• United States

MCI by the numbers

May 10, 20044 mins

SEC filings reveal the carrier's post-bankruptcy financial status.

Revenue is dropping, spending on new technologies is shrinking and a net loss for the year is likely. A downer of a coming-out party for MCI, huh?

Revenue is dropping, spending on new technologies is shrinking and a net loss for the year is likely. A downer of a coming-out party for MCI, huh?

Newly public Securities and Exchange Commission (SEC) filings from the carrier give the clearest picture of the company’s financial health in months. MCI had been able to keep much of its financials private while under Chapter 11 bankruptcy protection, which it emerged from last month.

In documents filed with the SEC, MCI reported a 19.1% drop in business services revenue in 2003 to $14.1 billion. MCI’s overall revenue fell 14.7% over that period from $28.6 billion to $24.4 billion (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 overall 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.

On top of releasing more-detailed financial results, the carrier reduced its financial guidance for 2004. MCI originally said it would bring in $21 billion to $22 billion in revenue for the year, but now says it will come in at the lower end of that estimate.

Spending plans

The carrier has stated that its capital expenditures for 2004 will be $1.05 billion, which translates into 5% of its revenue. “That’s extremely low,” says Kevin Mitchell, a directing analyst at Infonetics Research. Carriers in North America – including incumbent local exchange carriers, interexchange carriers and cable companies – average close to 14%, with IXCs hovering around 10%, he says.

MCI’s numbers actually will be up from 2003, when the company spent about $732 million, or roughly 3% of its revenue, Mitchell says.

In contrast, AT&T says it likely will spend about $2.5 billion this year; Sprint, $4 billion.

The majority of MCI’s capital expenditures will go toward back-office system consolidation, and service and product development, says Jack Wimmer, vice president of network architecture and advanced technology. MCI is emphasizing security and VoIP service developments, he says.

Wimmer says the $38 billion MCI spent before filing for bankruptcy puts the carrier in good shape to roll out new services without major network overhauls.

Infonetics’ Mitchell says 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 cut back dramatically in 2002.

MCI also plans to keep operating expenses in check, in part by consolidating its access, edge and core network facilities.

For example, the carrier plans this year to deploy multi-service edge devices to eliminate the need to support multiple types of devices depending on which data network customers are accessing. Within the next six months, the carrier will detail plans to lower its access costs and offer users more flexibility, Wimmer says.

The carrier also is consolidating its networks at the core. Late last year MCI moved all former Intermedia frame relay customers to its frame relay network. The Intermedia frame network was one of three the carrier has been supporting for years.

The other frame relay infrastructure is WorldCom’s old network.

MCI has emerged from bankruptcy with $5.7 billion in debt, lower than its main competitors AT&T ($8.7 billion) and Sprint ($16.4 billion). MCI also emerged with about $5.6 billion in cash, about $2 billion of which it will spend to settle some of its bankruptcy claims. MCI says it expects to generate about $800 million in cash this year.

Despite the cash influx, MCI says it likely will post a net loss for 2004. Neither AT&T nor Sprint has given Wall Street comparable guidance.