MCI Inc.

This article is about LDDS, which later changed its name to WorldCom and purchased MCI Communications. For other uses, see MCI (disambiguation).

MCI Inc.

MCI logo
Trading name	Verizon Enterprise Solutions Verizon Business
Type	Subsidiary
Industry	Telecommunications
Fate	acquired by Verizon Communications since 2006
Founded	1983
Headquarters	Ashburn, Virginia, USA
Key people	Francis J. Shammo, President Kerry T. Bailey, Senior Vice President—Global Services Rommel Santos, CFO
Products	Conferencing, Contact Centers, Data and IP Services, Internet access, IT Solutions and Hosting, Managed Networks, Premises Equipment (CPE), Security, Voice, VoIP, Wireless
Revenue	US$20.6 billion (2005)
Number of employees	30,000+
Parent	Verizon Communications (2006–present)
Website	Verizon Enterprise Solutions mci.com

MCI, Inc. (d/b/a Verizon Business) was an American telecommunication corporation, currently a subsidiary of Verizon Communications, with its main office in Ashburn, Virginia. The corporation was formed originally as a result of the merger of WorldCom and MCI Communications corporations, and used the name MCI WorldCom, succeeded by WorldCom, before changing its name to the present version on April 12, 2003, as part of the corporation's ending of its bankruptcy status. The company traded on NASDAQ as WCOM (pre-bankruptcy) and MCIP (post-bankruptcy). The corporation was purchased by Verizon Communications with the deal finalizing on January 6, 2006, and is now identified as that company's Verizon Enterprise Solutions division with the local residential divisions being integrated slowly into local Verizon subsidiaries.

For a time, WorldCom was the United States's second largest long distance telephone company (after AT&T). WorldCom grew largely by acquiring other telecommunications companies, most notably MCI Communications. It also owned the Tier 1 ISP UUNET, a major part of the internet backbone. It was headquartered in Clinton, Mississippi, before being relocated to Virginia.

History

Corporate founding

The company began as Long Distance Discount Services, Inc. (LDDS) during 1983, based in Jackson, Mississippi. In 1985 LDDS selected Bernard Ebbers (born 1941) to be its CEO. The company became traded publicly as a corporation in 1989 as a result of a merger with Advantage Companies Inc. The company name was changed to LDDS WorldCom in 1995, and relocated to Clinton, Mississippi.

The company grew rapidly in the 1990s. Among the companies that were bought or merged with WorldCom were Advanced Communications Corp. (1992), Metromedia Communication Corp. (1993), Resurgens Communications Group (1993), IDB Communications Group, Inc (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996), and MCI in 1998.The acquisition of MFS included UUNET Technologies, Inc., which had been acquired by MFS shortly before the merger with WorldCom. In February 1998, WorldCom purchased—by a complex transaction—online pioneer company CompuServe from its parent company H&R Block. WorldCom then retained the CompuServe Network Services Division, sold its online service to America Online, and received AOL's network division, ANS. The acquisition of Digex (DIGX) during June 2001 was also complex; Worldcom acquired Digex's corporate parent, Intermedia Communications, and then sold all of Intermedia's non-Digex assets to Allegiance Telecom.

MCI acquisition

File:Mci-Worldcom logo.png

MCI WorldCom logo (Used from 1998–2000).

On November 4, 1997, WorldCom and MCI Communications announced their US$37 billion merger to form MCI WorldCom, making it the largest corporate merger in U.S. history. On September 15, 1998, the new company, MCI WorldCom, opened for business, after MCI divested itself of its successful "internetMCI" business to gain approval from the U.S. Department of Justice.

Proposed Sprint merger

File:Worldcom-logo.png

WorldCom logo (Used from 2000–2003).

On October 5, 1999, Sprint Corporation and MCI WorldCom announced a $129 billion merger agreement between the two companies. Had the deal been completed, it would have been the largest corporate merger in history. The merged company would have surpassed AT&T as the largest communications company in the United States. However, the deal floundered due to opposition from the U.S. Department of Justice and the European Union on concerns that it would create a monopoly. On July 13, 2000, the boards of directors of both companies terminated the merger. Later that year, MCI WorldCom renamed itself simply "WorldCom".

Accounting scandals

CEO Bernard Ebbers became very wealthy from the increasing price of his holdings in WorldCom common stock. However, in the year 2000 the telecommunications industry was in decline. WorldCom’s aggressive growth strategy suffered a serious setback when, in July 2000, it was forced by the U.S. Justice Department to abandon its proposed merger with Sprint. By that time, WorldCom’s stock price was decreasing, and banks were placing increasing demands on Ebbers to cover margin calls on his WorldCom stock that were used to finance his other businesses (timber and yachting, among others). In 2001, Ebbers persuaded WorldCom’s board of directors to provide him corporate loans and guarantees in excess of $400 million to cover his margin calls. The board hoped that the loans would avert the need for Ebbers to sell substantial amounts of his WorldCom stock, as his doing so would result in a further decrease of the stock's price. However, this strategy failed. In April 2002, Ebbers resigned as CEO and was replaced by John Sidgmore, former CEO of UUNET Technologies Inc.

Beginning modestly during mid-1999 and continuing at an accelerated pace through May 2002, the company—directed by Ebbers (as CEO), Scott Sullivan (CFO), David Myers (Controller), and Buford "Buddy" Yates (Director of General Accounting)—used fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldCom’s stock.

