenues of $28 billion, enough, hypothetically, to vault it from No. 210 to No. 33 on this year's Fortune 500.

The deal also positions WorldCom at a flash point in the history of telecommunications. The telephone industry is in the midst of a convulsive change from a business that until recently was all about carrying voice calls to one that's mainly about carrying data in the zeros and ones of computer language. Traffic on the world's telecom networks today is more or less evenly divided between data and voice signals. Within five years, most telecom companies believe, data's share will grow to 95%--even with voice traffic continuing to grow at a healthy 8% to 15% a year. Signals will travel, if not on the Internet itself, then on private networks that use its digital language.

While hard numbers don't exist, WorldCom is by most estimates either the largest or second-largest carrier of Internet traffic. It will be by far the largest when it closes its deal for MCI, the other company at the top of the list. In all, an estimated 40% to 50% of the traffic over the Internet will flow on the combined network.

WorldCom entered the Internet business almost by accident. In its first incarnation, WorldCom, then known as LDDS, was a long-distance reseller, a scavenger that bought millions of minutes of long-distance service in bulk and sold them to callers at a modest discount. (LDDS stands for long-distance discount service, a name suggested to Ebbers and his partners by a waitress.) To win corporate customers interested in data as well as voice transmissions, Ebbers bought a fiber-optic network from a company called WilTel.

Two years ago, Ebbers added local service with the acquisition of MFS Communications, a so-called bypass company that runs fiber-optic lines directly into office buildings. MFS had just made a purchase of its own: a small Internet company called UUNet, which carried traffic for online businesses. MFS Chief Executive James Crowe (yes, people know him as Jim) bought UUNet because of a conversation between his main financial backer, Walter Scott, CEO of Peter Kiewit Sons', and a couple of high-powered friends: Warren Buffett and Bill Gates. Gates had buttonholed Scott at a 1995 gathering of billionaires in Ireland and convinced him that the Internet heralded a fundamental shift in technology--as great as the shift from the telegraph to the telephone and the mainframe to the PC. UUNet's articulate CEO, John Sidgmore, gave the same spiel to Ebbers, who until then wasn't sure he needed or wanted UUNet. Sidgmore will be MCI WorldCom's technology chief.

Most people would say that Ebbers caught a break. The same is true of his out-of-nowhere bid to buy MCI, which would have been beyond WorldCom's reach had not British Telecom, on the verge of consummating its own deal to buy MCI, forced MCI to cut its asking price. That let Ebbers step in and steal MCI away.

The MFS and MCI deals leave WorldCom poised as the company to beat in data communications and the large-business market in the U.S. and Europe. But Ebbers credits neither luck nor skill for these deals. "I'd call it the Lord's leadership," he says. "I'm a person who believes that life isn't a comme ci, comme ca type of thing. I believe that there is a plan for our lives and for our participation in the world. How could one company be so dang lucky? I mean, it's pretty hard to explain, isn't it?"

Unlike most American cities, Jackson, Miss., has a downtown where you can actually walk around. WorldCom is stuffed into a small office building on a rundown street at the edge of the city center, a few hundred yards from the handsome old capitol dome and the state archive building, where inflammatory records from Mississippi's segregationist past were recently unsealed. Eight of the city's most popular 13 restaurants opened this decade. In one of these restaurants on a recent Sunday evening, diners at five adjacent tables who had shown no sign of knowing each other began to exchange greetings after someone else strolled over to say hello. Any news in Jackson spreads fast. When a reporter dropped in at Ebbers' alma mater, Mississippi College in nearby Clinton, a few hours before an interview with him, Ebbers knew about it before the reporter got back to Jackson. It's a small town.

Ebbers' beliefs imbue the way he thinks about the twists and turns not only in his company's past but also in his own. A native of Edmonton, Alberta, Ebbers as a young man seemed to be on a cold road to nowhere. "I had gone to the University of Alberta and flunked out," he says. "And I had gone to a small college in Grand Rapids and dropped out of there. [Back home] I was working as a milkman in the mornings and a bouncer in a bar at night. My high school basketball coach came to me and said, 'You're wasting your life. You're digging yourself a hole that's going to be hard to get out of.' "

The coach told of a nearby school that would soon be adding a tenth and 11th grade but lacked the money to hire a manager for its basketball team. "You quit that bar job and volunteer to run that team," the coach told him. Ebbers did and loved it. He recalls thinking: "Maybe there was something more I could do than deliver milk in the cold and try to keep people from fighting in a bar."

