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AT&T'S BOLD MOVE | THE RIVAL

MCI WorldCom's Domain Growing

May 06, 1999|KAREN KAPLAN | TIMES STAFF WRITER

AT&T has made a dramatic shift by focusing on cable lines as its entree to customers' homes, but No. 2 long-distance carrier MCI WorldCom need not respond with a dramatic strategic shift of its own.

In fact, AT&T's $57.2-billion deal to buy MediaOne Group may actually be a response to aggressive deal-making on the part of MCI WorldCom. Those deals have made the Jackson, Miss.-based company a formidable competitor in the business, data and Internet markets.

"MCI WorldCom is on the offensive," said Polina Ialamova, a telecommunications analyst with Madison Securities in Chicago. In contrast to the 89 cities where MCI WorldCom sells local phone service to businesses, "AT&T has almost no local assets, so they're on the defensive," she said.

MCI WorldCom executives would not say whether they are considering strategic changes in the wake of the AT&T-MediaOne deal. But spokeswoman Barbara Gibson emphasized that the company is interested in new technologies and opportunities.

"We're always looking for ways to better serve our customers and our shareholders," Gibson said.

Of course, what works for AT&T wouldn't necessarily work for MCI WorldCom. With 70 million residential customers, AT&T must find a direct link to the home. If approved by regulators, AT&T Chairman C. Michael Armstrong's string of cable deals would give the company direct access to about 62% of American homes.

But capturing the residential market is not a high priority for MCI WorldCom. Although rumors were rampant this week that MCI WorldCom might make an offer for MediaOne, sources familiar with the situation said the company never seriously considered joining the bidding fray. Investors approved of that decision, bidding up the company's stock $6.69 on Wednesday on Nasdaq, to $89.63.

Instead, MCI WorldCom has focused on building and buying phone systems that serve business customers, who are less expensive and more lucrative to serve since they tend to be clustered together in metropolitan areas. MCI WorldCom uses those systems to deliver local and long-distance service, along with data and Internet connections--the most profitable and fastest-growing part of the telecommunications business.

"MCI WorldCom is by no means hurting for growth," said Mel Marten, a telecommunications analyst with Edward Jones in St. Louis. "In fact, MCI WorldCom has the biggest growth rate of all the major telecom companies."

But to sustain that growth, it must add two things to its portfolio: wireless phone service and residential dial tone.

On Tuesday, the company appeared to back away from plans to buy wireless carrier Nextel Communications because the price was too high. Analysts praised MCI WorldCom's frugality, noting that there are other ways to get into the wireless business.

Just last week, MCI WorldCom agreed to pay $476 million for CAI Wireless Systems. And some analysts said MCI WorldCom could make a big splash by bidding for long-distance rival Sprint to get its hands on the Sprint PCS wireless network.

On the residential side, MCI WorldCom has begun offering local phone service in New York over its network. The company plans to roll out service in other states as well, as the regulatory hurdles come down, Gibson said.

That's important, and not just because the company wants to offer a one-stop-shopping bundle of services. A large base of residential customers would leverage MCI WorldCom's network, because consumers use the phone most at night and on weekends--the time when business usage is lowest.

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