MCI:Failure Is Not an Option, How MCI Invented Competition in Telecommunications - Hardcover

Spurge, Lorraine; Murphy, Paul

Hardcover

ISBN 10: 1888232080 ISBN 13: 9781888232080

Publisher: Spurge Ink!, 1998

Synopsis

This book traces the stirring history of MCI, from its meager beginnngs to its present success. Experience MCI's fight for survival as it forever alters the American business landscape.

About this title

About the Author

During a twenty-year career, Ms. Spurge raised more money for American business than any other woman on Wall Street-about $200 billion for companies such as MCI, Turner Broadcasting, Time-Warner, Chrysler, Mattel, United Airlines, Viacom and Revlon. Today, she is CEO of her own firm, Spurge Ink!, which produces radio and television programs, books, videos, educational seminars, web sites and corporate identity programs. Spurge Ink! publishes business information for all individuals interested in making money, building their careers, and achieving independence and success.

Excerpt. © Reprinted by permission. All rights reserved.

Many analysts and reporters have mourned MCI's new alliance with WorldCom as the end of the entrepreneurial spirit that defined the company for so long. After all, if the merger is approved, the new MCI-WorldCom will be in many ways what AT&T was to the U.S.-a telecommunications giant stretching across all aspects of the phone industry. This view could not be further from the truth, however. The new alliance is absolutely consistent with MCI's original goal, which from the very beginning was to compete across all markets. As MCI CEO Jerry Taylor pointed out: "McGowan would have loved this."

A Company for the 21st Century One of the most exciting aspects of the MCI-WorldCom alliance will be its status as a truly comprehensive communications company. Since the signing of the Telecommunications Act of 1996, a number of companies have offered rhetoric about diversifying into new markets: Long-distance powerhouses have sought to find ways into the local markets and vice versa. But the MCI-WorldCom combination will be the first to actually deliver "one-stop shopping" to its customers.

That basket of offerings will include three key components: long-distance, local, and Internet services. In long distance, MCI-WorldCom will cover roughly 25 percent of the U.S. market, closing in on AT&T with a 54 percent share (down from 62 percent in 1992). In the local markets, WorldCom brings major connections in 100 cities to the table, for one of the most substantial local-phone presences in the U.S. And in the Internet world, MCI-WorldCom will be the strongest player in the industry: WorldCom owns the number-one Internet service provider (UUNET), and that combined with MCI's "backbone" network will make for an Internet powerhouse.

Most importantly, the new combined company will have the firepower they need to realize their separate ambitions. As a $20 billion company, MCI brings serious financial strength to the new alliance. In one gigantic move, WorldCom will leap from being an $8 billion to a $30 billion concern, with all of the financial strength to push faster growth.

MCI will also bring business experience to WorldCom-competitive lessons learned through years of hard knocks and experience. One of its most important contributions, for example, will be its unique approach to customer service. As always, MCI will be looking for ways to increase value to the customers. Take for example, MCI's call-in center, which has always recognized that customer want more than a nice voice on the phone. Customers want fast and efficient solutions to their problems. The "screen-pops" used by MCI's service representatives are an ideal example. When a customer calls the center, the representative captures the phone number and a screen pops up with all relevant information about the caller. In this way, MCI saves the customer time, gains more accurate information, and is able to solve the problem faster. These kinds of technological innovations are extremely valuable in building loyalty with a customer base and will allow the new company to grow efficiently during this time of rapid consolidation.

A Union of Upstarts

But perhaps even more important than the combination of business units will be the entrepreneurial punch of the combined companies. Prior to this announcement, MCI's most probable partner was British Telecommunications plc (BT), which offered to buy MCI for a much lower asking price beginning in November 1996. While that deal also offered important benefits in terms of global synergies, there were serious doubts about whether such two different company cultures could be successfully combined. Despite its growth beyond the U.K. monopoly it once was, British Telecom is generally perceived as being a much more traditional, cautious company than MCI.

