MCI Communications are ringing up profits -- and growth snags
Things are getting a bit crowded on the top floor of the Prudential Building, one of the tallest office buildings here. There's still plenty of room for visitors to stroll the ''sky walk'' and pick out the State House, Fenway Park, or Bunker Hill from 50 stories up.
But the Boston office of MCI Communications - the company known for its 5 to 50 percent discounts on long-distance phone service - is going to need more room.
''Boston is an incredibly receptive market . . . it's become the biggest growth city in our network right now,'' says Paul Keeler, the Northeast director of marketing at MCI. In September, the office will pick up more space down on the 47th floor.
Boston's demand for MCI is being repeated across the country. On Tuesday the company released earnings figures for its 1983 fiscal year, which ended March 31 . Revenues were up 112 percent, to $1.07 billion, and net income skipped up 98 percent, to $170.8 million. Earnings per share - adjusted for a stock split last September - wound up at $1.69, 86 percent above last year's earnings.
''I see us continuing with another three years of doubling (revenues) each year,'' says V. Orville Wright, president of Washington-based MCI.
MCI has some developments to look forward to:
* If things go as planned, it will be transmitting international phone calls to five or six countries within 24 months, Mr. Wright says. In April, it began transmitting to its first international client, Canada. It is trying to utilize overseas contacts already established by its subsidiary, Western Union International.
* The company has applied to the Federal Communications Commission for permission to supply cellular phone service for mobile phones in 51 markets. At the same time, it is trying to establish a national paging system. Wright expects the FCC to begin granting some licenses this summer.
* The breakup of American Telephone & Telegraph Company, which takes place next January, could also be a plus for the company. At that point, the local phone operating companies will have to offer equal access to all long-distance carriers. This means MCI, for the first time, will begin to have access to rotary dial phones - about 55 percent of all phones. ''Their business will zoom ,'' says Harry Rosenthal, an analyst at Bear, Stearns & Co. who follows MCI.
But some analysts are a bit concerned about MCI's aggressive growth. ''They are growing too fast,'' says Allan Lyons, senior analyst at Value Line in New York. Mr. Lyons says the company just can't install equipment fast enough to take care of the new subscribers. MCI is having overloading problems, he says, and driving some customers away.
Some of those customers are going to other Bell competitors, such as Sprint and Skyline. But analysts feel there is enough of the AT&T pie to go around. At the moment AT&T has about 94 percent of the revenues in the long-distance market.
Mr. Wright admits the company has some quality problems - ''but they are not extensive.'' Half the problem is not MCI's fault, he claims. When a Bell customer dials across town, the call goes through the operator office on what's known as the ''line side of a switch.'' For long-distance calls, the ''trunk side'' of the switch is used - a higher-quality part of the switch. But Bell does not make the ''trunk'' side available to MCI, Wright says. Consequently, MCI has long-distance calls coming off the line side, which can create noise problems. He says this situation will change for the better with the AT&T breakup.
But the other half of the problem is MCI's responsibility. last year, for instance, the New York system was overloaded for three months. Customers would get cut off, get busy signals, or not even be able to get through to MCI service.
''The solution is more equipment,'' Wright says. This year, MCI will pour just over $1 billion into equipment and other capital expenditures. Most of it will go to the domestic long-distance service. MCI has also bought 12 transponders (channels) on two satellites and is gearing up for a massive fiber-optics network that will enable it to carry more calls - and data - faster. At the moment, the company relies on its microwave transmitting towers to carry calls, and a little data, over long distances.
''The question is, how much will AT&T cut rates?'' says Mr. Rosehthal, the Bear, Stearns & Co. analyst. He believes the drop will not be too significant because AT&T is not making a satisfactory rate of return. At the same time, he says there is political pressure to bring prices down.
Analysts say that even if AT&T cut rates aggressively, the company could bear it - possibly at the expense of higher earnings - because its costs are lower. State-of-the-art equipment, motivated employees, and modular repair, which replaces parts instead of adjusting them, are a few of the factors contributing to lower costs. Wright claims that MCI is more productive than Bell. He says his company makes $200,000 per year, per employee, while Bell makes only $100,000.
According to Wright, the company faces ''a straight forward management challenge'' that comes with its burgeoning size.