The road to Mississippi had a few more bends. A friend was on vacation in Washington State and walked into a bank to cash a check. There he picked up a brochure for Mississippi College, a small Baptist institution where the bank's owner had gone to school. The friend ended up going there and became manager of the college's basketball team. A year later he urged Ebbers to enroll too. Says Ebbers: "That gets me a long ways from my past and starts me out in a new area." After college Ebbers went into the motel business. He discovered telecom when he and some partners acquired a motel that operated a long-distance resale business on the side. He's lived in Mississippi ever since.

For the CEO of the company that made the biggest splash in American business last year, Ebbers lives a modest, small-town existence much of the time. He teaches Sunday school and is a championship-caliber amateur tennis player. He is reluctant to talk about his personal life, except to say that he wishes he had been as successful in it as he has been in business. Divorced, he is living temporarily in a double-wide mobile home on a soybean farm he owns. He likes to ride the fields for hours at a time in his air-conditioned tractor with the tape deck loaded. "The best therapy I have," he says.

While thoughtful and soft-spoken, Ebbers has a sense of humor that runs from the impish to the sharp, like a Southern Don Rickles. It comes out especially in public, as he contends with the fame he does not always appear to relish. At a recent telecom conference in New York, Ebbers is standing uncomfortably at the center of a small cluster of investors before his keynote dinner speech--uncomfortably because he has just torn some ligaments in his left foot and is in a walking cast. A very, very short investor asks him how he likes being a celebrity. "I don't," says Ebbers, who is 6-foot-4, and peers down at the investor's nametag. "What's your name?" he asks. "I can't see down that far without my glasses." Everyone in earshot goes "Ooooh!" Then Ebbers laughs--and so does the investor. Ebbers has gotten away with it. "I probably shouldn't say the things I do," he says later. "But I think people see me as genuine."

Sometimes Ebbers seems to be keeping score. He will remember which reporters have asked questions he considers nasty at previous press conferences and single them out. He is suing former employees of MFS who joined rival firms and hired away some of their old colleagues, alleging that the recruiting violated their contracts. And he pulled out of plans to build a new headquarters in downtown Jackson, disgusted with opposition by local property owners and with zoning ordinances thrown in his way by the city council; instead he is moving WorldCom to Clinton. "Of course, now they're real sorry about it!" he says.

Ebbers likes to be in control. James Heidel, who runs the Mississippi Department of Economic and Community Development, remembers his first encounter with Ebbers in 1992, shortly after Kirk Fordice became governor. He says, "Ebbers had bought some companies in Oklahoma, and there were rumors he would relocate outside Mississippi. I tried to get him on the phone, but he never returned my calls. Finally he did. He said, 'I want you and the governor in my office tomorrow morning at 10 a.m.' The governor's schedule was full for the next month and a half, but we changed some things around and went to his office. We thought he would be telling us he was going to leave the state. Instead he said he was going to be expanding in Mississippi. But he wouldn't tell us that before we came." Does Heidel think the outcome might have been different if the governor hadn't been able to make that meeting? He reflects for a moment. "It might have been," he says. "That's the way he is."

Ebbers doesn't remember the incident and thinks the story is crazy anyway. He says, "The only way they'll get me out of Mississippi is in a box." WorldCom will soon move from its cramped quarters to a sprawling new campus on a tract of land that WorldCom bought from Mississippi College.

It is there that Ebbers will contend with the considerable challenges posed by the MCI merger, not least of which is winning regulatory approval. The loudest naysayers are rivals like GTE and Sprint, which accuse WorldCom of trying to buy monopoly power on the Internet. Regulators in both the U.S. and Europe are looking closely to see how much traffic flows over the part of the Internet that WorldCom would own.

The biggest complaint concerns the nature of the cloverleafs that connect WorldCom's data highway and those of its rivals. The performance of those interchanges can affect the speed and quality of service for everyone who uses the Internet. For instance, a customer might subscribe to an online service that uses Sprint's piece of the backbone to get to the Internet. If the customer wants to visit a Website linked to MCI's backbone--the search engine Yahoo, say--Sprint must hand off the signal to MCI at a cloverleaf between the networks.

Till now, Sprint, MCI, and other big backbone companies such as WorldCom's UUNet and GTE's BBN have passed traffic back and forth for free. The backbone companies also meet from time to time to figure out how much data-handling gear they must add to each interchange to handle burgeoning traffic, and they split the costs.

With WorldCom carrying up to 50% of the traffic, the rivals argue, this collegiality will be spoiled. No longer roughly the same size as its rivals, WorldCom would handle more than three times the traffic of the next biggest competitor, Sprint. That, the others claim, could give Ebbers the power to impose connection charges on the other backbone companies. It could also reduce WorldCom's incentive to pay for the upkeep of the interchanges, since a lot of the traffic that enters the Internet on its network would never have to leave. GTE general counsel William Barr argues, "In a network of networks, the quality of your product is directly dependent on the cooperation of your competitor. If he has no incentive to cooperate, he can degrade your service."

