• United States

MCI shakes off Chapter 11 mantle

Apr 26, 20044 mins

MCI emerged from Chapter 11 bankruptcy protection last week with a mere $6 billion in debt, 27,000 fewer employees and cash in the bank.

MCI (MCIAV) emerged from Chapter 11 bankruptcy protection last week with a mere $6 billion in debt, 27,000 fewer employees and cash in the bank.

President and CEO Michael Capellas likened MCI’s past 20 months to “running a marathon with hurdles.” With $6 billion in cash, MCI is “in a strong cash position,” he says, trying to put a good face on otherwise dire financials.

According to the monthly reports MCI has had to file with the bankruptcy court, 2003 revenue was down 25% to $24 billion (the company reached $39 billion in 2000) and losses for the year were $58 million.

But the bankruptcy process helped MCI wipe more than $30 million worth of debt from its books.

By comparison, AT&T  finished 2003 with sales of $35 billion, profits of $1.9 billion, $4.3 billion in cash and investments, and $13 billion in debt.

Emerging from bankruptcy can only help MCI, but clearly it faces huge challenges. Here are how some interested parties add it up:

Building revenue

 “This is true for everyone, but it’s MCI’s No. 1 challenge,” says David Rohde, senior analyst at TechCaliber Consulting. MCI has to lure traffic away from other carriers, especially with those MCI customers that have traffic with AT&T, Sprint or another carrier.

Keeping me happy

In an analyst call last week Capellas said MCI “wants to go after the enterprise and switch from being a farmer to a hunter,” says Lisa Pierce, a vice president at consulting firm Forrester Research. But now might not be the best time to stop cultivating the crops.

“All of the other carriers are aggressively pursuing us,” says Dan Agronow, vice president of technology at in Atlanta. MCI has made concerted efforts to keep happy through the troubled days, and Agronow says he hopes those efforts continue as MCI tries to win new customers.

“MCI’s services have been excellent, and the sales support has been excellent,” he says. “They need to keep that up while keeping competitors off.”

Holding on to existing accounts will build confidence with potential customers, Agronow says. Building confidence is a big challenge for MCI.

Keeping up with the Joneses

 “MCI has done a good job in customer service but has done a poor job moving beyond that,” Rohde says. “They still have a high expense structure, and their revenues are going down. They haven’t kept up with competitors.”

Analysts agree that playing catch-up is going to be tough in this market.

The carrier is also behind on its international network build-out aimed at supporting all its enhanced IP services, such as its VoIP MCI Advantage service and its network-based VPN service outside the U.S., which is based on Multi-protocol Label Switching.

Wireless, wireless where for art thou wireless

Capellas talks about wireless, but the company still doesn’t have a deal in place, Pierce says. All MCI has is its SkyTel paging business that it cannot use to support 3G wireless voice services.

Capellas says MCI isn’t interested in buying a mobile service provider, but expects to partner with an existing carrier.

The only wireless providers MCI can possibly partner with are companies that don’t already have ties to competitors, Pierce says. “That leaves Nextel and T-Mobile,” she says. Both have good coverage in some cities, but both have dead zones in areas throughout the U.S.

Uncertain future

While emerging from bankruptcy with the majority of its company intact, MCI two years from now could look very different, Rohde says.

Analysts have speculated that MCI will be acquired after it emerges from bankruptcy. While they are not pointing toward any one candidate, Verizon did make a bid for WorldCom back in 2001.

With the RBOCs contemplating their national service options, and international carriers eyeing the lucrative U.S. market, it’s unclear if MCI will remain independent. With that in mind users should only sign contracts that don’t go beyond two years, Rohde says.