Despite industry skepticism about WorldCom's future, new data services and a strong reliance on its IP backbone will be at the heart of the carrier's reorganization as it emerges from Chapter 11 proceedings later this year.
As expected, WorldCom last week filed its in bankruptcy court its three-year plan, which included its corporate name change to MCI. In addition to laying out plans for its future, the carrier said it will launch three services next week and is in the process of beefing up its core network.
"We know we have a lot of work to do," said Michael Capellas, CEO at MCI. "In addition to it being the last day of our 100-day plan, it's the first day on the execution of our three-year plan."
In that vein the carrier says it will launch two bundles for small and midsize businesses (SMB). The first, Business Complete, will combine unlimited local and long-distance voice and DSL for one flat rate, says Ron McMurtrie, vice president of global marketing at MCI. The carrier also will roll out its MCI Business Solutions service bundles for midsize businesses.
The Business Solutions packages will include dedicated data services, such as DSL or fractional T-1 Internet connectivity, plus customer premises gear.
These are not MCI's first services targeted at this market, but they will be supported exclusively over MCI local facilities throughout the country. The carrier teamed with V-Tel in the past, but it now is supporting the services over its own local networks. This eliminates third-party suppliers and reduces costs for MCI because it will absorb all of the service revenues.
MCI also has established an internal sales force to address the SMB market. Most interexchange carriers (IXC) typically address the majority of these customers through sales channels and value-added resellers.
The carrier also is set to launch a VPN service next week at NetWorld+Interop in Las Vegas that "blends private and public networks," McMurtrie says.
The service, called Secure Interworking Gateway, will let customers set up corporate VPNs that use a variety of technologies, such as frame relay, public IP, ATM and DSL, to access secure networks. Users will not have to standardize on one or two access methods, but instead choose the best technology for sites accessing their corporate VPNs.
Edge and local routers will stay in place, but the gateway service will let traffic be handed off to the IP core, McMurtrie says.
This is one example of how the carrier will roll out new services that take advantage of its consolidated IP network. MCI is in the process of migrating all its data networks to a single IP core, says Fred Briggs, CTO. It is deploying 36 multiservice switches throughout its data network to the IP backbone that will transport all traffic. Briggs says the switches will be in place by the end of the month.
Supporting one backbone that all other access networks can bleed into eases management and reduces costs, experts say. It's also a step other IXCs have taken.
MCI has been slow to migrate its core to IP, says Mark Winther, group vice president at IDC. "It's understandable because of the company's financial paralysis, but it's what they should have already "started," he says.
AT&T Corp. is well under way and has been talking about IP and Multi-protocol Label Switching in the core for more than a year, Winther says. Sprint is doing the same, but with IP and ATM at the core, he says.
Even though MCI might be behind its competitors, the company says it is moving aggressively. The edge switches will let the carrier support its frame relay, ATM, private line and voice traffic over its IP backbone. It plans to transport at least 25 percent of its voice traffic over its IP core by the end of 2004, Briggs says.
"The best thing for [MCI] to leverage is its IP network," says David Willis, vice president of infrastructure strategies at Meta Group Inc. "They have the best public IP network in UUNET, which is now the core of the company."
Facing uncertainty
While the company's mood was upbeat this week as it announced the completion of its 100-day plan and the filing of its three-year reorganization plan, MCI faces much uncertainty.
"[MCI] has a deep hole to crawl out of. Capellas has cleaned house and is doing the best he can. The company is positive and upbeat," Winther says. "But I'm skeptical about the company's ability to increase revenues and capture new business."
MCI says that's exactly what it will do. Although its revenue for 2003 is expected to be US$24.5 billion, down 14 percent compared with last year, the carrier says there will be growth in 2004 and 2005. MCI's disclosure statement, which was filed with the bankruptcy court, says revenue will grow by 4 percent next year to reach $25.8 billion and by 8 percent in 2005 to reach $27.8 billion.
Reliability, strong customer service and compelling services are what the carrier says will fuel the growth. Although MCI likes to point out that it hasn't lost any very large enterprise business customers since last year, it has lost customers overall. The carrier's falling revenue only further proves that some customers have left.
But MCI is expecting strong growth in business services as it rolls out offerings to address this market. "We are building out our managed services product line, which is now getting invested in again," McMurtrie says. "We had a very strong heritage in product development. That engine has been quiet this last year. We're going to change that."
McMurtrie added that the company does not plan to start a price war.
Although Meta's Willis says the carrier has reduced rates during contract negotiations to keep existing customers, MCI says it will not cut rates just to win new business.
But considering the telecom market and MCI's bankruptcy, analysts question the company's ability to grow. While customers that have stuck by MCI say it is keeping up with demand and reliability, some question how long it can keep up.
"For a company with $24 billion in revenue, I would expect them to put about $2 billion in capital into the network. Currently they are investing about $800 million," Willis says. "They are starving the network, which could affect reliability going forward."
The company says its capital expenditures will total $1.2 billion by year-end and $2 billion annually by 2005.
MCI could come out of bankruptcy in the third quarter with about $32 billion of debt wiped clean off its balance sheet. But the carrier expects to have about $4.5 to $5.5 billion in debt at that time.