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MCI to Cut 7,500 Jobs, Reports $388 Million First-Quarter Loss

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By Christopher Stern
Washington Post Staff Writer
Tuesday, May 11, 2004; Page E01

MCI Inc. said yesterday that it would eliminate 7,500 jobs, or 15 percent of its workforce, as part of an effort to bring costs in line with the long-distance giants' rapidly declining revenue.

The Ashburn-based company made the announcement during a conference call when it also revealed that it lost $388 million ($1.19 per share) during the first quarter of 2004, compared with a profit of $52 million in the same period a year earlier.

MCI reported revenue of $6.3 billion, compared with revenue of $7.2 billion in the first quarter last year, a decline of 12.5 percent.

MCI chief executive Michael D. Capellas attributed the company's weak results to the broader turmoil in the telecommunications industry, where intense competition has driven down prices.

Capellas, who announced layoffs of 4,500 workers in March, said he is determined to continue to cut costs. "Despite the difficult industry conditions, losing money is not acceptable," he said.

MCI employs about 5,000 workers in the Washington area, about 10 percent of its total workforce. The company is planning to begin the layoffs in June, and it is not yet clear how many employees in the Washington area will lose their jobs. By the end of the year, the company is planning to have a total workforce of approximately 42,500, down from 70,000 two years ago.

Under a legal agreement to resolve fraud charges brought by the state of Oklahoma, MCI is obligated to add 1,600 jobs in that state during the next 10 years.

Yesterday's quarterly conference call was the first since the company emerged from bankruptcy last month. MCI, formerly known as WorldCom Inc., sought protection from its creditors in July 2002, after revealing a massive accounting scandal.

Capellas, who was brought in to turn the company around, announced in April 2003 that he was planning for revenue of $25.7 billion in 2004. But those projections proved to be too optimistic. Most recently, MCI announced that it is planning for revenue of close to $21 billion this year.

Shares of MCI fell $1.10, or 7.7 percent, to close at $13.15 yesterday. Although the company is not officially listed on any of the major stock boards, a limited number of shares are being traded through electronic markets. The company is planning to formally list itself with the Nasdaq Stock Market by the end of the month.

Like other major telecommunications executives, Capellas attributed much of the company's declining revenue to intense competition and fundamental shifts in technology. Regional phone companies such as Verizon Communications Inc. and SBC Communications Inc. have been freed by regulators to enter the long-distance market and have proved to be effective competitors. Verizon is now the third-largest long-distance company with 17.6 million customers and reported adding 1 million during the first three months of 2004. MCI is the No. 2 long-distance company with 20 million customers.

In addition to the competition from the regional phone companies, MCI and industry leader AT&T Corp. are losing customers to wireless phone plans that allow deeply discounted long-distance calling.


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