Old IXCs Chart Individual Paths

Once unified by their emphasis on the long-distance market, the big three IntereXchange Carriers (IXCs)-- AT&T, MCI and Sprint -- have become markedly different companies.

August 13, 2004

3 Min Read
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Once unified by their emphasis on the long-distance market, IntereXchange Carriers (IXCs) AT&T, MCI and Sprint have become markedly different companies. And the year ahead could bring more dramatic changes, especially for AT&T and MCI.

AT&T is likely to conclude the sale of its wireless business to Cingular by year-end, and recently announced that it will stop marketing investments to capture new customers in its local and long-distance consumer business. There are even rumors that the former giant of U.S. telecommunications could be sold to another carrier or an investment group.

MCI, which emerged from bankruptcy in April after losing billions in the Worldcom accounting debacle, also is the subject of speculations of an acquisition as it works to stabilize the business and stem customer defections.

Of the three, Sprint appears healthiest and to have weathered the recession and telecom downturn the best. It remains committed to its local and long-distance businesses, as well as the profitable and growing wireless business.

AT&T has pegged its fortunes on the business and enterprise market and new services such as VoIP. Commenting on the commitment to business markets and de-emphasis on consumer markets, Chairman and CEO David W. Dorman said that the company's cost structure and financial position in business markets will make AT&T a strong competitor. "We intend to widen the gap between AT&T and our competitors in the business market."With the stated commitment to business markets, AT&T is likely to milk profits from its consumer services to support investment in its business markets until it eventually sells its consumer business. AT&T made $463 million in capital investments in the quarter, principally to support AT&T Business. The company attributed part of its 13 percent dip in quarterly revenue compared to last year to "declines" in its long-distance business, including pricing pressures and a shift from retail volume to wholesale long-distance sales.

In its second quarter results reported in the first week of August, MCI showed modest revenue declines. The $5.2 billion revenue represented a 4 percent dip from the first quarter and a 15 percent drop from last year's second quarter. The battered and reorganized carrier showed a loss of $71 million, compared to a $388 million decline for the first quarter and $8 million of red ink for the second quarter of 2003.

Going forward, President and CEO Michael D. Capellas said MCI would continue to stress operational improvements, strong customer service and introduction of new IP-based products and services.

In March, MCI agreed to sell its 19 percent stake in Brazilian carrier Embratel for $400 million. The deal went through late last month, with Telmex paying the final $350 million.

But the question now is: will MCI itself be acquired? Last month, investment firm Leucadia National announced its interest in acquiring a majority interest in the carrier. This week, the U.S. Justice Dept. gave its blessing to the possible Leucadia transaction. Leucadia has investments in a broad range of industries, from insurance to telecommunications. Its telecommunications investments include WilTel Communications Group.In its just reported results for the second quarter, Sprint reported a rise of 6 percent in net operating revenues compared to last year's results and 2 percent over the first quarter; second quarter net operating revenues were $6.9 billion compared to $6.5 billion last year. Operating income for the second quarter nearly doubled, reaching $707 million, compared to $370 million a year ago.

As has been typical for many carriers, wireless bolstered Sprint's results, while long distance dragged them down but still operated at a profit. Sprint Chairman and CEO Gary Foresee termed wireless' $1 billion in earnings (EBITDA) "outstanding." Foresee said the company also made progress on reducing operating expenses"which he said the company will reduce by hundreds of millions of dollars by 2006.

Taking a step to create differentiation for its brand in the business wireless market, Sprint recently announced that it is offering network-wide Service Level Agreements. The SLAs will offer service credits to businesses with corporate-sponsored (or company-paid) wireless subscribers based on the performance of the enhanced Sprint Nationwide PCS Network.

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