MCI’s back-to-basics plan

Over the past three months, the carrier formerly known as WorldCom has been busy rediscovering its roots.

In an effort to rid itself of the last traces of its previous management, the company has changed its name back to MCI ; announced plans to move its headquarters to Ashburn, Va. (near Washington, D.C., where MCI co-founder Bill McGowen first fought to break up AT&T); and rededicated itself to providing leading-edge technology services.

Bernie who?

Thomas Nolle wonders: Has MCI really learned from its past?

The company has been getting back to basics in fundamental ways as well: First-quarter sales were up 30% over the fourth quarter, profitability resumed in January, and cash flow remains positive.

Even more interesting than the branding and financial efforts, however, is MCI’s emerging strategy. In a recent analyst call, the company said it plans to focus heavily on the small- to midsize-business (SMB) market. The company values this business at $90 billion and says it has approximately an 8% share (or $7 billion). By most accounts, the SMB market is growing substantially (as compared with the large enterprise market, which by most accounts is flat to down), so this strategy makes sense.

As part of this initiative, MCI is announcing a business offering similar to its Neighborhood consumer offering. The new service bundles local, long-distance and broadband for a flat monthly fee. MCI also plans to converge all its services to an IP backbone. By the end of June, MCI says, 25% of its voice traffic will be carried across IP. The company also plans to transition its legacy frame and ATM traffic to IP – first by transporting the traffic across its IP backbone – during the next 12 to 18 months. With its new MCI Advantage service, MCI also is bundling local, long-distance, frame, ATM and IP onto one IP pipe.

Finally, MCI plans to renew emphasis on the hosting solutions it offers through its partially owned Digex subsidiary. The company acquired Digex’s largest shareholder, Intermedia Communications, in 2001 and gained a 60% stake in Digex. Although Digex still is not profitable, it provides a range of application-centric services. Most recently, it announced secure application hosting. MCI vows to make Digex’s hosting offerings a linchpin of its strategy.

So let me get this straight: MCI is targeting a market that has money, wants to offer services people need, and is focusing on integration and solution delivery as a key differentiator. Wow. Is MCI CEO Michael Capellas sure he’s running a telephone company?

Execution is key, of course, and it’s still too early to predict victory. But you have to admit the preliminary signs are encouraging. Many of the large enterprise IT executives I speak with are in a “wait and see” mode with respect to MCI, which is wise. If the reconstituted MCI proves it can deliver, though, I expect many of these larger companies will return as customers sooner rather than later.

Sprint and AT&T should consider themselves warned.