I think it behooves use to take a closer look at Forbes article "Grand illusions" in the July 6 issue (couldn't find it on the web site).
I agree that MCI's customer base is important, but if phone service is a commodity product, Qwest et. al. can make inroads on MCI's market share just as MCI did on AT&T's.
Some quotes from the article:
Worldcom's bid was a rich 3.3 times MCI's $11 billion book value....Ebbers is buying a stumbling hulk of a company that lost its way since founder McGowan developed heart disease in the late 1980s....Roberts and Taylor have spent close to $10 billion...on ventures like local service, on-line movies and news, which now contribute little to the bottom line. MCI's return on capital peaked in 1989 at 18% and has since tanked to 1.1%.
real crux of the problem: 3/4ths of MCI's $20 billion in revenues last year came from plain old voice calls, over a circuit switched network second in age only to AT&T's.
[MCI's avg. charge is 12.5 cents a minute vs. Qwest's 7.5 cents. 7.5 cents applied to MCI's call volume would reduce MCI's phone revenues from $15 to $9 billion.] ...But if Ebbers gets MCI, some 65% of revenues will suddenly come from old-fashioned phone calls. [maybe internet traffic will compensate?]
[Packet-switching is the technology of the future. Sprint put its obsolete circuit-switching equipment on the scrap heap.]
[Cost for MCI to shift to a Sprint-like network will be enormous and disruptive to customers. Sprint spent $2 billion over 5 years to install a high capacity packet network. MCI will have to replace its plant quickly to keep up with competition. For example, AT&T took a $7 billion write-down in 1988 to digitize its network.]
Worldcom was one of the first carriers to deploy dense wave-length division multiplexing that greatly increases the amount of traffic an existing fiber-optic cable can carry. [WCOM and Sprint funded development of same at Ciena.] In May, Worldcom announced it would delay a $45 million order from Ciena, at the same time Sprint is boosting its Ciena orders.
...How will Ebbers come up with the rosy $12 billion cash flow he has led securities analysts to expect from the merger? etc. etc.
Your comments?
Thanks |
