Harvard Business School
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Rev. June 1, 1998
MCI Communications Corp., 1983
In April 1983 Wayne English, chief financial officer of MCI Communications Corp., faced the problem of setting financial policy in an environment characterized by a large potential demand for external funding and great uncertainty concerning MCI’s future. MCI, which provided long distance telecommunications services in competition with AT&T, had seen its revenues grow from almost nothing in FY1974 (ending March 31, 1974) to more than $1 billion in FY1983. During that period, the company climbed from a loss of $38.7 million in FY1975 to a profit of $170.8 million in FY1983. In those last two years alone, its stock price had increased more than fivefold.
Nevertheless, the antitrust settlement between AT&T and the U.S. Department of Justice in
January 1982 had significantly altered the economic landscape for MCI. The settlement, providing for the breakup of AT&T by early 1984, would affect MCI in two important ways. On the one hand, it offered the opportunity for greatly increased growth, since AT&T would be required, for the first time, to compete on equal quality-of-service terms with MCI. On the other hand, the settlement posed new uncertainties, since it promised to eliminate certain MCI cost advantages and increase AT&T’s competitive flexibility.
Even in the face of intensifying competition from AT&T, however, MCI was committed to extending the reach and capacity of its network. According to Brian Thompson, Harvard MBA 1964 and senior vice president for corporate development: “Economies of scale and scope are everything in this business. In the long term, the strategic high ground lies in owning your own facilities for basic call services and then leveraging off this to provide value-added services.”
Company Background
MCI was organized under the leadership of William McGowan, a Harvard MBA 1954 graduate, as the Federal Communications Commission