WorldCom targets Bells with local/long-distance deal
ARLINGTON - MCI Group, the consumer arm of WorldCom Inc., on Monday took aim at the local Bell telephone companies with a flat rate plan for local and long-distance calling.
The campaign, which MCI will brand as "The Neighborhood," will include unlimited local and domestic long-distance calls for a flat monthly fee of between $49.99 and $59.99 a month.
'We expect the plan to be a hit with consumers given the simplicity and control," JP Morgan analyst Simon Flannery said in a research note.
Flannery said he was not sure how much the news would boost WorldCom's financial results although he predicted that the Bell operating companies would see a 50 percent reduction in revenue as a result.
"We worry about the increased competitive intensity and pressure on industry margins," he said, noting that WorldCom's rivals could be forced to follow suit.
WorldCom, which runs a long-distance telephone network, is challenging the local operators in a bid to slow its own decline in revenue.
"This will provide us with the chance to stabilize and grow revenue and reestablish our leadership role in telecommunications," MCI Group Chief Operating Officer Wayne Huyard said in a conference call with journalists on Monday.
Along with its rival, AT&T Corp. (T), MCI has suffered from savage price competition and the entrance in the last two years of the Bell operators into the long-distance business in several states.
The plan by MCI, the No. 2 U.S. long-distance company, will compete directly with incumbent local Bell companies including Verizon Communications and SBC Communications Inc.
FIRST 'ALL-YOU-CAN-EAT' PACKAGE
Although these companies offer some bundled services, WorldCom is the first operator to sell "all-you-can-eat" local and long-distance bundles, the company said.
AT&T already offers flat rate long-distance services to other AT&T customers.
An independent industry analyst Jeff Kagan said: "MCI's new plan charges a higher price of entry, but it rolls local calling into the mix and removes the restriction of calling other MCI customers."
"Investors will love it because it stabilizes the cash flow and customer base, and high-volume, high-value customers will love it because it's simple and levels out fluctuation in their monthly bill," Kagan added.
MCI, which currently offers local services in 11 states, will make its latest offering available in 32 states beginning on Monday, the company said.
Bell operating companies need to prove they are not impeding competition before they can offer long-distance services in their local operating markets. MCI and AT&T can enter any local market, but, since they don't own local telephone networks they need to rent space on their rivals' networks and pay a wholesale fee.
The company said that in 24 of the initial 32 "Neighborhood" states, the incumbent operator is not yet offering long-distance. It expects to add 10 more states to the plan by the end of this year and the remaining eight states by April 2003.
However, the timing of the actual service's roll-out and the total number of markets served will depend on whether or not local operators lower their wholesale prices in certain states, a spokesperson said.
The news comes after a week when WorldCom's share price plunged amidst concerns about its earnings and credit rating agency Standard & Poor's announcement that it may cut the operator's rating.
MCI says it already had about 1.5 million local customers by the end of last year. It hopes to double this figure and end 2002 with more than 3 million local lines.
The company said its set-up costs for the new services will be minimal, but it did not give a figure.
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