Not so for WorldCom. In fact, WorldCom's path to the number-four position in the long-distance market rivals MCI's story in terms of sheer grit and determination. Bernard Ebbers, WorldCom's CEO, is an entrepreneur straight from the mold of MCI leaders like Bill McGowan and Bert Roberts. The press loves to play up his good-old-boy image, which is accurate (he prefers jeans to business suits and Willy Nelson to classical music), but which coexists with a shrewd, visionary approach to the telecommunications industry. Just as McGowan walked into the industry with a fresh new take on the monopolistic model, Ebbers has led WorldCom on its own independent path.

Ironically, some industry experts have even speculated that the two companies may be too much alike. Can two strong-willed personalities like Bert Roberts and Bernard Ebbers work together? And relatedly, can two such independent corporate cultures be combined without creating too much friction? These are valid concerns, but if any company is capable of harnessing explosive energy, it is surely MCI. In fact, it is exactly that kind of friction, headaches and all, which has fueled its creative success in the past. The goal is not to create a homogenous company, which in many ways implies blandness. MCI-WorldCom's diversity will be built upon rather than avoided. This strategy is nothing new to MCI, which has always embraced diversity, and believes it to be a key to its success. For example, company policy is to hire at least 50 percent from the outside, in order to encourage "new blood." People are also encouraged to moved around the company, resulting in a constantly shifting mix, and preventing people from creating completely uniform environments. In the new alliance, employees from WorldCom and MCI will be mingled with exactly this same goal of diversity.

Global Expansion from Jackson, Mississippi

Although the WorldCom alliance represents a less globe-spanning partnership than the British Telecom deal, the new company has serious worldwide ambitions. WorldCom is building local fiber optic systems in major cities around the world, including Frankfurt, London, and Paris. These high-speed lines will be used to provide voice and data services for corporate customers. WorldCom also owns one of the biggest Internet networks in Europe, a business it acquired when it bought UUNET. These worldwide efforts, combined with MCI's substantial market share in international traffic, will establish the new company as a truly global presence.

The international market offers astonishing potential. In the U.S., the telecommunications industry is viewed as a mature one, making it easy to forget how young it is from a global perspective. Even in developed European countries, the growth potential is substantial-the average person in the U.K. spends eleven minutes a day on the phone versus the average in the U.S. of twenty-two minutes. (The average in Germany is eight.) And outside of these developed countries, the potential is spectacular. China, in particular, represents an enormous source of growth, both because of its less developed state and its massive size-about four times that of the U.S. Althought the Chinese telecommunications industry is growing phenomenally, installing the equivalent of one regional Bell operating company (RBOC) each year, it still cannot keep up with exploding demand. On a global basis, the telecommunications industry is still in its infant stages. Indeed, more than half of the people in the world have never even made a phone call.

Still, growth in the telecommunications industry is about much more than simple global expansion. It is about entirely new technologies and directions in communications, even here in the "mature" U.S. industry. People and businesses are fundamentally changing the way they communicate. An excellent example is presented by the change in employee communications, which is a critical part of running a successful business. Many companies now use the Internet, or corporate intranets, to update employees on company news and to exchange e-mail, and, in so doing, have created cohesive company communities. The on-line nature of this new form of communication is much more constant, for instance, than a company newsletter or management visit. And since employees are more likely to send an e-mail to management than make a phone call, intranets represent a valuable, revolutionary kind of communication between the two.

The key to this new era of global growth has been a radical shift in the attitude toward competition around the world. This shift was demonstrated perfectly in the recent World Trade Organization (WTO) agreement in which sixty-nine countries subscribed to a new worldwide measure of openness in telecommunications. Because of this agreement, MCI estimates that 95 percent of all countries outside the U.S. will be deregulated by the year 2000, versus only 17 percent today. Industry participants believe the WTO agreement to be a truly defining event, demonstrating the new emphasis on competition as a means to building a healthy telecommunications industry and infrastructure. This issue has become even more critical as many countries have watched their economies become increasingly information-based.

