The MCI Group

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The MCI Group

founded: 1968

Contact Information:

headquarters: 500 clinton center dr..
clinton, ms 39056 phone: (601)460-5600 fax: (601)460-8269 url: http://www.mci.com

OVERVIEW

MCI is the second-largest long-distance provider in the United States after AT&T, but that position was in jeopardy in the second half of 2002 as number three Sprint aggressively went after MCI Group customers to become a provider of services. It is a leader and innovator in the telecommunications industry. MCI was instrumental in forging an opening in that industry for companies to compete with AT&T. It continued through mid-2002 to lead all others except for AT&T, which had held an industrywide monopoly until the 1980s.

In 1997, the global long-distance company World-Com Inc. made a $30-billion bid to buy MCI. GTE made a $28 billion offer. After some negotiation, MCI agreed to a $37-billion purchase by WorldCom. The merger was announced November 10, 1997 and the new company became the MCI Group under the WorldCom parent company.

COMPANY FINANCES

Scrutiny—both internal and external—of MCI and WorldCom finances was underway in mid-2002, and analysts have predicted either the bankruptcy of the entire company or the selling off of MCI to satisfy billions of dollars in unsecured bank loans. In July 2002, WorldCom announced plans to sell more than $1 billion of its subsidiaries, but made no mention of selling MCI Group. The debacle occurred in mid-2002 when World-Com revealed that it had removed $3.8 billion in "ordinary expenses" by unethically calling them capital expenditures, which get deducted over years instead of in one year. WorldCom reported bogus profits of $1.5 billion for 2001 and $130 million for the 2001 first quarter, and accountants for WorldCom and MCI were asked by a House investigation committee to account for cooking company books.

ANALYSTS' OPINIONS

According to Andrew Backover of USA Today, analysts feel that the poor ethical judgment that led World-Com and the MCI Group to falsify accounts was a reaction to industry and shareholder pressures in November 2000 when the entire telecommunications industry started, in the words of many, to "melt down."

HISTORY

MCI began when John Goeken wanted to provide a radio link between Chicago and St. Louis. In 1966, AT&T held a virtual monopoly over what would later be called the telecommunications industry. Goeken had to go before the Federal Communications Commission (FCC) to obtain permission to set up his link. He formed an enterprise called Microwave Communications, Inc., which became MCI Communications in 1968. By this time Goeken had departed, and William McGowan had taken the helm of the new company.

Throughout the 1970s, MCI fought one legal battle after another in a drama that cast it as "David" to AT&T's "Goliath." However, by the end of the decade, it had won almost full competition rights and become a Goliath itself to rivals. MCI found its position further improved when the breakup of AT&T into several "Baby Bells" was ordered in the 1980s.

In 1982 MCI bought Western Union, once a telecommunications giant in the era when people regularly sent telegrams, from Xerox. A year later, it became the first telephone company to involve itself in the new high-tech version of the telegram, e-mail, when it launched MCI Mail in 1983. This was long before most Americans had ever used the Internet. In 1988 it acquired RCA Global Communications, a major phone-service provider in Asia, from General Electric. Two years later, MCI bought Telecom USA, at that time the fourth-largest long-distance carrier in the United States.

During the 1990s, MCI became heavily involved in the Internet. It also launched several successful marketing programs, including 1-800-COLLECT and Friends & Family. In 1993, MCI and British Telecom (BT) formed a joint venture called Concert Global Communications, which would sell telecommunications services worldwide.

When MCI merged with WorldCom, the company planned to enter new markets and offer local phone service. According to the terms of the agreement, MCI owned 45 percent of the newly formed company. The WorldCom marriage with MCI Group showed itself to be disastrous in 2002 as company fraud at the executive level caused hardship to rank-and-file employees as layoffs of WorldCom (including MCI Group) workers began with 17,000 layoffs in late June 2002. At this writing in July 2002, MCI's lucrative long-distance business may be ordered sold by banks that hold nearly $3 billion in unsecured loans obtained by WorldCom. What is certain is that Sprint in July 2002 has aggressively launched a campaign to take away MCI customers and to challenge for the number two telecommunications leader position long enjoyed by MCI.

FAST FACTS: About The MCI Group

Ownership: MCI is a publicly owned corporation traded on NASDAQ.

Ticker symbol: MCIC

Officers: Bert C. Roberts Jr., Chmn., 60; John W. Sidg-more, VChmn., CEO, and Pres., 52

Principal Subsidiary Companies: Among the many subsidiaries of MCI are MCI Systemhouse Inc., MCI Metro Inc., Nationwide Cellular Service Inc., and The News Corp. Ltd.

Chief Competitors: The MCI Group competes directly with AirTouch, AT&T, Bell Atlantic, BellSouth, EDS, GTE, NYNEX, and Sprint.

STRATEGY

MCI has adopted a "When all else fails, come clean" strategy in July of 2002 as MCI Group and its parent WorldCom try to restore Wall Street and shareholder confidence. But owing to the fact that WorldCom was audited by Andersen, itself reeling from scandal following the Enron crisis, it was uncertain in mid-2002 if the company could avoid bankruptcy and the selling off of MCI Group, by far its prize asset. John Sidgmore, World-Com President and CEO, and Bert Roberts, WorldCom Chairman of the Board, have pledged to cooperate fully with House and SEC requests for an inspection of company books. In effect, WorldCom and MCI have thrown themselves at the mercy of the federal government, but whether such openness is too little, too late or in time to save the company remains unknown in mid-2002. Stock was nearly worthless—83 cents in June 2002, more than $20 below stock prices in mid-2000.

CURRENT TRENDS

The future of MCI Group may be out of parent company WorldCom's hands before the end of 2002. According to the New York Times, banks holding the paper on nearly $3 billion worth of unsecured loans may force the company to sell bankable assets such as MCI. In addition, Worldcom and MCI past and present executives are facing a house investigation that could lead to indictments if wrongdoing is substantiated. In addition, the number three provider, Sprint, has approached all MCI corporate customers with an offer to serve as a backup if MCI folds, and early indications in 2002 were that a number of MCI corporate customers were switching to Sprint.

PRODUCTS

In the 2000s, MCI competes in the long distance, local, Internet, wireless, and systems integration markets. MCI One is a one-stop package for residential customers to combine all these types of services. NetworkMCI One is the business equivalent of MCI One. MCI's Internet division, InternetMCI, offers access service and software. In the area of wireless communication, the company claims to have the largest combined service area, "or wireless footprint," in the nation.

CHRONOLOGY: Key Dates for The MCI Group

1966:: John Goeken sets up Microwave Communications, Inc.
1968:: Goeken departs and the company becomes MCI Communications
1982:: Western Union buys Western Union
1983:: MCI Mail is launched as the first company to provide e-mail services
1984:: AT&T is forced to break up its monopoly, strengthening MCI's position in the market
1990:: Purchases Telecom USA
1993:: MCI launches 1-800-COLLECT
1998:: WorldCom Inc. and MCI announce merger
2002:: WorldCom fires top employees or accepts their resignation as the company learns some $3.8 billion was wrongly stated as company profits for the 2001 annual report; MCI Group's parent company hires a consultant, William McLucas, former Chief of the Enforcement Division of the Securities and Exchange Commission, to investigate allegations of corruption and false reporting; House Financial Services Committee orders WorldCom's CEO John W. Sidgmore and other head executives (including fired executives) to testify; banks holding WorldCom's nearly $3 billion in unsecured loans may force the company to sell MCI to satisfy the debt