MCI Will Merge Operations, Cut Up to 1,500 Jobs
MCI Communications, the upstart long-distance telephone company that dared to take on American Telephone & Telegraph’s once-monopoly, said Thursday that increasing competition and the slowing economy are forcing it to consolidate operations and lay off up to 1,500 workers nationwide over the next six months.
Officials of the nation’s second-largest long-distance carrier said the impact of the pending layoffs is still largely unknown. But MCI’s Western division, based in San Francisco, would be given additional responsibilities and its territory expanded to 10 states.
Therefore, layoffs in California are likely to be kept to a minimum, with workers in such cities as Denver and St. Louis being much harder hit, MCI said.
The company has about 24,000 workers nationwide.
Under the consolidation plan, MCI will fold its seven divisional units nationwide into four operations centers that will concentrate exclusively on serving business customers. Residential customers, who will be treated as a single mass market, will be served from Arlington, Va.
The announcement makes MCI the final member of the Big Three long-distance carriers to acknowledge that escalating competition, continued price wars and the dragging economy are taking their toll. AT&T;, the largest long-distance carrier whose once-monopoly has been steadily shrinking, has eliminated thousands of jobs over the last few years. And US Sprint, the nation’s other major long-distance carrier, imposed jobs cuts earlier this year.
The announcement also reflects an increasing recognition that the long-distance business is not recession resistant, and thus companies will have to cut prices to remain competitive in a slowing economy.
“There is more competition in the long-distance market than most of the players would like to admit,” said Craig Ellis, an analyst at C. J. Lawrence, a New York brokerage. “And the fact is that long-distance service has become a price-sensitive commodity item where the whole idea is to win market share by (cutting prices). That means cutting costs.”
MCI executives cast their moves in a somewhat different light.
Bert C. Roberts Jr., president and chief operating officer, said the consolidation divides MCI’s core business into its two central components--business and residential--and allows its salespeople in the field to focus their efforts on serving all-important corporate business without worrying about smaller accounts of residential customers.
General consumers, the object of an intense ad blitz by all three major carriers, will be served by a single staff devoted exclusively to their needs, he said. Roberts added that consumers can also expect a new broadcast and print ad campaign from MCI before year-end.
But Roberts acknowledged that the slowing economy and AT&T;’s accelerating push to protect its market has been felt at MCI. “Obviously AT&T; is turning up the heat,” Roberts said.
Brad Peery, a San Francisco-area telecommunications analyst, said that until the recent economic slowdown, the fierce competition among the three large long-distance carriers was somewhat masked by the growing overall market. But once the slowdown hit, and long-distance calling began to drop, the players had to fight harder to hold onto their shares.
According to Ellis, AT&T; has about 65% of the U.S. long-distance market, while MCI has about 15% and US Sprint has about 9%. The remainder is split among hundreds of smaller companies.
Roberts said the slowing U.S. market for long-distance calling is pushing MCI to look internationally for new business, particularly the Pacific Rim and Europe.
The 22-year-old company, based in Washington, had revenue of $6.5 billion last year. Revenue for the first nine months of this year was $5.7 billion. However, profit for the first three quarters of 1990 was $172 million, compared to $450 million a year ago, largely because of a one-time writedown of outdated equipment.
