Accounting Writedown Leads To $3.4 Billion MCI Loss

McLEAN, Va. (AP) MCI Inc., one of the nation's biggest long-distance operators, lost $3.4 billion in the third quarter of 2004 due to a previously announced asset writedown of $3.5 billion, the company announced Thursday, but its core operating results were better than expected.

Excluding the one-time charge, the Ashburn, Va.-based company would have posted a profit of $121 million, or 16 cents a share, for the July-September quarter. Analysts surveyed by Thomson First Call had predicted a profit of 5 cents a share.

The company lost $55 million in the period a year ago when it was in bankruptcy and was known as WorldCom.

Quarterly revenue dropped 15 percent to $5.08 billion from $5.97 billion a year ago. But costs from continuing operations fell 16 percent to $4.46 billion from $5.28 billion a year ago.

The company has aggressively sought to cut costs in the last year, reducing its workforce from 59,000 at the beginning of the year to 41,000. Chief executive Michael Capellas said Thursday in a phone interview that the company has now met its targets for staff cuts.Capellas said the company is continuing its transition away from traditional long-distance service to residential customers under its MCI brand to an emphasis con providing high-end IP services to big businesses. In the company's enterprise segment, which caters to Fortune 500 companies, revenue declined only 8 percent from the year-ago quarter, compared to the 15 percent drop companywide.

Prices are starting to stabilize in the big-business market, Capellas said, and large companies are starting to adopt some of MCI's cutting-edge technologies, particularly on items pertaining to network security.

``The takeup of new technology is starting to hit the enterprise segment first, as you would suspect,'' Capellas said.

In its mass-market segment, which includes its residential long-distance segment, revenue declined only 1 percent from the previous quarter and 18 percent from the year-ago quarter.

MCI has said it is scaling back its marketing efforts in the residential long-distance market due to industry competition and an expected jump in access costs. So far, though, those access cost increases have not occurred, so the company continues to pursue opportunities as they present themselves.Also, the relatively small decline reflects the fact that MCI has increased local phone service to residential customers, offsetting losses in long distance, company officials said.

``We're systematically going to back off, but it's very hard for us to answer when,'' Capellas said, because the company wants to react as market conditions evolve.

For the first6 nine months of the year, the company lost $3.86 billion, or $12.00 a share, on revenue of $15.7 billion. In the first nine months of 2003, it earned $5 million on revenue of $18.7 billion.

The $3.5 billion asset writedown, which accounts for 91 percent of the company's annual losses so far this year, follows a $60 billion writedown earlier this year associated with the company's emergence from bankruptcy and clearing its books of a multi-billion dollar accounting fraud that occurred in its WorldCom days.