MCI Communications Corporation

FOUNDED: 1968

Contact Information:

HEADQUARTERS: 1801 Pennsylvania Ave.

Washington, DC 20006
PHONE: (202)872-1600
FAX: (202)887-3140
URL: http://www.mci.com

OVERVIEW
MCI is the second-largest long-distance provider in the United States after AT&T. It
is a leader and innovator in the telecommunications industry. MCI was instrumental in
forging an opening in that industry for companies to compete with AT&T. It
continued in the late 1990s to lead all others except for AT&T, which had held an
industrywide monopoly until the 1980s. The company, located just a few blocks from
the White House, has offices in 300 locations around the world, and competes in a
wide variety of communication service markets.

In 1997, the global long-distance company World-Com Inc. made a $30-billion bid to
buy MCI. GTE made a $28 billion offer. After some negotiation, MCI agreed to a
$37-billion purchase by WorldCom. The merger was announced November 10, 1997
and the new company will be named MCI WorldCom.

COMPANY FINANCES
Upon announcing the merger of MCI and World-Com Inc., the combined firms
projected over $30 billion in revenues for 1998. In 1997 MCI had net income of $209
million on revenue of $19.65 billion, as compared to 1996 when net income was
__BODY__.20 billion on revenue of $18.49 billion. This was a considerable increase
over 1995 income of $548 million on $15.26 billion in revenues. Earnings per share of
stock rose from $.80 in 1995 to __BODY__.73 in 1996, and fell to $.29 in 1997.
MCI's long distance services represent more than 90 percent of its revenues.
ANALYSTS' OPINIONS
Although the MCI/WorldCom merger was touted by both companies as the joining of
"two of the industry's most entrepreneurial and competitive forces," the U.S.
Department of Justice and the European anti-trust chief declared in the spring of 1998
that they would try to obtain "concessions" from both companies before granting
regulatory clearance. The U.S. and European regulators were mainly concerned with
the potential for anticompetitive corporate behavior.

HISTORY
MCI began when John Goeken wanted to provide a radio link between Chicago and
St. Louis. In 1966, AT&T held a virtual monopoly over what would later be called the
telecommunications industry. Goeken had to go before the Federal Communications
Commission (FCC) to obtain permission to set up his link. He formed an enterprise
called Microwave Communications, Inc., which became MCI Communications in
1968. By this time Goeken had departed, and William McGowan had taken the helm
of the new company.

Throughout the 1970s, MCI fought one legal battle after another in a drama that cast it
as "David" to AT&T's "Goliath." However, by the end of the decade, it had won
almost full competition rights. MCI found its position further improved when the
breakup of AT&T into several "Baby Bells" was ordered in the 1980s.

In 1982 MCI bought Western Union, once a telecommunications giant in the era when
people regularly sent telegrams, from Xerox. A year later, it became the first
telephone company to involve itself in the new high-tech version of the telegram, e-
mail, when it launched MCI Mail in 1983. This was long before most Americans even
knew about the Internet. In 1988 it acquired RCA Global Communications, a major
phone-service provider in Asia, from General Electric. Two years later, MCI bought
Telecom USA, at that time the fourth-largest long-distance carrier in the United
States.

During the 1990s, MCI became heavily involved in the Internet. It also launched
several successful marketing programs, including 1-800-COLLECT and Friends &
Family. In 1993, MCI and British Telecom (BT) formed a joint venture called Concert
Global Communications, which would sell telecommunications services worldwide.

When MCI merged with WorldCom, the company planned to enter new markets and
offer local phone service. According to the terms of the agreement, MCI owned 45
percent of the newly formed company.
STRATEGY
MCI's strategy has been one of increasing diversification within the
telecommunications industry. It is a combination of a simplified customer package
and aggressive marketing. The company's services span a wide spectrum, from
cellular phones to Internet service. Still, it seeks to keep the customer billing and
contact simple and manageable. Hence MCI One, a package that allows small
business and residential customers to deal with a single company for all their
communication needs: long distance, cellular, paging, and Internet access.

