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  1. Technology
January 29, 1998


By CBR Staff Writer

MCI Communications Corp has reported a huge fourth-quarter net loss of $391m ($0.66 per share) on revenue up 7.5% at $5.12bn, compared to net income of $303m a year ago. The long-distance telecom giant blames the loss on charges related to business maneuvering that negatively impacted its pre-tax earnings by $752m, or $0.66 per share after tax. Net of the charges, then, earnings per share would have come in at $0.10, which was exactly the First Call consensus. The charges, at least in part, reflect the downside of MCI’s position earlier this year, where three rival companies, British Telecommunications Plc, WorldCom Inc and GTE Corp, all tried to out bid each other to takeover MCI. According to MCI, this required that the take charges of $235m as it that fought to keep key employees and customers worried by the companies uncertain future. Other charges included $252m for its restructuring efforts in parts of the long distance, local and information technology businesses. The company has recently quit its previous efforts to resell services provided by the incumbent regional Bell operating companies. MCI had spent around $500m setting up its local services and, according to a company spokesman, lost between $600-$700m a year. A further $265m charge was taken for technology upgrades primarily to improve the performance of its MCI Systemhouse business by moving data centers. The charges look to clear the decks at the company before MCI’s figures are consolidated into WorldCom’s future earnings per share. From WorldCom’s point of view, it would be better for MCI growth to be slow now and pick up in the second half of 1998 after the proposed merger is completed. The situation could be seen as MCI paying the piper now – while its share price is held up by the proposed merger exchange ratio offered by WorldCom – until MCI/WorldCom can sell the market a growth story later. For the year, net income was $2.0m on revenue up 6.3% at $19.65bn, compared to net income of $1.99bn, or $1.73 per share, last year. MCI shares edged up $0.3125 to close at $46.375 on Thursday.

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