MCI gets new lease on life

MCI is poised to emerge from bankruptcy leaner and ready to prove itself again. The company is ditching its old name, WorldCom, and upgrading its technology as it works to rebuild its public image.

Last year, MCI dodged another bullet: the prospect of being banned from taking new federal contracts. General Services Administration officials ultimately chose not to debar the firm, although they will monitor it closely for the next three years. The decision came just in time for the company to get a one-year extension on the FTS 2001 telecommunications contract.

GSA officials determined that MCI had taken the corrective actions necessary to ensure that doing business with the company is safe, according to David Drabkin, deputy associate administrator of GSA's Office of Acquisition Policy.

Despite the sigh of relief that MCI officials heaved after GSA's decision, the company's path is not completely clear. New Jersey officials last month suspended MCI from taking new state contracts until the company resolves pending cases in Oklahoma and New York, which stem from the 2002 accounting fraud that sent the company into bankruptcy in the first place, said New Jersey spokesman Matt Golden.

"When there are cases like this where there is admitted wrongdoing, we feel it's prudent to take a wait-and-see approach," Golden said.

He did not have details on how much money MCI earns from state contracts. In the federal world, though, the FTS 2001 contract has been good to MCI. The company earned $356 million from the contract in fiscal 2003 and has earned $1.2 billion since its inception.

Company officials had planned to emerge from bankruptcy at the end of February but needed a 60-day extension to complete paperwork with the Securities and Exchange Commission. It will now emerge sometime within that period, said Jerry Edgerton, senior vice president of MCI Government Markets.

When the company does emerge, it will have given creditors equity in the company in exchange for eliminating $36 billion in debt, Edgerton said. And MCI has about $4 billion in the bank, although it still has to pay an SEC fine of $500 million, he said.

"It's a fresh start," he said. "It's like a new company. We are extremely competitive now. We never lost any momentum.

The things GSA challenged us to fix, we fixed. We're coming out of this thing

invigorated."

Despite the bumps MCI has endured, the company seems to be resolving its issues, said Daryl Schoolar, senior analyst in the advanced carrier services group of the In-Stat Group.

"The expectation is for them to be a strong competitor," he said. "They seem to have taken the steps they need."

MCI's new vigor had worried some of the company's competitors, who last year fretted that an MCI shorn of debt and flush with cash could outbid other companies. Now that MCI's situation is clear, some competitors say they aren't worried.

"We're all building ourselves to be leaner in our financial position — to be competitive," said Lou Addeo, president of AT&T Government Solutions, of the telecommunications industry in general.

"I have no problem competing in the areas where we need to on price," he said. "Price is not the only issue, but I'm not afraid of pricing."

Addeo had assumed MCI would not be debarred, he said, so there is no need for any adjustment now that the decision is official.

Tony D'Agata, vice president and general manager of Sprint's Government Systems Division, agreed with Addeo. "We had all predicted that the suspension would be lifted prior to the extension of FTS 2001," he said.

D'Agata was cautious in his prediction of what kind of competitor MCI will be with its new structure.

"What we do know is that MCI has to be accountable to others," he said. "Whether they will be as competitive as [they were] in the past, time will tell. It's not been our strategy to knock MCI. Our strategy has been and continues to be one that plays off our strengths."

Despite the drama, MCI has continued to upgrade its technology in preparation for rolling out IP services, which the company intends to take the lead in, Edgerton said. Last month, company officials announced an expansion of the Multiprotocol Label Switching global network and the ongoing development of a new "ultra-long-haul" optical network. That network is undergoing testing now and will be rolled out over the next three to five years, said Dennis Day, senior manager of global transmission and network management equipment engineering at MCI.

The optical network will allow the company to reduce the time needed to supply bandwidth from months to weeks and enable MCI to offer data backup, storage-area networking and other services.

"This is a very big step for us, from both a technological standpoint and the ability to deliver new levels of quality price and services to our customers," Day said. Ultimately, the network will become the foundation for all of MCI's services.

Edgerton expressed optimism for the company, especially on the government side. "We're going to emerge lean and mean, and we're emerging into a changing marketplace," he said. "We are in a good position. We have a network, and we don't have a lot of the burdens we had in the past. But we need to get back to running the business. We'll just keep moving forward."

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MCI's stake in the federal market

MCI, formerly WorldCom, provides network services to several large federal agencies. Among them:

* Defense Information Systems Agency. Under three contracts worth up to $5 billion split among other vendors, MCI supports the Defense Department's command and control network, extends circuits for the Defense Information Systems Network in the United States and provides circuits that allow agencies to offer services in the Asian/Pacific, South American, Middle Eastern and Caribbean regions.

* Navy and Marine Corps. MCI is one of the key vendors on the Navy Marine Corps Intranet project.

* Federal Aviation Administration. MCI provides communications services to the nation's air traffic control system under the Leased Interfacility National Airspace System Communications System. Originally signed in 1991, the 10-year contract was renewed for five more years in 2002 and is worth up to $600 million.

* U.S. Postal Service. MCI is USPS' managed network services provider, under an 11-year contract worth up to $3 billion.

Source: MCI