As for MCI's marketing, the company had little reason to fear low name-recognition
in the 1990s. Friends & Family was a program that proved an enormous success when
it was launched in 1992 with a series of television commercials. It allowed customers
to obtain special rates for the long-distance numbers they called most frequently,
presumably loved ones at a distance. MCI has also made good use of marketing
partnerships with other companies, including the sale of its phone service through the
wide Amway distributor network, and the offering of frequent flyer miles on Delta or
other airlines. Among the airline companies involved in partnerships with MCI in
1997 were, American, Continental, Northwest, Midwest Express, and Southwest. Also
involved with MCI were Holiday Inn, American Express, SAM's Club, and Staples.

MCI is continually expanding worldwide, with joint ventures and telephone linkups
between countries. It is also expanding its U.S. market. The trade journal Advertising
Age reported in June 1995 that MCI had launched a __BODY__-million television
campaign featuring a long-distance romance between the characters "Rahul" and
"Rohini." These ads are specifically targeted at people from India, a market of more
than 1 million in the United States. In addition, the same journal reported that the
company had commenced an even more innovative marketing campaign. This was
one focused on the gay and lesbian community, a lucrative market.

MCI's merger with WorldCom created what MCI called "the first fully integrated
communications company." MCI WorldCom planned to offer a complete range of
local, long distance, Internet and international communications services. Together, the
two companies had 22 million customers, and 70,000 employees in more than 200
countries.
INFLUENCES
William McGowan, the architect of MCI's growth in the 1970s, once quipped that his
company was "a law firm with an antenna on top." In fact, its first decade in business
saw MCI in and out of courtrooms in its battle to gain leverage in the market against
the AT&T monopoly.

MCI had to fight with AT&T in order to begin its existence. By 1973 it had local
business service in 40 cities, yet it was not allowed to link its customers by long
distance. In March 1974 MCI filed antitrust suits against AT&T under the Sherman
Antitrust Act, which forbids the operation of a monopoly—a single business that
entirely controls an industry. By March 1980 it had become the first company to
compete against AT&T in a residential market, in Denver. In June 1980 it won
__BODY__.8 billion in damages against the industry giant on charges that AT&T
maintained anti-competitive practices.

The 1980s were an era of triumph for MCI. The time came, however, when it faced
competition from a horde of other newcomers, such as Sprint. MCI, growing and
branching out with mergers and acquisitions, was no longer a "David." When
compared to the younger companies, it was a "Goliath" in its own right. Meanwhile,
AT&T regrouped. In 1994, it took 1.1 million customers from MCI through an
aggressive marketing campaign of its own.

In August 1996, MCI won Call Center magazine's "Technology Leadership Award"

for its technological advances. Some of the other commentary is not so positive. An
article in Fortune magazine's October 1995 issue, for instance, indicated that Wall
Street did not share the vision of MCI as a telecommunications leader for the next
century. MCI was also criticized for diversifying and entering into joint ventures in a
slapdash, willy-nilly fashion. Business Week in February 1995, observed that the
company's stock had reached a new low as a result of losing 1.1 million customers to
AT&T, and that MCI was searching for a strategy. The Economist in February 1996
referred to a venture that linked MCI with Microsoft as "promiscuous." The article's
title indicated that the company was "In Search of a Strategy."

FAST FACTS: About MCI Communications Corporation

Ownership: MCI is a publicly owned corporation traded on NASDAQ.

Ticker symbol: MCIC
Officers: Bert C. Roberts Jr., Chmn., 55; Gerald H. Taylor, CEO, 56; Timothy F.
Price, Pres. & COO, 44

Employees: 60,409 (1997)

Principal Subsidiary Companies: Among the many subsidiaries of MCI are: MCI

Systemhouse Inc., MCI Metro Inc., Nationwide Cellular Service Inc., and The News
Corp. Ltd.

Chief Competitors: MCI Communications competes directly with: AirTouch;

AT&T; Bell Atlantic; Bell-South; EDS; GTE; NYNEX; and Sprint.

