MCI Inc, the Ashburn, Virginia-based company formerly known as WorldCom, has posted a $3.4 billion loss because of costs to write down the value of its telephone network

For the third quarter ending September 30 the number-two US long-distance company posted a net loss of $3.4 billion, up from a net loss of $55 million for its predecessor company WorldCom, which went into chapter 11. Excluding the one-time charge, the company posted a profit of $121 million for the July-September quarter.

Sales fell 15% to $5.08 billion from $5.97 billion, but costs from continuing operations fell 16% to $4.46 billion.

MCI has aggressively sought to cut costs, and has reduced its workforce to 41,000 from 59,000 at the beginning of the year. CEO Michael Capellas revealed the company has now met its targets for staff cuts.

Capellas is continuing MCI’s transition away from traditional long-distance service to residential customers under its MCI brand to an emphasis on providing high-end IP services to big businesses. However, sales in the division that serves global corporate customers only fell 7.8% to $1.19 billion, compared with the 15% drop companywide.

MCI also is achieving some level of success in selling so-called private Internet protocol networks. The networks provide greater security by letting companies link international sites without sending information outside of MCI’s network. MCI operates a network that spans 98,000 miles over six continents.

Revenue in the unit that sells call services for residential homes and small US businesses fell 17% to $2.24 billion. Sales in the unit that sells wholesale access to MCI’s network fell 17% to $1.65 billion.

The write-down of MCI’s telephone network mirrors that of its competitors.

AT&T Corp, the number-one US long-distance provider, recently recorded an $11.4 billion write-down, while the number-three ranked Sprint Corp recorded a $3.5 billion write-down. The companies say regulatory changes and competition from wireless and cable phone providers have hurt profits, making their networks less valuable.

The $3.4 billion write-down by MCI is the second of the year. It already restated three years of financial results back in March, and recorded a $59.8 billion expense for writing down the value of assets, including those obtained in acquisitions.

McLEAN, Va. (AP) — MCI (MCI), one of the nation’s biggest long-distance operators, lost $3.4 billion in the third quarter because of a previously announced asset writedown of $3.5 billion, the company announced Thursday, but its core operating results were better than expected.

Excluding the one-time charge, the company posted a profit of $121 million, or 16 cents a share, for the July-September quarter. Analysts surveyed by Thomson First Call had predicted a profit of 5 cents a share.

The company lost $55 million in the period a year ago when it was in bankruptcy and was known as WorldCom.

Quarterly revenue dropped 15% to $5.08 billion, but costs from continuing operations fell 16% to $4.46 billion.

The company has aggressively sought to cut costs in the last year, reducing its workforce to 41,000 from 59,000 at the beginning of the year. Chief Executive Michael Capellas said Thursday in a phone interview that the company has now met its targets for staff cuts.

Capellas said the company is continuing its transition away from traditional long-distance service to residential customers under its MCI brand to an emphasis con providing high-end IP services to big businesses. In the company’s enterprise segment, which caters to Fortune 500 companies, revenue declined only 8% from the year-ago quarter, compared to the 15% drop companywide.

Prices are starting to stabilize in the big-business market, Capellas said, and large companies are starting to adopt some of MCI’s cutting-edge technologies, particularly on items pertaining to network security.

«The takeup of new technology is starting to hit the enterprise segment first, as you would suspect,» Capellas said.

In its mass-market segment, which includes its residential long-distance segment, revenue declined only 1% from the previous quarter and 18% from the year-ago quarter.

MCI has said it is scaling back its marketing efforts in the residential long-distance market due to industry competition and an expected jump in access costs. So far, though, those access cost increases have not occurred, so the company continues to pursue opportunities as they present themselves.

Also, the relatively small decline reflects the fact that MCI has increased local phone service to residential customers, offsetting losses in long distance, company officials said.

«We’re systematically going to back off, but it’s very hard for us to answer when,» Capellas said, because the company wants to react as market conditions evolve.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

By Christopher Stern
Washington Post Staff Writer

MCI Inc. disclosed yesterday that it may have to reduce the value of some of its assets to reflect the continuing decline of its consumer long-distance business.

Any write-down is likely to be regarded on Wall Street as a sign the telecommunications giant has lost confidence in its core long-distance business, analysts said. However, in the short run, the accounting would help the carrier’s financial profile by lowering the depreciation costs it must carry on its balance sheets related to equipment.

