MCI Emerges From Bankruptcy, Faces Challenges

On Tuesday, the disgraced WorldCom Inc. faded into the murky world of bankruptcy courts and SEC investigations, while its ongoing business emerged as a relatively healthy MCI freed from $35 billion in debt and itching to enter the telecommunications brawl.

The company put an upbeat spin on its future, citing both its strong business- and residential-customer base and healthy position in Internet-based technology. In a statement, MCI said: "Despite seismic shifts in the telecom industry, Internet usage is still increasing, people are communicating more often and in more ways and computing and communications are converging. This convergence unquestionably plays to MCI's core strengths."

But immediately looming are the traditional bugbears of telecom--price wars and forced downsizings. Helped by the erasure of much of its debt, MCI can now be a formidable competitor. MCI's rivals have long complained that the company was able to erase most of its debt and they weren't.

"It's a legitimate criticism," said Kevin Mitchell, managing analyst at Infonetics Research in an interview. "MCI's competitors built up debt, but they didn't get the benefit [of bankruptcy]." Mitchell said no indications of a price war have emerged yet, but the threat looms.

He endorsed the company's plan to concentrate on its business customers. "Business is where the salvation of the company is," he said. "It's ultimately where the good margins are--they are much higher per customer in business." The company said it plans to be aggressive, too, in the residential market.Some 80 percent of MCI's revenues come from business accounts. To underscore its strength in that arena, the firm trotted out an impressive lineup of business customers, including DaimlerChrysler, NASDAQ, Emerson, Hughes Supply, and Seibel Systems. Emerson's CIO Ken Hahn said in a statement, "We believe in MCI's long-term strategy to deliver the next generation of IP services and the company's ability to deliver the solutions we need to succeed today and in the future."

MCI will be led by Michael Capellas, president and CEO, who said in a statement, "Somewhere between telecommunications and computers there's a new kind of company, and that's what MCI will be."

The firm promised to roll out new products and services in the coming weeks and months. In fact, Infonetics' Mitchell is looking for a healthy doubling in capital expenditures from MCI, as the firm moves to make up for the slowdown it experienced in bankruptcy. He is projecting a revenue decline for 2004, in large part due to the stiff competitiveness of its market. He noted that MCI currently owns no cell-phone business, but he expects the firm will fill that hole soon, possibly by signing a marketing deal with one of the existing wireless companies.

While MCI's revenue dropped from $32 billion in 2002 to an anticipated $21 to $22 billion this year, the company has kept most of its customers and, in fact, added more than three million residential customers in the past two years. The discrepancy between the rise in customers and the drop in revenues can be traced primarily to the price war that has plagued the telecom business in recent years.

While MCI is now on its own, some of its ties to WorldCom will remain. Richard Breeden, the court-appointed monitor of WorldCom for the past several months, will remain on the job at MCI for an indefinite period. The headquarters of the firm has been moved from Clinton, Miss., to Ashburn, Va.0