Business Week is running an article on how MCI are planning to transform themselves from a telephone company into what appears to be a hosted IP applications company. It’s tough to summarize the article since so much of what’s said by CEO Michael Capellas seems to be grounded in something other than reality. This tidbit was particularly entertaining:
Visit the corner office of CEO Michael D. Capellas, though, and little seems amiss. He bounds about shooting video from his mobile phone and delivering pep talks about the wave of companies adopting Internet technology for everyday communications. Asked how an old-line telecom company can hope to surf that wave, he says: “It’s called $6 billion in cash and zero net debt.”
The first part of this paragraph has me wondering why a company with no wireless assets beyond paging and low-speed data is getting all warm and fuzzy about people shooting video with their mobile phones. Granted its kind of a throwaway comment, but it just strikes me as very odd. Secondly, the comments about “waves of companies adopting Internet technology” is a bit out-dated and is vaguely reminiscent of a 1990s flashback. “The Internet is going to be big” is some dusty rhetoric, guys. Has the time spent doing karaoke to “Tubthumping” made the crew at MCI think that it really IS the 1990s again?
The comments about zero net debt and $6 billion in cash is always one of the things that infuriated me about the WorldCom scandal when I hear any comments to this affect from folks at MCI. The affect WorldCom’s cooking the books had on the telecommunications industry was devastating. The price disruptions they made in the marketplace helped push the industry into a deeper malaise in 2001 – 2003. They were able to do this, undercut their competition and erode margins in the industry by playing games while other companies were playing it straight. Having worked at one of those other companies and seen friends and colleagues laid off, WorldComs fraud really burns me. Having seen friends who worked at WorldCom and saw them get laid off or their personal wealth plummet as a result of the fraud pisses me off, too. Granted Capellas wasn’t there at the time and doesn’t bear responsibility for those actions, but his comments still strike me as being somewhat flip for a company that is in the state it’s in despite a major fraud played on customers, employees, shareholders, creditors, competitors, regulators and auditors.
I also find the $6 billion in cash and zero net debt to be an example of classic spin. You don’t have the cash *AND* zero debt… if you used the cash to pay your debt you would have zero debt, Mr. Capellas. According to wsj.com, the last quarterly financial report available for MCI (quarter ending 9/30/04), MCI has $5.9 billion in long term debt. Maybe I’m picking at nits in his language, but this is really an either/or relationship, not an AND relationship. That money cant be used for acquisitions, capital investment and to pay off MCIs long-term debt. Its sounding a bit like Mr. Capellas has spent this money once or twice over in his head already.
Finally, MCI is entering a space about which they know precious little. It’s a crowded space that brings them into competition with any number of companies that know hosted applications better than they do. This is far from a slam dunk, and Im not convinced its a winning proposition for MCI. Its still me expectation that MCI will at some point be purchased by one of the RBOCs for the value of its enterprise accounts.
