Lower telecom prices expected as MCI exits bankruptcy

FRAMINGHAM (11/07/2003) - With MCI poised to emerge from Chapter 11 bankruptcy protection early next year, users and analysts this week predicted lower prices for voice and data networking services, if not an outright price war.

MCI officials have sought to dispel such talk since U.S. Bankruptcy Court Judge Arthur Gonzalez approved the company's financial reorganization plan on Oct. 31. CEO Michael Capellas said after the ruling that MCI already faces "a brutal pricing environment." Capellas vowed not to start a price war with rivals like AT&T Corp. and Verizon Communications, although he added that MCI "will protect our territory, and we will be competitive."

Vinton Cerf, senior vice president of technology strategy at MCI, this week said in an interview that it would be "silly to initiate a price war and make up revenues in volume." He said that as voice revenues decline for all telecommunications vendors, MCI will put even more emphasis on IP network services and "increase the range and function of products and services we offer."

But several analysts said there is room for MCI, which is still legally known as WorldCom Inc., to drop prices, and some users also see cost reductions ahead. Asked if he thinks prices will fall as MCI comes out of bankruptcy, Jeff Scott, a communications project analyst at St. Vincent Hospital and Health Care Center Inc. in Indianapolis, said, "You'd hope."

The Downside

Jack Pavelko, lead telecommunications analyst at chemicals maker BASF Corp. in Mount Olive, N.J., also predicted that MCI's emergence with lowered debt will result in offers of lower prices for voice and data services. Pavelko said that would put pressure on competitors to drop their prices as well, but he lamented such a possibility.

"Already, we get no customer service from carriers, and now they'll be fighting over fractions of pennies," Pavelko said, referring to the per-minute cost of long-distance voice services. "Not in my lifetime will I ever work with MCI. They deflated prices for three years, and their emergence from bankruptcy will push the market into further chaos."

BASF currently spends about US$28 million annually with Sprint Corp. and AT&T for voice and data services. MCI made a short presentation at BASF last month, but Pavelko said he wasn't impressed by the sales pitch.

Howard Anderson, senior managing director of YankeeTek Ventures in Cambridge, Mass., and founder of The Yankee Group market research firm, said that demand for long-distance voice services is diminishing and that some users can already get prices of 1 cent per minute.

"You can't get much cheaper than that," Anderson said. "There might not be an actual price war, but as MCI emerges, it will start more competition on pricing. MCI is still respected."

AT&T spokesman John Heath said that whatever MCI does on pricing for a wide range of voice and data services, AT&T will keep pace. "We've been able to compete with MCI very effectively when they were cheating in the past, and we'll continue to do so," Heath said.

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