Merged MCI-WorldCom Begin A 100-Day Sprint
Investor's Business Daily 9/15/98
Author: Reinhardt Krause
MCI Communications Corp. and WorldCom Inc. are set to unleash an ambitious, 100-day post-merger plan, with an advertising press led by basketball's Michael Jordan.
The $37 billion deal, the largest completed merger ever, cleared its last regulatory hurdle on Monday: Federal Communications Commission approval.
MCI and WorldCom executives have plotted for months on how to get the merger off to a roaring start. Now, they'll act.
One key will be using MCI's vaunted sales force to market services that take advantage of WorldCom's expanding network, analysts say.
MCI-WorldCom, as it's now known, emerges as the No.2 long-distance carrier - after AT&T Corp. - and a strong player in Internet services to businesses.
''The 100-day plan is a series of milestones -in terms of customers, synergies realized, new products available, integration of the two sales forces and integration of billing and network operations,'' said Timothy Price, chief executive of MCI-WorldCom's U.S. communications division.
''We'll be able to measure ourselves, and others will be able to measure us.''
The merger is complex, involving 75,000 employees. Jackson, Miss.-based WorldCom is a well-oiled acquisition machine, but MCI is by far the largest company it's gobbled up.
WorldCom says it expects restructuring charges of $6 billion to $7 billion related to the merger. MCI sold off its Internet business to Cable & Wireless PLC in July for $1.75 billion to appease regulators, who feared the merged firm would wield too much clout.
Price and other executives are mum on specifics. Analysts expect MCI-WorldCom to quickly unveil new products and services.
''They might be able to dissolve the difference between local and long- distance services,'' said Boyd Peterson, an analyst at market researcher Yankee Group in Boston, Mass.
The cornerstone to the game plan is a ''local-to-global-to-local'' phone network. MCI-WorldCom wants to control both ends of a phone system - where calls are made and completed. In many big cities in the U.S. and Europe, it already has that capability.
By putting more of MCI's voice and data traffic on WorldCom's network, the merged company expects to net huge savings. MCI-WorldCom will bypass the regional Bell's phone switches in many markets. Long-distance companies normally pay the Bells a fee to complete phone calls.
''Instead of having to terminate calls through, say Ameritech, we can use our own facilities,'' Price said. ''Those savings will be passed on to our customers.''
Overseas, MCI-WorldCom will carry out the same strategy.
''We think we have a way of redefining the way communications are used and purchased,'' Price said. ''Our unique assets will enable us to do that.''
In the U.S., the merged company will operate local- phone networks in about 100 markets. WorldCom built up its local assets by acquiring Brooks Fiber Properties Inc. in '97 and MFS Communications Co. in '96.
WorldCom has built its own fiber-optic network linking major cities in Europe. By '00, the network should reach 25 cities, up from about 10 now. And its undersea cable between New York and London should be completed this year.
As a result of those investments, MCI- WorldCom will rely less on the switches of Europe's big carriers. It's using the same approach in the Far East.
MCI-WorldCom's local-to-global- to-local network could be leveraged in different ways, analysts say.
MCI-WorldCom may opt to blur the distinction between services that are paid monthly, like local phone calls, and services paid by the minute, typically long-distance calls.
''Why should a long-distance call cost any more than a local call, if you own all the end-to-end facilities?'' said Jeffrey Kagan, president of consulting firm Kagan Associates Inc. in Atlanta.
Price hints that MCI-WorldCom's fiber-optic network will play a big role in future services.
One of MCI's pre-merger strengths is its many Fortune 500 customers. They could be attracted to Internet services using WorldCom's fiber network, which links the U.S. to financial centers overseas.
''With fiber-optic technology, the business is no longer distance-sensitive,'' Price said.
WorldCom has lacked a national sales force the size of MCI's. That marketing machine and MCI brand name will aid the company in rolling out new products and services, analysts say.
MCI-WorldCom is expected to put one of its stars into action again. WorldCom signed Michael Jordan, the planet's best-known athlete, to a marketing deal in '95. He was featured in ads to promote calling cards.
But Jordan's been only lightly used since WorldCom's merger with MCI was announced last fall. That will soon change with a new TV ad campaign, industry sources say. Price declined comment.
''MCI is a premier consumer branding company,'' Peterson said. ''They have to be drooling at the chance to leverage the Michael Jordan brand name in the residential space.''
MCI is expected to contribute about 60% of the merged firm's sales in '99, but may at first account for only 40% of profit, analysts say.
One reason is MCI's large, residential long- distance customers. With prices falling, long-distance is less profitable.
But MCI's customer base could grow in value if consumers buy local, long- distance and Internet services from the same carrier, analysts say.
Virtually all of WorldCom's U.S. long-distance sales come from small and midsize businesses. When competing against the regional Bells for local phone service, MCI-WorldCom will focus on acquiring more business customers.
Price is optimistic. ''We have a high end, the international global players and residential,'' he said. ''WorldCom is extremely strong in the middle of the market. The combination is fantastic, and the synergies are real.'' |