CURRENT TRENDS
With the deregulation of the phone market, customers by the late 1990s often found
themselves overwhelmedby a variety of competing companies. Each had their own
claims of superiority over others. Consequently, one trend evidenced by MCI is
simplicity, or one-stop shopping. This, in turn, meant diversification on the company's
part. By 1997, it was heavily involved in long distance, local, Internet, wireless, and
systems integration service.

In an age of global communications, MCI has also established footholds all over the
world, specifically through joint ventures with companies in Mexico, Canada, and
New Zealand. These culminated in the company's merger, announced in 1996, with
WorldCom. WorldCom beat out British Telecom and GTE in the competition for
MCI.

PRODUCTS
By the late 1990s, MCI competed in the long distance, local, Internet, wireless, and
systems integration markets. MCI One is a one-stop package for residential customers
to combine all these types of services. NetworkMCI One is the business equivalent of
MCI One. MCI's Internet division, internetMCI, offers access service and software. In
the area of wireless communication, the company claims to have the largest combined
service area, "or wireless footprint," in the nation. Systems integration is a new market
area operated by MCI Systemhouse, a __BODY__.4-billion global information
technology company. In line with company diversification, MCI in November 1995
launched 1-800-MUSIC NOW. This gives consumers an opportunity to call a number
and purchase CDS or cassettes over the phone.

In December 1996, MCI introduced 10-3-2-1, an un-branded alternative access

service for customers who wanted a 10-xxx option for long distance dialing.

GLOBAL PRESENCE
MCI partnered with a Mexican company to create Avantel, a long distance provider in
that nation, Stentor is a Canadian joint venture. Another joint-venture partner, Clear
Communications, a New Zealand company, was (like MCI) the first competitor
against its nation's previous monopoly provider.

CHRONOLOGY: Key Dates for MCI Communications

Corporation

1966:

John Goeken sets up Microwave Communications, Inc.

1968:

Goeken departs and the company becomes MCI Communications

1982:

Western Union buys Western Union

1983:

MCI Mail is launched as the first company to provide e-mail services

1984:

AT&T is forced to break up its monopoly, strengthening MCI's position in the

market

1990:
 Purchases Telecom USA

1993:

MCI launches 1-800-COLLECT

1998:

WorldCom Inc. and MCI announce merger

MCI has offices in 70 countries, and operates international earth stations in orbit to
provide trans-Atlantic and trans-Pacific satellite communications. The company has
offices in 17 Latin American countries, and virtually every country in Europe. In
1991, it received authority from the Chinese government to provide direct long-
distance service between that country and the United States. It also plans a venture
linking Japan and China with a number of Southeast Asian and Pacific Rim countries,
including Vietnam. MCI is a highly visible presence in the Middle East, where in
August 1994 it became the first carrier to link neighbors Israel and Jordan with long-
distance service.

SOURCES OF INFORMATION
Bibliography

Cleland, Kim. "MCI Effort Has Flavor of India." Advertising Age, 19 June 1995.

——. "MCI Names New Tune With Music Service." Advertising Age, 13 November 1995.

Davey, Tom. "MCI-BT Deal May Speed Local Service Offerings." PC Week, 11 November
1996.

"EU to Follow DOJ Lead." CNN Financial Network, 26 May 1998. Available

at http://www.cnnfn.com/hotstories/deals/.

Fitzgerald, Kate. "MCI Rings Up Gays Via Direct Marketing." Advertising Age, 5 June 1995.

Lewyn, Mark. "MCI: A Smaller Family and Fewer Friends." Business Week, 6 February 1995.

"MCI Communications." Hoover's Handbook of American Business 1998. Austin, TX: The

Reference Press, 1997.

MCI Home Page, 28 May 1998. Available at http://www.mci.com/.

"MCI's Alliances: In Search of a Strategy." The Economist, 3 February 1996.

Sprout, Alison. "MCI: Can it Become the Communications Company of the Next
Century?" Fortune, 2 October 1995.

For an annual report:

on the Internet at: http://www.mci.com/ or write: MCI Communications, Investor Relations,

1801 Pennsylvania Ave., Washington, D.C. 20006

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs.
MCI's primary SIC is:

4813 Telephone Communications Except Radio

MCI Communications Corporation

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