Focusing on MCI’s financials

MCI’s financial past and future is becoming clearer as the carrier filed key documents with the Securities and Exchange Commission this week.

In documents filed with the SEC, MCI, which officially emerged from bankruptcy protection last week, had a 19.1% drop in business services revenues in 2003, to $14.1 billion.

The company’s overall revenue is down 14.7% in 2003, down to $24.4 billion, from $28.6 billion in 2002. These figures do not include MCI’s Brazilian division Embratel, which MCI is selling.

Throughout its bankruptcy proceedings, MCI was required to provide monthly financial reports that only included net income and revenue figures. It was nearly impossible to figure out how much the carrier was spending internally or how much revenue was coming from its consumer, international or business divisions.

The carrier also reduced its financial guidance for 2004. It originally said it would bring in $21 billion to $22 billion in revenues for the year. The carrier is now saying it will come in at the lower end of that estimate.

MCI has stated that its capital expenditures for 2004 will be 5% of its revenues. “That’s extremely low,” says Kevin Mitchell, a directing analyst at consulting firm Infonetics Research. “For North America the overall percentage is 14%. That includes ILECs, IXCs and cable companies.”

For IXCs, the average capex-to-revenue ratio is about 10%, Mitchell says.

While MCI is only spending $1.05 billion, it’s still more than it spent last year. In 2003, MCI spent about $732 million. That’s only 3% of the carrier’s revenue, Mitchell says.

Mitchell points out that MCI spent an “absurd” amount on its network in 2000 and 2001, 25% and 35% of revenue, respectively. But as with all other providers, spending was dramatically cut back in 2002. 

MCI emerged from bankruptcy with $5.7 billion in debt and about $5.6 billion in cash. The carrier will spend about $2 billion to settle some of its bankruptcy claims, leaving it with $3.6 billion. But MCI says it expects to generate about $800 million in cash this year.

Copyright © 2004 IDG Communications, Inc.

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