These changes imply huge growth for the global industry, just as they did in the U.S. Since the AT&T divestiture, the U.S. telecommunications industry has grown from about $46 billion in sales to $80 billion today. This growth is particularly surprising given that the price of a residential long-distance call has essentially been cut in half since MCI entered the industry. In fact, one of the most remarkable aspects of the U.S. transition has been the way it has benefited so many participants-customers, certainly, but also both local and long-distance suppliers. In the classic model of competitive benefit, prices dropped but have been more than offset by rising volume, leaving both consumers and producers better off. MCI foresees similar results at the worldwide level-projecting that the $700 billion global telecommunications industry will have expanded to a trillion dollars by the turn of the century. Investor Implications

The investment community has also been intrigued by the MCI-WorldCom alliance and its sector-spanning implications. Since MCI-WorldCom may very well be the first truly comprehensive communications company since the AT&T breakup, how should it be viewed? As a telephone company, or a technology company, or both? The answer may very well be that it will require an entirely new investor category-one that reflects its true diversity-in order to accurately understand its business model and profitability. This recognition will bring new issues of valuation. Would an investor, for example, use the low price-to-earnings ratio related to the telephone industry, the higher valuation ratio of the computer industry, or a combination of both? The new alliance, and hopefully other new comprehensive communications companies that will arise in the near future, will require new measurements and attitudes from the investment community. The new companies, because of their scope, can also offer new opportunities to intestors. True diversification will be an obvious benefit. And growth-starved U.S. telecommunications investors will find new potential in this new diverse version of the industry.

Staying Focused on the U.S.

Despite its global ambitions, the new company will focus on the U.S., which still represents nearly 40 percent of the world market; this relieves many analysts. The U.S. technological and competitive lead in the industry makes it the central player in the global telecommunications community. This dominance has been reinforced by the growth of Silicon Valley, whose concentration of software and Internet engines makes it the backbone of the Internet. In fact, the Internet has been rightly credited as one of the most important factors in reviving California's economy. Governor Pete Wilson was recently quoted as saying that the information superhighway was more important to the state than the I-5 (the largest freeway).

The geography of the United States is also still a relevant factor, as it has better access to the Eastern and Western hemispheres. Despite new technology, industry observers point out that it's still tough to lay a cable from Germany to China without crossing the U.S. Furthermore, access to capital also remains a substantial U.S. advantage. Despite progress in this area in many other countries, availability of venture capital in the U.S. is the best in the world. Certainly, MCI would not be the success story it is today had it not been for its ability to raise funds during its cash-starved growth years. Just as important, but more subjective, is the entrenched cultural attitude in many countries struggling toward free markets. Many European countries, for example, are resistant to the idea of truly competitive companies in critical industries, believing rather that jobs will be lost or that their services will become compromised. Despite the successful example of the U.S. model, these are powerful preconceptions to overcome.

Many countries also have strong nationalistic resentment of "outsider" participation in their economies, despite potential benefits to the consumer. In Mexico, for example, Telmex portrays MCI as the greedy outsider in its advertising. The television caricature is that of the greedy and vulgar American intent on robbing Mexico of its cultural identity and transporting its wealth to the U.S. Just as it was in the U.S., free market competition will always be met with attitudes that are resistant to change.

The Future of Telecommunications

The most important outcome of the MCI-WorldCom alliance will be new benefits to the consumer. Consolidation of services will be the most obvious and valuable result. Services and equipment like cellular phones, computers, and telephones will be combined, and people will be amazed that they were ever separate in the first place. In fact, as industry people like to point out, these services are essentially the same thing today-it's just that the telephone is a computer made to look like a telephone. Soon these distinctions will be unnecessary; e-mail will be available through the telephone, and voice mail through the computer. These changes to come seem less dramatic when we consider those that have already passed. It seems almost absurd, for example, that customers once had to buy phones from the telephone company. ("Like being forced to buy toasters from the electric company," Jerry Taylor pointed out.) Across the world, customers will see new standards of availability and service, and at lower prices.

MCI Eager for Change

MCI is enthusiastic about this new environment of global change, recognizing that its ability to capitalize on shifting opportunities has always been one of its strengths. Despite being one of the "established" players in the industry now, MCI-in the new alliance-will maintain this attitude of opportunism. Indeed, given its tumultuous and successful experience in the U.S., MCI couldn't have picked a better playing field.

Edition details

• Publisher: Spurge Ink!
• Publication date: 1998
• Language: English
• ISBN 10: 1888232080
• ISBN 13: 9781888232080
• Binding: Hardcover
• Edition number: 1
• Number of pages: 384