MCI May Write Down Value of Assets

MCI's announcement that it may have to write down assets may be an acknowledgement that long-distance customers aren't likely to return. (Doug Mills -- AP)

MCI Inc. disclosed yesterday that it may have to reduce the value of some of its assets to reflect the continuing decline of its consumer long-distance business.

Any write-down is likely to be regarded on Wall Street as a sign the telecommunications giant has lost confidence in its core long-distance business, analysts said. However, in the short run, the accounting would help the carrier's financial profile by lowering the depreciation costs it must carry on its balance sheets related to equipment.

MCI, based in Ashburn, revealed the potential write-down in filings with the Securities and Exchange Commission. The filing comes just one week after AT&T Corp., one of its largest rivals, made a similar statement in its own regulatory filing.

MCI and AT&T are suffering from an influx of competition, chiefly from the large regional phone companies that have been freed by regulators to offer long-distance service. Regional phone companies such as Verizon Communications Inc. and BellSouth Corp. have been able to take millions of customers away from AT&T and MCI by bundling local and long-distance service in a single package.

At the same time, MCI and AT&T are being undermined by fledgling entrepreneurs who have launched services that allow consumers to make calls over high-speed Internet connections at deeply discounted rates.

MCI, which emerged from bankruptcy in April, has already written off $8o billion in assets. It currently values its assets at just over $14 billion. In contrast, AT&T still values its assets at over $40 billion and is likely to take a much larger write-down, according to analysts.

In announcing their write-downs, MCI and AT&T referred to a recent decision by the Federal Communications Commission that lifted government mandates governing the rates phone companies charge one another. They said the decision effectively forced them to abandon efforts to market local telephone service in a bundle with long distance. Such bundles have become hugely popular since they were introduced about three years ago. Verizon estimates that 40 percent of its customers have signed up for a local and long-distance service.

Verizon is one of the nation's largest long-distance carriers, with more than 16 million long-distance customers. MCI, which just two months ago claimed more than 20 million customers, now says it has fewer than 9 million subscribers.

In its SEC filing, MCI stopped short of saying that it would follow AT&T's lead and abandon consumer marketing efforts. "Some competitors have announced their exit from this market, and [MCI] intends to de-emphasize its consumer business and reduce efforts to acquire new customers," MCI said. MCI officials declined further comment on the filing.

Most of MCI's write-down would affect assets directly related to its consumer business. It's not clear how big the write-down would be because the company does not separately identify its consumer-related assets.

Susan Kalla, a telecommunications analyst with Friedman, Billings, Ramsey Group Inc., said a write-down suggests the carriers don't expect to win back customers.

"It means that it is over and they don't see it coming back and they are getting rid of all the expenses related to it," Kalla said.