Speculation about what MCI WorldCom plans to do with $1 billion in proceeds from recent asset sales has industry watchers abuzz in anticipation of the June 2 analyst meeting in New York, when details of their plans to spend it will be unveiled.
“It’s been two years since we’ve laid out our full executive team corporate strategies in front of Wall Street,” said Gary Brandt, vice president of investor relations for MCI WorldCom. “A lot has happened since the last meeting. We’ve completed the acquisition of MCI, Brooks Fiber and CompuServe. Structurally, there’s been a lot of activity. We have about 75,000 employees now. In addition, our business has expanded dramatically and we’re a different company today than we were two years ago.”
Brandt said the June 2 meeting is “just an opportunity for us to build confidence with Wall Street and show we have all the pieces and strategies to key market growth opportunities. We really are headed to the sweet spot of the telecommunications sectors today.”
Ashby Foote of Vector Money Management in Jackson said many analysts are anxious to hear what MCI WorldCom presents at the analyst conference.
“They could lay out their grand strategy for the wireless arena,” Foote said. “A lot of exciting things will happen in the wireless sector in the years ahead. It’s growing at a very rapid pace, driven by some new price plans that went into effect last summer.”
Talks to acquire Nextel Communications, a wireless phone company, ended recently and MCI WorldCom backed away from bidding on AirTouch Communications earlier this year, prompting critics to say that MCI WorldCom is making a mistake by failing to pursue the wireless phone business.
MCI WorldCom spokesperson Barbara Gibson said that’s not the case.
“The company has not ruled out wireless phone service,” she said. “There were things about the Nextel deal that made it not the right move. But we will certainly always be looking for opportunities that make sense for both our customers and our shareholders.”
Gibson said industry watchers have said MCI WorldCom “has to get a wireless company.”
“Our position is that wireless phone service is just one avenue,” she said. “If and when we need it, we will have the ability to get wireless facilities but right now isn’t the right time. That doesn’t mean (CEO) Bernie Ebbers is turning his back on it.”
At a recent shareholders meeting in Clinton, MCI WorldCom (Nasdaq: WCOM) announced that investments brought more return than AT&T, GTE or Sprint. Stock prices nearly doubled within the last year, from $44.38 on May 20, 1998, to $86.75 on May 20, 1999. In the same time period, MCI WorldCom quadrupled its market capitalization, acquired an Australian Internet service, a Brazilian phone company, sold its computer operations, issued more than $6 billion in bonds and moved into its new headquarters in Clinton.
“Having wireless would be desirable to have another product for salespeople to sell, but we don’t need wireless to continue our growth that we’re experiencing today,” Brandt said. “When we approach our business customers, it’s not part of their bundled buying decision today. It may become so in the future, so there may be other opportunities where wireless becomes higher on our need scale.”
When making acquisition decisions, Brandt said MCI WorldCom considers equity holders and debt holders as stakeholders in the company.
“Bernie puts up slides about increasing shareholder value,” Brandt said. “We think just as much about increasing debtholder value and that involves improving our credit rating year after year. Those particular companies have decent revenue growth rates, but are very, very debt-laden right now and it would be an impact on our bondholders. It’s not something we think the timing is ripe for, to take on that extra debt.”
Gibson said questions were raised at the meeting, where shareholders approved an increase to double the company’s outstanding stock from 2.5 billion to 5 billion shares, about traditional cable facilities providing service over cable lines.
“We are not pursuing that,” she said. “That’s just one way to reach customers.”
Gibson said MCI WorldCom has expressed an interest in wireless cable technology as a possible way to reach customers.
When asked if MCI WorldCom was interested in buying Wireless One, Gibson replied, after a pause, “we definitely wouldn’t have any comment at this point.” Brandt also declined comment.
Jackson-based Wireless One, the largest provider of wireless cable TV services in the southeast, owns, develops and operates wireless video, data and voice over Internet protocol systems in 11 states. About 700,000 businesses and 7.7 million households are located in Wireless One’s 67 markets. Due to financial difficulties, Wireless One reached an agreement earlier this year with a committee of creditors representing 41% of the company’s senior note holders to file a reorganization plan under Chapter 11 of the U.S. Bankruptcy Code. In January, executives announced that more than 100 workers — 20% of its workforce — would be laid off and 10 of 38 marketing offices would close.
MCI WorldCom bought the Wireless One’s debt issue bonds that are currently trading at a steep discount to par value because of the concerns over bankruptcy, Foote said.
“One of the big problems Wireless One has struggled with is debt they took on in the early stages to grow the company,” Foote said. “There’s a possibility WorldCom could buy it.”
Another possibility: MCI WorldCom, as the largest debtholder of Wireless One, could take control of the company’s assets if Wireless One is forced into bankruptcy, he said.
“WorldCom could end up owning the company without having to buy it,” Foote said.
MCI WorldCom has been competing with Sprint to acquire wireless cable companies, which would allow long-distance companies to transmit voice and data services directly to homes and businesses and bypass Bell networks. Companies such as Wireless One utilize multi-channel, multipoint distribution service area of the broadcast spectrum for the transmission of data and television signals.
There’s also a tremendous push for bandwidth, Foote said.
“One of the things WorldCom has announced they are going to spend some money on is adding fiber technology to their band width,” Foote said. “MCI WorldCom announced they are going to spend some on Ciena, which was picked up in assets from another sale.”
In 1999, MCI WorldCom will spend $6.6 billion in capital on various technologies, Brandt said.
“Technology in the division in which Ciena falls is a relatively small portion of our total capital spending, but an important piece,” he said.
Of the June 2 meeting, Foote said MCI WorldCom “ has a lot on its plate. The company has been very successful in the past with big strategies and it can be a very important meeting that will be watched closely.”