Meeting Spawns Thoughts on Future of MCI Worldcom
By SETH SCHIESEL
New York Times
June 7, 1999
NEW YORK -- Just as legal concerns began to percolate last
Wednesday about whether MCI Worldcom Inc. misled investors
as it negotiated its deal to buy Skytel Communications, the company
convened its first meeting for analysts and investors in more than two
years.
So much has changed in the telecommunications industry in two years
that MCI Worldcom, the No. 2 long-distance carrier behind AT&T, did
not even exist in 1997. Back then, an acquisition of MCI may not have
even been a gleam in the eye of Bernard J. Ebbers, formerly chairman of
Worldcom and now chief executive of the combined company, which
was formed when Worldcom acquired MCI.
So the four-hour series of presentations last week in Manhattan offered a
useful update on a company that continues to grow far faster than AT&T,
even if AT&T has recently gotten more headlines through its move into
cable television.
And even if MCI Worldcom seemed to try hard not to make any news at
the meeting, at least three salient points emerged:
AT&T-MCI Rivalry in Decline
Ever since William G. McGowan took over MCI three decades ago, the
company has defined itself as anti-AT&T. With AT&T starting off with
100 percent of the long-distance market, and MCI angling for a share,
the two companies focused on many of the same corporate and
residential customers.
But over the last year, their strategies have significantly diverged. AT&T,
fearful that the Bell local phone giants could soon ransack its stronghold
in the consumer long-distance market, has agreed to spend more than
$90 billion to become a cable television powerhouse. Thus, AT&T
hopes to counterattack the Bells in local arenas.
MCI Worldcom, by now, is far less dependent on residential customers,
and so it has not had to respond to the Bell threat as has AT&T. As
MCI discussed its investment plans at the meeting, the focus was not on
household telephone service but on Internet and overseas expansion.
Before acquiring MCI, Worldcom served hardly any residential
customers, and none of the top former Worldcom executives seem
particularly enthusiastic about consumer markets now. They have that
luxury largely because they have Uunet, the No. 1 Internet service
provider, which mostly serves businesses and other Internet service
providers.
AT&T is far behind Uunet. According to Boardwatch magazine, a trade
publication, MCI Worldcom has 2,952 backbone Internet connections
to AT&T's 382.
AT&T is beefing up its business-services unit, and MCI Worldcom may
one day propose a broad plan to offer communications bundles to
consumers. But for now the two giants seem to be focusing most of their
attention in separate directions.
Don't Call It a Takeover
The polite word for what Worldcom did with MCI is "merge," but the
real term is "takeover." It is obvious that except for the sales and
marketing operation (which is, to be sure, the unit that brings in business),
former Worldcom executives are running the show and setting the
strategic direction.
After Ebbers opened Wednesday's conference, he was followed by
three more Worldcom veterans: Scott D. Sullivan, chief financial officer;
John W. Sidgmore, vice chairman and Internet czar, and Ron Beaumont,
executive vice president for operations and technology.
Despite persistent rumors that Timothy F. Price, MCI's legendary
marketing chief, is not getting along with his Worldcom brethren, no
friction was obvious on Wednesday. In the somewhat tribal culture of the
old MCI, Price generated more loyalty than perhaps any other MCI
executive after the now-deceased McGowan.
And it may speak to Price's value that he is the most senior MCI
executive who still appears publicly engaged in running the combined
company. Price and two of his subordinates gave presentations at the
meeting. So did Fred M. Briggs, the chief technology officer, who came
from MCI and reports to Beaumont.
But Bert C. Roberts Jr., MCI's former chairman, who is now chairman
of the combined company, was not even at Wednesday's meeting.
Perhaps even more telling, his absence did not seem to surprise anyone in
the audience.
Sprint Speculation Begins
In comments made in the aisles and corridors, it became clear that at
least some analysts and investors believe that MCI Worldcom ought to
wind up acquiring the Sprint Corp., the No. 3 long-distance carrier. "I've
already built it into my model," an analyst joked.
There would be two main benefits to such a deal. First, Sprint would give
MCI Worldcom a nationwide wireless phone network. (MCI has no
cellular business.) Second, Sullivan and his financial engineers could
surely wring billions in costs from a combined MCI Worldcom-Sprint.
The two companies do not appear to be in negotiations. But based on
some aisle discussions Wednesday, it is clear that top MCI Worldcom
executives have thought about it.
They fear, though, that regulators would balk on antitrust grounds at the
prospect of the top four long-distance carriers of a couple of years ago
-- AT&T, MCI, Sprint and Worldcom -- becoming only two. But once
the Bells jump into the long-distance market, those regulatory concerns
may ease.
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