MCI, based in Ashburn, revealed the potential write-down in filings with the Securities and Exchange Commission. The filing comes just one week after AT&T Corp., one of its largest rivals, made a similar statement in its own regulatory filing.

MCI and AT&T are suffering from an influx of competition, chiefly from the large regional phone companies that have been freed by regulators to offer long-distance service. Regional phone companies such as Verizon Communications Inc. and BellSouth Corp. have been able to take millions of customers away from AT&T and MCI by bundling local and long-distance service in a single package.

At the same time, MCI and AT&T are being undermined by fledgling entrepreneurs who have launched services that allow consumers to make calls over high-speed Internet connections at deeply discounted rates.

MCI, which emerged from bankruptcy in April, has already written off $8o billion in assets. It currently values its assets at just over $14 billion. In contrast, AT&T still values its assets at over $40 billion and is likely to take a much larger write-down, according to analysts.

In announcing their write-downs, MCI and AT&T referred to a recent decision by the Federal Communications Commission that lifted government mandates governing the rates phone companies charge one another. They said the decision effectively forced them to abandon efforts to market local telephone service in a bundle with long distance. Such bundles have become hugely popular since they were introduced about three years ago. Verizon estimates that 40 percent of its customers have signed up for a local and long-distance service.

Verizon is one of the nation’s largest long-distance carriers, with more than 16 million long-distance customers. MCI, which just two months ago claimed more than 20 million customers, now says it has fewer than 9 million subscribers.

In its SEC filing, MCI stopped short of saying that it would follow AT&T’s lead and abandon consumer marketing efforts. «Some competitors have announced their exit from this market, and [MCI] intends to de-emphasize its consumer business and reduce efforts to acquire new customers,» MCI said. MCI officials declined further comment on the filing.

Most of MCI’s write-down would affect assets directly related to its consumer business. It’s not clear how big the write-down would be because the company does not separately identify its consumer-related assets.

Susan Kalla, a telecommunications analyst with Friedman, Billings, Ramsey Group Inc., said a write-down suggests the carriers don’t expect to win back customers.

«It means that it is over and they don’t see it coming back and they are getting rid of all the expenses related to it,» Kalla said.

MCI posted a second-quarter loss as it waged a price war in long-distance telephone service but also announced a large dividend that gave its shares a boost Friday.

The nation’s second-largest long-distance company said Thursday that it will begin paying a quarterly dividend of 40 cents a share in September, part of a plan to return $2.2 billion to shareholders.

At Thursday’s closing share prices, MCI’s dividend corresponds to an 11 percent annual dividend yield, nearly triple the average dividend yield of other telecom companies. On Friday, shares were up $2.76, or 20 percent, to $16.60 in morning trading.

Under the terms of its bankruptcy reorganization, MCI was required to identify «excess cash» and use it to maximize shareholder value.

MCI said its losses totaled $71 million, or 22 cents a share, compared with earnings of $8 million in the same period a year ago, when it was still operating under the WorldCom name and working though the largest bankruptcy in U.S. corporate history.

MCI has struggled to lower costs in the midst of a price war for traditional phone services with AT&T and dominant U.S. local telephone companies, who have pushed into residential and business long-distance service. MCI said revenue fell 15 percent to $5.2 billion, with sales to its large corporate customers falling 12 percent and revenue from smaller businesses and residential customers declining 22 percent.

Due to changes in federal rules governing phone competition, MCI said it would «significantly» cut back on marketing local service to residential customers and review the value of its assets. Both moves are similar to those made by AT&T, which announced last month it would stop marketing residential local and long-distance service.

But MCI executives stopped short of announcing a full retreat from residential customers, saying federal rules were still in flux. MCI has 3.6 million local phone customers and 8.8 million consumer long-distance lines.

The pullback did help the company’s costs, as MCI trimmed advertising and cut thousands of jobs from its call centers that handle consumer marketing. Those moves and others drove down MCI’s administrative costs by about $300 million from the first quarter.

MCI Chief Executive Michael Capellas said the company cut about 6,200 jobs during the quarter, part of a reduction of 16,000 jobs, or nearly 30 percent of its workforce, planned for this year.