MCI Reports a $3.4 Billion Loss

Thu Nov 4, 2004
By Justin Hyde

WASHINGTON (Reuters) - MCI Inc.'s (MCIP.O: Quote, Profile, Research) quarterly loss ballooned to $3.4 billion as the No. 2 U.S. long-distance company wrote down the value of its assets due to a price war in long-distance services, MCI said on Thursday.

But the company's shares rose more than 2.5 percent after it said pricing pressures among its largest customers might be easing and cost cuts had improved its profitability.

Excluding a $3.5 billion write-down, MCI said its operating income was $121 million in the third quarter, up from operating income of $77 million a year earlier.

Its net loss totaled $10.65 per share. A year earlier, when the company formerly known as WorldCom was working through the largest bankruptcy in U.S. corporate history, it posted a net loss of $55 million.

Third-quarter revenue fell 15 percent to $5.08 billion.

Since its emergence from bankruptcy in April, MCI has suffered from declining prices for its core services to large businesses. Although demand remains strong, the sheer number of competitors has forced the price of long-distance service down to roughly a penny per minute for big corporate customers.

In addition, a court decision earlier this year threw out rules forcing local phone companies to lease consumer lines to competitors such as MCI and AT&T Corp. (T.N: Quote, Profile, Research) at wholesale rates.

Qwest Communications International Inc. (Q.N: Quote, Profile, Research) , the No. 4 U.S. local phone company, also reported a third-quarter loss on Thursday as it settled financial fraud charges with U.S. market regulators. Like other "Baby Bells," it reported fewer lines lost to competitors during the quarter.

PRICING EASING?

Of MCI's $3.5 billion in write-downs, $1.6 billion came from a unit serving consumers and small to mid-size businesses, while $1 billion came from its international operations.

Revenue from its largest business customers fell 8 percent from a year earlier and was down 1 percent from the second quarter, a less severe decline than the rest of MCI's business. Chief Executive Michael Capellas said pricing pressures had eased, and new contracts for data-intensive services were stemming the revenue slide.

"Pricing is starting to stabilize, quite frankly because there was such severe write-downs last year," Capellas told reporters in a conference call. "Secondarily, the take-up of new technology is starting to hit the enterprise space first."

While chief rival AT&T has said the court decision forced it to retreat from consumer services, MCI has said it would still chase some residential customers if it saw a profit opportunity. The number of consumer lines fell 1 percent during the third quarter, but company executives forecast steeper declines next year.

"We are not haphazardly exiting markets," Capellas said. "We are systemically trying to back off new customer acquisition. How fast the decline comes is a very difficult question to answer."

MCI said it had $5.6 billion in cash on hand, an increase of $200 million from the second quarter. It also said it had begun talks with credit-rating agencies on rating its $5.7 billion in bonds, and expects to complete the talks by the end of the year.

MCI shares rose 51 cents to $17.76 on the New York Stock Exchange.

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