Mci Survives Passage into Corporate Adulthood / $5 Billion Industry

THE JOURNAL RECORD, August 1, 1988 | Go to article overview

Mci Survives Passage into Corporate Adulthood / $5 Billion Industry


company set out to make a place for itself in the long-distance telephone market, MCI Communications Corp. has survived the rites of passage into corporate adulthood.

MCI, long considered a brassy and freewheeling risk-taker, has honed its management style and developed a strategy that has made it a $5 billion company and the major long-distance competitor of industry leader American Telephone & Telegraph Co.

``They are a full-service firm that can compete on all fronts with AT&T,'' said Jack Grubman, a telephone analyst with PaineWebber Inc. ``The growing up and pains associated with that are for the most part behind them and they're looking at a long run of pretty healthy growth ahead.''

MCI Chairman William G. McGowan, who on Aug. 8, 1968, founded the company that became MCI, also sees good things ahead for his company, but only with continued hard work and long hours - not even time out for a birthday celebration.

``I think the challenge is always in front of us,'' McGowan said as the company quietly closed out its 20th year in business.

``If we start saying things too much about how long somebody's been with us, then you end up in effect implying there is success and security and you can rest on your laurels a little bit, and that's not true. It's a tough competitive industry and we've got to stay tough and fresh and look at it as a challenge every day,'' he said.

That attitude is what has driven MCI, whose pioneer effort to compete in the long-distance industry influenced the government's decision to try to break up the AT&T telephone monopoly.

``We had to be bold to survive. We had to be fast on our feet and we had to be pushy and we had to be demanding and we had to take risks,'' he said. ``The meek. . .may inherit the Earth, but they won't increase market share.''

MCI surprised analysts last month when it reported a nine-fold increase in second-quarter profits, confirming the self-confidence it displayed a week before when it announced it would buy back the 16.2 percent stake held by International Business Machines Corp.

In the quarter that ended June 30, MCI reported record net income of $73 million on record revenues of $1.2 billion, strengthened by increased sales of 800 and international services and continued penetration of large corporate accounts.

The good news followed a successful first quarter with record earnings, instilling confidence among analysts who have been watching closely as the company has staged a steady comeback from a tumultuous 1986 when profits were disappearing and its stock price was tumbling.

That year MCI's profits were squeezed by price cuts it had to make to keep its rates below those of AT&T. MCI cut staff by 15 percent and took a $550 million writeoff of network assets. The company ended the year with a $448 million loss.

Making matters worse, McGowan suffered a heart attack in December 1986. The following April, doctors replaced McGowan's diseased heart with a healthy one and soon he was back on the job with renewed spirit. Though he is 60, McGowan jokes that ``since I average out my parts, I'm down there'' in age among the company's younger executives.

McGowan's illness came at a crucial time for the company. The telecommunications industry was changing and MCI had to figure out where it fit in the market.

The government was pushing down the rates of AT&T, the largest long-distance company and the only one subject to federal regulation.

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