- The Washington Times - Thursday, August 5, 2004

MCI Inc. said yesterday that it doesn’t expect to add new residential calling customers because costs are increasing, the second major phone company in two weeks to announce its exit from residential phone service.

“We anticipate to downsize our [consumer business] effort significantly,” said Wayne Huyard, president of MCI’s U.S. sales and service division.

Mr. Huyard didn’t offer details about MCI’s plans, but the nation’s second-largest long-distance provider wants to turn its attention to the more profitable commercial business.

AT&T; Corp., the nation’s largest long-distance provider, said July 22 that it will stop trying to attract customers but continue to provide long-distance and local service to its 35 million residential customers. AT&T; is walking away from the residential-calling business because revenue has fallen owing to increased competition and higher costs.

MCI has 3.5 million residential customers for its local and long-distance phone service, and company officials said revenue from those customers amounts to about $3 billion annually.

“We don’t expect [residential phone service] will be a growth engine,” MCI spokesman Peter Lucht said after the company outlined its plan in a conference call to discuss second-quarter earnings.

MCI will continue to provide service to existing local and long-distance customers.

“We anticipate that our costs will go up and it will be more difficult to add new [residential] customers,” Mr. Lucht said.

MCI, based in Ashburn, Va., also plans to trim its work force to 41,300 by the end of the year. It has 44,800 workers currently, down from 57,300 at the end of 2003.

MCI lost $71 million (22 cents per share) in the second quarter, compared with net income of $8 million a year earlier, as sales fell owing to declining calling prices.

Sales fell from $6.17 billion a year ago to $5.24 billion for the three months that ended in June, the first quarter since it emerged from bankruptcy.

MCI Chief Executive Officer Michael Capellas said the company faces a “challenging industry environment” that has caused “relentless price competition.”

“We’ve made tremendous progress, but recognize that we have work to do,” Mr. Capellas said.

MCI also plans to pay a quarterly dividend of 40 cents a share. MCI has about $2.2 billion in excess cash, paving the way for the dividend.

Shares of MCI fell 8 cents to close at $13.84 on Nasdaq.

MCI officials didn’t discuss Leucadia Corp., the New York holding firm that wants to buy MCI’s outstanding shares of stock. Leucadia needs antitrust clearance under the Hart-Scott-Rodino Act before proceeding with its unsolicited bid because it already owns WilTel Communications Group, in Tulsa, Okla.

MCI has said the review period ends on or about Monday.

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