MCI: Rich and spry Has cash, will deal: MCI Communications Corp. has grown into a fidgety Goliath that occasionally packs a slingshot of its own.

February 11, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

Whatever happens in the murky future, MCI Communications Corp. managers can always take comfort in the glowing memory of the fourth quarter of 1995.

Profits rose 17 percent as the company recorded its largest increase in phone traffic in five years. Its long-distance business grew 22 percent -- almost three times the rate of AT&T. Its paging business was booming, and annual operating profits broke the $1 billion mark.

Those are already the good old days. Now it gets tough.

Two days after MCI's rosy earnings report on Jan. 30, Congress gave its final approval to landmark legislation that is expected to end the comfortable oligopoly that has dominated the long-distance telephone business for the past 12 years.

MCI Chairman Bert Roberts hailed the event as "independence day for American consumers" and "a tremendous opportunity for MCI."

But where Mr. Roberts professes to see opportunity, others in the telecommunications business see little gain and much pain for the nation's No. 2 long-distance provider.

William Vogel, chief telecommunications analyst at NatWest Securities Corp., believes that MCI is one of the biggest losers under the legislation. He predicts that at least one in 10 long-distance customers will jump to the regional Bell operating companies (BOCs). Mean while, he says, the hefty margins that MCI has enjoyed in recent years will evaporate under the heat of real competition.

But the folks at Washington, D.C.-based MCI know something about competition, too. After all, this is the company that ripped almost an 18 percent residential market share out of the hide of one of the world's most powerful corporations -- building a $15 billion-a-year business in the process.

Gerald H. Taylor, MCI's chief operating officer, told analysts last month that MCI expects to double its revenues by 2000, with half its business coming from products and services that don't exist today. He boasted that, because MCI was not born a monopoly, it will be able to compete far more effectively than the Bell operating companies.

"The difference between MCI's culture and the BOCs' is the same difference between a Saturn dealership and the Motor Vehicle Bureau," Mr. Taylor said.

Investors are obviously paying at least some attention. The stock reached an all-time high on Jan. 30, when it broke the long-elusive $30 mark and has since leveled off, closing Friday at Some analysts, notably Jack Grubman of Salomon Brothers, insist that the stock should sell for 30 percent more than it does.

But MCI is not universally admired. Critics see an ill-prepared company that lurches between boldness and timidity and switches partners with the fickleness of a Las Vegas showgirl.

"I don't see a coherent, focused strategy from them. They seem to bounce around a lot," said Clyde Heintzelman, a veteran telephone company executive who is now chief operating officer of Digital Express Group in Beltsville.

Mark Plakias, president of Strategic Telemedia in New York, said MCI is not as well managed as it was in the days when it was run by the legendary Bill McGowan, who founded the company and built it into a telecommunications giant before he died in 1992.

"They're constantly reorganizing the company," Mr. Plakias said. for one am not prepared to say the inmates are running the asylum -- at this time."

MCI's top managers say they do have a basic strategy, though they admit that the connections between the company's various ventures are often not immediately apparent.

Simply put, MCI is trying to expand from its threatened domestic long-distance business into "contiguous markets" in all directions. Then it plans to "bundle" the new services with its core business and use its vaunted marketing skills to take business away from its rivals.

With its healthy cash flow, MCI has been able to finance a variety of deals without taking on a heavy debt burden.

Through partnerships such as its alliance with British Telecom, which owns 20 percent of MCI, it is earning impressive profits in global markets. By breaking through regulatory barriers, it is seeking to enter the local telephone business. And, through strategic alliances and acquisitions, it is moving into unfamiliar industries such as video entertainment, Internet commerce, software and even music retailing.

Inevitably, this flurry of activity has created some internal turmoil. But MCI insiders contend that's only natural in the turbulent telecommunications arena.

"Things get shaken up all the time here," said a company spokesman, Robert W. Stewart. "The people who succeed here are the people who are able to deal with chaos and uncertainty."

Certainly MCI cannot be accused of standing still in the face of competition.

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