Long distance hampers WorldCom results

(Telephony) WorldCom’s MCI long-distance business hurt the carrier’s fourth quarter 2000 performance. Earnings dropped 44% in a year-by-year comparison with 1999 as WorldCom said it earned $726 million, or 25 cents per share, in the fourth quarter versus $1.3 billion, or 44 cents per share, during the same time period a year ago.

For the year, WorldCom reported net income of $4.7 billion--$1.61 per share--compared with $4 billion--$1.35 per share--for 1999. Annual revenue increased to $39.1 billion from $35.9 billion a year ago, with positive results in its WorldCom Group side of the business.

MCI is enmeshed in a long-distance market that is being hammered by increased competition and spiraling prices. That’s a key reason WorldCom is splitting its business between the high-growth WorldCom Group of international, data and Internet operations and what it hopes will be a stabilized MCI group featuring long distance, calling card and dial-up Internet access.

WorldCom president/CEO Bernard Ebbers blamed the loss on several factors impacting the MCI Group.

“Two industry trends dominate: wireless substitution, which is impacting calling-card and 1-800-COLLECT, as well as lowering average usage per customers; and, two, industry effective rates have stabilized, resulting in less rate differentiation among competitors, therefore increasing the importance customers put on service,” Ebbers said.

Long-distance prices have plunged, but Ebbers said he hopes “pricing stabilization will be much more of a consideration than the very irrational pricing that we’ve seen in the marketplace over the last couple years.”

WorldCom is “asking (MCI Group) managers to focus on profitability and cash flow, without regard to revenue,” he emphasized. “Core MCI revenue will be flat to down 2% for the year. We will take further actions in unprofitable segments that will cause revenue to decline further, but we are mostly behind the major sequential declines in those areas, and we will achieve our cash flow requirements for dividends and debt service,” he said.

Ebbers made no mention of rumors that WorldCom would slice as many as 10,500 jobs but noted “cash flow should be more stable in future quarters as we streamline our organization and bring our cost structure more in line with the more focused business plans.”

The news was somewhat better on the WorldCom side of the business. Revenues climbed from $5 billion to $5.8 billion year-to-year, and that group was able to meet performance expectations made when it declared its intention to separate.

“I’m very pleased we were able to exceed our WorldCom Group revenue expectations in what is an improving, but still very difficult, competitive environment,” Ebbers said. “On the WorldCom side of the business, we are sticking with our 12% to 15% revenue growth guidance for 2001.”