MCI’s marching orders

When WorldCom went into Chapter 11, image tarnished with accounting issues, it was a milestone in the telecom industry, a kind of official ending for the bubble period. Now MCI has been reborn, and its re-emergence may mark the beginning of an even more important period. MCI doesn’t have to prove it can do accounting; MCI has to prove it can sell services profitably.

When WorldCom went into Chapter 11, image tarnished with accounting issues, it was a milestone in the telecom industry, a kind of official ending for the bubble period. Now MCI has been reborn, and its re-emergence may mark the beginning of an even more important period. MCI doesn’t have to prove it can do accounting; MCI has to prove it can sell services profitably.

The new MCI enters a market in which its competitors are seeing downward revenue trends in every legacy voice/data service. Chapter 11 let MCI shed some debt, but lower costs are a shield against falling revenues and profits for only a short time period. No matter how low you set the bar of cost, double-digit declines in revenue will eventually hit it.

One early scenario regarding how MCI might conduct business after reorganization had MCI entering the market debt-free and setting prices at half the competitors’ level. It’s clear this is not what MCI has planned. Cutting prices wouldn’t stop the revenue declines; it would just help get to zero revenue more quickly. MCI cannot be profitable, successful, selling voice or frame or ATM or even VPNs.

So what can MCI do – what must it do?

First, MCI must ensure customer loyalty. To keep customers, MCI has had to discount more. Some customers are ending long-term contracts, and MCI needs to renew these deals without giving away the store. The first and biggest step in doing this is to ensure that MCI’s network services are absolutely bulletproof, and make aggressive guarantees on availability and quality of service standard parts of its offerings. Not just aggressive, in fact, but the best in the industry. Nothing will hurt MCI more or faster than a big outage or a reputation for shaving the edges of service-level agreements to its own benefit.

Second, MCI must focus not on current services, but on what those services can evolve to. VoIP is a fast track to zero revenues unless you can add useful and exciting features to it. Personal Communications over IP is the right path – a path that must integrate instant messaging, voice mail, e-mail, collaboration and other features to support extraordinary customer control over service behavior. The alternative to competition on price alone is to add feature differentiation, which is hard to do when all you’re offering is basic VoIP services.

Third, MCI must exploit content and application services. MCI is still one of the kingpins of the Internet, and it’s the evolution of the “all-you-can-eat” basic Internet experience into something more profitable that offers the company’s greatest long-term hope for success. IP is the way of the future for everyone, but for no one more than MCI. UUNET is MCI’s passport to credibility with IP services.

Which brings us to No. 4: MCI must show the industry what the Internet will become. Not the thing that somehow subsumes all of public communications into one glorious anti-establishment model, but rather, the thing that generates hundreds of billions of dollars for U.S. carriers and a trillion dollars per year worldwide. Why? Because the service provider market is that big now, and unless MCI wants to fight for slices of an increasingly smaller pie, it had better be at least that big in the future. If every household pays broadband rates for Internet access, it generates only about $45 billion in revenue. If every business connects to the Internet for e-commerce, that adds another $45 billion here in the U.S. Total: less than one-third of current revenue, revenue drawn from those legacy services that are declining every quarter.

MCI was the intellectual force behind the Internet generation, for the revolution of mass-market data empowerment. This gives it enormous power to shape the future, but MCI needs to realize that most revolutionary leaders get killed somewhere in the process. The difference between market leader and market martyr is simple – success.