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By Ron Coates, 20 April 2004 17:40

NEWS MCI has emerged from bankruptcy having shed an unsightly $36bn worth of debt and its top management but hung on to around $6bn in cash, 20 million customers and a global net that handles 35 per cent of the internet.

While CEO Michael Capellas, parachuted in from HP in 2002, paid tribute to the 50,000 remaining staff and his loyal customers, observers warned of price wars and consolidation in a world telecoms industry suffering from chronic overcapacity.

Jan Dawson, senior analyst at Ovum, said: "Their debt is only about $6bn. Other companies, their competitors, racked up tens of billions of debt in mergers and licence fees. Their interest payments will be much less than others, for a start.

"They may say that they won't engage in price-cutting but customers who have stayed loyal during the difficulties will expect a reward in lower prices."

In a conference call, Capella was torn between his exuberance at having finally finished a "marathon with hurdles", the desire to find the future rosy and the fact that he acknowledges the world telecoms market is very challenging.

When asked to comment on the fact that the company had retained 20 million customers but had seen revenues drop about $10bn a year, Capella referred to "price compression". He said: "This is due to the fact that we've become more efficient and to the fact that traditional revenues are falling everywhere – you know that when you see your own phone bill."

And, when asked about the company's lack of a wireless component, he almost admitted that this might be seen as a deficiency but that MCI was perfectly placed to provide end-to-end secure management services for companies wanting wireless in their corporate networks.

Capella has a four point, or front, strategy for driving his company forward: providing more integrated service to the current loyal band of customers; expanding overseas; new products in IP; managed networks outsourcing and an expansion into security.

Dawson said: "This is going to be very difficult to do. The competition is tough and it will be difficult to drive both revenue and profitability growth in any of those areas. In Europe they are doing everything right but it's clear that both revenue and profit are squeezed – it will be interesting to see the figures when they come out.

"Overcapacity has meant that there are problems, but no one has done anything about it. MCI could start things rolling – price cuts and pairings between companies – probably within the next year."

The Worldcom bankruptcy was a trendsetter, involving accounting tricks and inside trading. Until Enron, it was the world's largest. MCI has still to pay the $750m in cash and stock that it agreed to settle charges filed by the US securities watchdog SEC.

Its competitors argued that the company should be allowed to collapse, rather than gain the protection of Chapter 11 proceedings which are designed to save good companies that fall on hard times.

MCI's re-emergence into the business world could not have been damaged by the fact that it handles communications for a number of US federal agencies such the Department of Defence, the Federal Aviation Authority, the Post Office and others.