The fraud was accomplished primarily in two ways:

1. Booking "line costs" (interconnection expenses with other telecommunication companies) as capital expenditures on the balance sheet instead of expenses.
2. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts".

In 2002, a small team of internal auditors at WorldCom worked together, often at night and secretly, to investigate and reveal $3.8 billion worth of fraud. Soon thereafter, the company’s audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was dismissed, Myers resigned, Arthur Andersen withdrew its audit opinion for 2001, and the U.S. Securities and Exchange Commission (SEC) began an investigation into these matters on June 26, 2002 (see accounting scandal). Sidgmore was instrumental in turning around the ailing company and in revealing Ebbers' fraud to regulators. Sidgmore died suddenly in December 2003 from acute pancreatitis.

By the end of 2003, it was estimated that the company's total assets had been inflated by about $11 billion. This made the WorldCom scandal the largest accounting fraud in American history until the exposure of Bernard Madoff's $64 billion Ponzi scheme in 2008.

Bankruptcy

On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history at the time (since overtaken by the bankruptcies of both Lehman Brothers and Washington Mutual in a span of eleven days during September 2008). The WorldCom bankruptcy proceedings were held before U.S. Federal Bankruptcy Judge Arthur J. Gonzalez, who simultaneously heard the Enron bankruptcy proceedings, which were the second largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of the criminal proceedings against WorldCom and its officers and agents was originated by referral from Gonzalez or the Department of Justice lawyers. By the bankruptcy reorganization agreement, the company paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged investors.

Effective December 16, 2002, Michael Capellas became chairman and chief executive officer. On April 14, 2003, WorldCom changed its name to MCI, and relocated its corporate headquarters from Clinton, Mississippi, to Dulles, Virginia.

During May 2003, the company was given a no-bid contract by the United States Department of Defense to build a cellular telephone network in Iraq. The deal has been criticized by competitors and others, who cite the company's lack of experience with that technology.

The SEC and Worldcom concluded a deal in which Worldcom agreed to pay a civil penalty of $2.25 billion. The deal was approved by federal judge Jed Rakoff during July 2003. In a sweeping consent decree, the SEC and Rakoff essentially took control of Worldcom. Rakoff appointed former SEC chairman Richard C. Breeden to oversee Worldcom's compliance with the SEC agreement. Breeden actively involved himself with the management of the company, and prepared a report for Rakoff, titled Restoring Trust, in which he proposed extensive corporate governance reforms, as part of an effort to "cast the new MCI into what he hoped would become a model of how shareholders should be protected and how companies should be run".

Post-bankruptcy

Bernard Ebbers.

The company emerged from Chapter 11 bankruptcy during 2004 with about $5.7 billion in debt and $6 billion in cash. About half of the cash was intended to pay various claims and settlements. Previous bondholders ended up being paid 35.7 cents on the dollar, in bonds and stock in the new MCI company. The previous stockholders' stock was cancelled, making it totally worthless.

It had yet to pay many of its creditors, who had waited for two years for a portion of the money owed. Many of the small creditors included former employees, primarily those who were dismissed during June 2002 and whose severance and benefits were withheld when WorldCom filed for bankruptcy.

On August 7, 2002, the exWorldCom 5100 group was formed. It was composed of former WorldCom employees with a common goal of seeking full payment of severance pay and benefits based on the WorldCom Severance Plan. The "5100" stands for the number of WorldCom employees dismissed on June 28, 2002 before WorldCom filed for bankruptcy.

On February 14, 2005, Verizon Communications agreed to acquire MCI for $7.6 billion.

On March 15, 2005, Bernard Ebbers was found guilty of all charges and convicted of fraud, conspiracy and filing false documents with regulators—- all related to the $11 billion accounting scandal. Other former WorldCom officials charged with criminal penalties in relation to the company's financial misstatements include former CFO Scott Sullivan (entered a guilty plea on March 2, 2004, to one count each of securities fraud, conspiracy to commit securities fraud, and filing false statements), former comptroller David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on September 27, 2002), former accounting director Buford Yates (pleaded guilty to conspiracy and fraud charges on October 7, 2002), and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on October 10, 2002).

On July 13, 2005, Bernard Ebbers received a sentence that would keep him imprisoned for 25 years. At time of sentencing, Ebbers was 63 years old. On September 26, 2006, Ebbers surrendered himself to the Federal Bureau of Prisons prison at Oakdale, Louisiana, the Oakdale Federal Corrections Institution, to begin serving his sentence.

In March 2007, 16 of WorldCom's 17 former underwriters reached settlements with the investors. Citigroup settled for $2.65 billion on May 10, 2004.

In December 2005, the Microsoft corporation announced that MCI will join it by providing Windows Live Messenger customers "Voice Over Internet Protocol" (VoIP) service to make telephone calls. This was MCI's last new product—- called "MCI Web Calling". After the merger, this product was renamed "Verizon Web Calling".

See also

• Corporate governance
• Corporate scandal
• Dot-com bubble
• Vivien v. Worldcom

Further reading

• First Interim Report of Dick Thornburgh, Bankruptcy Court Examiner, United States Bankruptcy Court for the Southern District of New York, In re WorldCom, Inc., Case No. 02-15533 (AJG) (November 4, 2002) Retrieved 2008-05-02

External links

• Official MCI website
• WorldCom (Archive)
• Verizon Enterprise Solutions corporate website
• William McGowan's MCI: 1968 to 1991