Fortune (02/01): How Ebbers Is Whipping MCI WorldCom Into Shape
The CEO is delivering the kind of
savings and synergies he promised
when WorldCom outmaneuvered
British Telecom and GTE to take over
MCI.
Nelson D. Schwartz
If anyone doubts that MCI WorldCom CEO Bernie
Ebbers really wants to run a lean and mean
company, he or she should pay a visit to an
airplane hangar outside Washington, D.C. Sitting
on the tarmac are two top-of-the-line Falcon
corporate jets that WorldCom picked up when it
bought MCI last year.
Ebbers isn't planning to take the planes up for a
spin: He's selling them, along with a WorldCom
jet, as part of a cost-cutting blitz that has Wall
Street buzzing. Unloading the planes won't have
much of an impact on the balance sheet of the $30
billion company, of course. But analysts and
money managers consider it strong evidence that
Ebbers is delivering the kind of savings and
synergies he promised when WorldCom
outmaneuvered British Telecom and GTE to take
over MCI. (For instance, he has vowed to trim $2.5
billion this year.)
Indeed, the stock has been among the leaders of
Wall Street's recent surge, rising more than 25%
since early December. In just the first week of
1999 it moved up from $70 to $75 after Salomon
Smith Barney telecom guru Jack Grubman raised
his 12-month target price from $80 to $100.
"Corporate jets are an icon of overspending,"
explains BT Alex. Brown analyst Kevin Moore. "So
selling the planes symbolizes the transition from
the padded, gold-plated culture of MCI to the more
entrepreneurial WorldCom culture." Grubman is
even more blunt: "MCI had enough planes to
mount an attack on Iraq."
He's exaggerating a bit--MCI had a grand total of
five jets at the time of the merger. (Ebbers, for all
his frugality, is keeping three.) But Wall Street is
teeming with stories, some of them apocryphal,
about how the famously cheap CEO has been
saving money. Like the times he's ditched his limo
and taken a cab. (True.) Or how he fired MCI's
special air-traffic controller at Dulles International
Airport. (False. MCI never had its own controller.)
Meanwhile, former MCI employees are making do
with discount hotels on business trips instead of
the fancier rooms they'd grown accustomed to.
"I look at every single line item on the budget,"
Ebbers says. "It's an arduous process, and I think
the MCI people are pretty amazed about the level
of detail I get into." And the limos? A few years
back, when he was in Washington with former
AT&T chief Bob Allen and Sprint CEO William
Esrey, "they had their entourages and limos, but I
always take a cab," Ebbers says. "Sometimes
Allen would take me along in his limo like a
fair-haired stepchild."
The cuts aren't only coming from expense
accounts. In December management announced
plans to pare 2,000 jobs, or about 2.7% of the
newly combined company's 75,000-strong work
force. The biggest chunk of the savings--$1.2
billion--is slated to come from shifting phone traffic
to MCI WorldCom's proprietary network rather than
leasing outside lines.
But Ebbers isn't putting all his faith in one-time
cost cuts to make his numbers. Far more
important, he's also focusing on the hottest areas
in telecom--such as local and international calling
and data--to guarantee long-term revenue and profit
growth. At least a third of U.S. Internet traffic now
flows over MCI WorldCom's network, analysts say,
and overall revenue from Internet communications
should jump by 60% in 1999. In the next year the
company's total profits are expected to rise by
more than 40%.
Even as WorldCom digests MCI, its appetite for
acquisitions may not be satisfied. It briefly
considered getting into the bidding fray to take over
cellular powerhouse AirTouch before finally backing
off.
Ebbers has said he hopes to see the shares pass
the $100 mark by the end of 2000. With the kind of
growth he's been managing so far, it's a good bet
he'll get his wish--way ahead of schedule.
Issue date: February 1, 1999
Vol. 139, No. 2
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