MCI to Cut Work Force, Post Huge Writedown
MCI Communications on Tuesday reacted to changes in the long-distance telephone business by announcing immediate layoffs, office consolidation and a big writedown of equipment.
It said it would take a charge of $500 million to $700 million against its profit in the fourth quarter, in part for equipment that had decreased in value because of installation of more advanced technology.
MCI is routing more and more calls on fiber-optic cables rather than using radio microwave and satellite transmission.
The writedown will be accompanied by an unspecified number of nationwide layoffs as MCI attempts to trim $100 million a year from its operating costs, $50 million from annual depreciation and more than $100 million a year from its capital expenditures, said spokesman Gary Tobin.
Part of the fourth-quarter charge against earnings will pay for severance allowances for those who are laid off and moving expenses for those offered transfers.
The equipment, Tobin said, “is not as valuable as it was when we purchased it, and at some time you need to reflect the actual value of the equipment on the books.”
The company said it would slice capital spending next year to less than $800 million from more than $900 million. It said the move reflects savings made possible by efficiencies in its digital network. Similar savings could be anticipated in future years, an announcement said.
Tobin said some savings will be realized because “digital technology is coming down in cost much more rapidly than anyone expected.”
He said the company thought the time was right to make adjustments and decided to “Do it, do it at one time, get it behind us and move forward.”
He refused to say how many people would lose their jobs, saying only that most of the notifications would be made in the next 24 hours.
Tobin said the cut will be “across the board and is going to leave us with a company that can compete effectively for large commercial customers . . . . The emphasis will be on using those people and equipment that allow us to compete for that target customer base.”
As part of a series of actions it said “would enhance operating efficiencies, strengthen future profit margins and enable it to compete more effectively,” MCI said it would, during December, consolidate operational, administrative and support facilities nationwide.
American Telephone & Telegraph Co. wrote down $7 billion at the time of its breakup, and GTE Corp. and United Telecommunications Inc. wrote down $1.9 billion when they merged their long-distance operations this year.
MCI’s directors also approved the company’s purchase “subject to market conditions” of up to 15 million shares of its common stock. The announcement set no time frame for the buyback. MCI has 283 million shares outstanding.
MCI President Bert C. Roberts characterized the consolidations as a swift response “to the increased pressure on profit margins throughout the interexchange (long-distance) industry.”