Not many people think the antitrust objections will sink the deal, although WorldCom might have to make guarantees about terms of interconnection. Nor does every competitor think WorldCom will have the sort of power Barr alleges. Says CEO Benjamin Scott of IXC Communications, an Austin, Texas, company that is building a high-speed fiber-optic network: "Clearly, WorldCom has been able to assemble a pretty impressive market share. But in the long run, the Internet is such a competitive environment that I don't think any company can dominate. Barriers to entry are low, and players like us are bringing assets to bear."

Ebbers dismisses the objections as illogical. If the interchanges became dilapidated, any of his customers wishing to visit a Website served by a rival network would be stranded as well. As for GTE, it happens to be one of WorldCom's biggest Internet customers. Says Ebbers: "Why would we not allow them to [interconnect] with us when we make a profit off of them?" Regulators should have an answer by the middle of the year.

When WorldCom and MCI do get the go-ahead, Ebbers will face the problem of the python that swallows the pig. MCI has nearly three times WorldCom's revenues and almost four times the number of employees. True, WorldCom has grown mainly by acquisition and has been extraordinarily successful at it; in all but two of Ebbers' 40 purchases over the past decade, the company's growth rate has remained steady or increased, and the stock has grown more than 30-fold over the period. Yet some customers say the pieces have never melded. Scott of IXC, which is both a supplier and a customer, says: "With WorldCom today, you do business with a lot of very separate companies." WorldCom's biggest add-ons have kept their headquarters: MFS is still in Omaha, UUNet is in Virginia, and MCI will stay in Washington, D.C. The acquired companies have kept their sales forces too.

WorldCom will need to present a more unified face to the world if it is to hold on to one of the greatest assets MCI will bring: blue-chip corporate customers, a market in which WorldCom's presence has been limited. Ebbers' goal is to offer corporate customers a basket of services that work the same all over the world.

To that end, WorldCom is seeking to clone itself overseas. It is co-owner with Britain's Cable & Wireless of a pair of new transatlantic cables that will have more carrying power than all the existing cables between the U.S. and Europe combined. Service will begin later this year. WorldCom is also building a network linking 35 cities in Western Europe. That would give WorldCom entree to the $80-billion-a-year European telecom market and let it carry signals from U.S. customers to Europe entirely on its own wires.

If Ebbers succeeds in combining the company's sales forces so they can push such services, the benefits will be prodigious. Consultant Mark Bruneau of Renaissance Worldwide in Newton, Mass., says, "WorldCom is one of the few companies that will offer an impressively wide suite of services from voice to data to Internet. They would have a big advantage if they can make it easy to buy all that stuff in an organized way."

Besides giving WorldCom a lot to digest, MCI poses a challenge to the company's strategy of helping shift communications traffic from voice networks onto data networks. Without MCI, WorldCom's network is a pure play: modern, high speed, high bandwidth, and oriented toward data. WorldCom could use the Internet to carry phone calls in digital form; doing so, it could undercut the prices of conventional phone companies, since data networks are more efficient.

But with MCI, WorldCom will take possession of a company that owns a conventional network and gets more than 75% of its revenues from old-fashioned phone calls. To be sure, of the major long-distance companies, MCI is the one most observers credit with doing the best job of preparing for the preeminence of data traffic. Even so, Ebbers may not be as free as before to price aggressively.

This could open the door for competitors to try to out-WorldCom WorldCom. Besides IXC, these include Qwest Communications, run by Joseph Nacchio, former head of long distance at AT&T. He says: "Voice is a very high-margin service, and WorldCom isn't going to cannibalize itself. MCI slows them down and allows us to go after the sweet spot in the market." Qwest recently bought long-distance reseller LCI, giving it a service company with many business customers to go along with its ultramodern fiber-optic network.

Also building a digital network is Level 3 Communications, run by former MFS chief Crowe. Level 3 is obscenely well capitalized, with $2 billion in cash from Peter Kiewit Sons'--the backer that funded MFS. Crowe says, "If anybody has the courage to think out of the box, Bernie does. But all things being equal, I'd rather have a blank sheet of paper and a couple billion bucks than be sitting in Bernie's shoes." If you have capital, he argues, every advantage lies with the new entrant. This is a simple consequence of silicon economics, which makes digital technology ever cheaper and better. The incumbent is always struggling to keep up.

Being the hunted instead of the hunter is a new role for Ebbers, but not one from which he shies. He pauses to look back, and asks, "How many times does a guy with my background have an opportunity to participate in something like this?" In the end, he will have to leap across the divide that separates buyers from makers. Ebbers built WorldCom by buying other companies. To win now, he will have to innovate and build on what he owns.