- The Washington Times - Thursday, November 4, 2004

ASSOCIATED PRESS

MCI Inc., one of the nation’s biggest long-distance operators, lost $3.4 billion in the third quarter of 2004 because of a previously announced asset write-down of $3.5 billion, the company announced yesterday, but its core operating results were better than expected.

Excluding the one-time charge, the Ashburn, Va., company would have posted a profit of $121 million, or 16 cents a share, for the July-September quarter. Analysts surveyed by Thomson First Call had predicted a profit of 5 cents a share.

The company lost $55 million in the period a year ago when it was in bankruptcy and was known as WorldCom.

Quarterly revenue dropped 15 percent to $5.08 billion from $5.97 billion a year ago. But costs from continuing operations fell 16 percent to $4.46 billion from $5.28 billion a year ago.

The company has aggressively sought to cut costs in the past year, reducing its work force from 59,000 at the beginning of the year to 41,000. Chief Executive Officer Michael Capellas said yesterday that the company has now met its targets for staff cuts.

Mr. Capellas said the company is continuing its transition from traditional long-distance service to residential customers under its MCI brand to an emphasis on providing high-end IP services to big businesses. In the company’s enterprise segment, which caters to Fortune 500 companies, revenue declined only 8 percent from the year-ago quarter, compared with the 15 percent drop companywide.

Prices are starting to stabilize in the big-business market, Mr. Capellas said, and large companies are starting to adopt some of MCI’s cutting-edge technologies, particularly on items pertaining to network security.

“The takeup of new technology is starting to hit the enterprise segment first, as you would suspect,” Mr. Capellas said.

In its mass-market segment, which includes its residential long-distance segment, revenue declined only 1 percent from the previous quarter and 18 percent from the year-ago quarter.

MCI has said it is scaling back its marketing efforts in the residential long-distance market because of industry competition and an expected jump in access costs

So far, though, those access- cost increases have not occurred, so the company continues to pursue opportunities as they present themselves.

Also, the relatively small decline reflects the fact that MCI has increased local phone service to residential customers, offsetting losses in long distance, company officials said.

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