MCI Communications takes on new giant
MCI Communications Systems has always fancied itself as an entrepreneurial David going after corporate Goliaths. First the Washington-based company successfully battled American Telephone & Telegraph Company for a small but highly profitable share of Ma Bell's long-distance business. As a result, its sales soared from $95 million in 1979 to $1.07 billion the year ending last March.Skip to next paragraph
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Now MCI is taking on the United States Postal Service. The battleground is time-sensitive first-class mail, which MCI says is an $8 billion-a-year market. The company's one-month-old MCI Mail unit will deliver documents - instantaneously, within four hours, or overnight - depending on the client's needs. And by using MCI's existing communications network the company can provide the service faster than the Postal Service and more cheaply than other private express-mail services.
''MCI is on the track to become a full-spectrum communications company, as opposed to what it has been, which is a low-cost producer of voice telephone calls,'' says Robert Harcharik, president of MCI Digital Information Services.
In addition to being even more aggressive in signing up long-distance customers, MCI is attacking new markets including the cellular radio, consumer paging, and data transmission businesses. The goal is to help insulate MCI from the turmoil in the long-distance market after the Jan. 1 breakup of AT&T into seven regional phone companies.
The broader approach lets MCI make fuller use of its network and positions the company to participate in the growth of a wide variety of telecommunications technologies. And ''telecommunications is the entire transportation system for the information age,'' notes MCI chairman William G. McGowan.
Analysts generally applaud MCI's widening reach. ''MCI is a technical marketing company, but they are smart enough to know they have to expand their base,'' says Charles Robbins, an analyst at International Data Corporation, a Framingham, Mass., research company. ''My only question is how much they can do, given the heavy capital to get into these markets.''
MCI plans to spend about $1 billion in the year ending next March to expand its communications network. Capital spending in 1985 will be at least $1.5 billion, according to MCI's chief financial officer, Wayne English.
The spending is taking place in the midst of the turmoil created by the breakup of AT&T. The divestiture is complex, and all of its effects are not known. But analysts expect AT&T, which will keep the long-distance business, to compete more aggressively on price, which has been MCI's strength.
And the newly independent regional phone companies will eventually have to provide MCI - and its long-distance service competitors, including GTE Corporation's Sprint service - equal access to the phone network. Equal access will mean, among other things, that people using non-Bell long distance will no longer have to punch in lengthy access codes to complete their calls. As a result, competition in the long-distance business is expected to increase sharply.
''It is not going to be as easy as it was,'' Mr. Robbins says. The sharpest challenge to MCI's profits is not coming from competition but from a Federal Communications Commission order on the AT&T breakup. The decision, which MCI is appealing, has the effect of increasing from $234 to $425 the fee MCI pays to tie into the phone network. With some 75,000 lines, interconnection costs are MCI's biggest expense.
Analysts lowered their profit predictions for MCI in the wake of the decision , and MCI treasurer William E. Conway Jr. admits that ''no amount of management action in the short run can compensate for such an increase.''
But MCI has won one reprieve from the charges and may get another. In mid-October the FCC delayed access charges for three months, until April 1. And on Oct. 27 the House Commerce Committee voted to discount access fees for companies like MCI until their connections are as good as the ones AT&T receives.
The House bill ''is much better for MCI,'' says Donald Gooding, an analyst at the Yankee Group, a technology market research firm. But he notes that MCI still faces the risk that the legislation will not clear the House and emerge intact after a conference with the Senate.
While MCI awaits final legislative action, it is launching MCI Mail, an electronic mail system by which the customer writes his letter on a computer or word processor.
The message can be delivered instantaneously to another computer terminal for delivery in such a case occurs when MCI sends the message to its office nearest the destination. There the letter is printed and delivered by a courier within four hours for $25. MCI will also hand-deliver the letter by noon the next day for $6 or drop the printed message at a post office near the destination for probable delivery the next day for $2.
Already 58 major corporations have signed up to use the system. And early next year consumers will be able to buy the necessary computer instructions to send messages on IBM's forthcoming ''Peanut'' personal computer, Mr. Harcharik says.