After years of advertising itself as "the nation's long-distance phone company," MCI Communications Corp. is reaching out to touch some new markets.
Growth is one reason, but MCI also is seeking leverage. The company wants to be able to give more to its customers so it can compete head-on with the newly deregulated American Telephone & Telegraph Co. and others with a full spectrum of services. Voice is not enough.
"We would like to be the nation's--maybe the world's--telecommunications company," says J. Orville Wright, MCI's president and chief operating officer.
"What is happening, and it's coming in a rush, is that the cutting-edge user will be using everything we have to offer," says MCI Chairman William McGowan. "We're marketing services, but you have to be able to package a system."
MCI has been spending billions of dollars to upgrade its voice network as well as other transmission facilities and expects to double its number of employes in the next three years. The company has been furiously knitting technologies such as satellite, fiber optics, microwave, cable television, special radio frequencies and computer systems into networks that potentially could reach any telecommunications device in the country. These multiple networks--which will all be able to communicate with each other--are the strategic backbone of MCI's thrust into new markets.
Such packaging is something MCI simply has not done much of in the past. The company, which won both its fame and its fortune by selling discount long-distance service, now is able to do far more than carry the sound of someone's voice.
In 1982, it acquired Western Union International from Xerox, which gave it international telex capabilities; last fall, it launched MCI Mail, which allows users with personal computers or word processors to send electronic or paper messages all over the country. The company has dozens of cellular radio applications pending, hopes to offer a national "beeper" paging service and expects to provide special data networking for high-speed computer communications before the end of this year.
Sometime within the next three years, a businessman beeped with his MCI pager will be able to call the office long distance with his MCI card, pick up an international message left in MCI Mail and then chat with a fellow worker driving through Chicago in a limousine on the MCI cellular radio phone.
Having its different services mutually reinforce one another is the key element of MCI's new marketing approach.
"The value to customers becomes more and more dramatic the more the services are bundled," says Ed Carter, MCI's senior vice president of marketing. "Bundling is a No. 1 priority for us."
MCI's new services are "all excellent ideas," says Robert E. LaBlanc, former vice chairman of Continental Telecom and a leading industry analyst. "They are very smart, and they want to be survivors. I think they're pursuing an excellent strategy."
Currently, says MCI's Wright, roughly 85 percent of MCI's revenues comes from its bread-and-butter domestic long-distance voice service. By the middle of 1987, he'd like to see MCI's new services drop that figure down to 60 percent.
The company is now divided into four groups. They are domestic voice communications; Airsignal, which handles personal communications, including beepers and cellular radio; the Digital Information Services Group, which markets MCI Mail and will provide point-to-point data communications services, and the International Group, which oversees the company's business abroad, including Western Union International.
Wright hopes those four groups will gross close to $9 billion in revenues by the end of MCI's 1987 fiscal year, up from $1.1 billion during the last fiscal year and the roughly $2 billion expected during this fiscal year.
This four-pronged approach of interrelated services could give MCI a real edge in the telecommunications market. Currently, no telecommunications company--including AT&T--offers an integrated and bundled line of services.
That's not to say MCI is unhappy with its 3 percent--and growing--share of the $40 billion a year long-distance business. In fact, says Wright, "Domestic voice will be the mainstay for this company for as far out as I can see."
MCI projects the domestic long-distance market will double in size to $80 billion by the end of 1987, with the company snatching roughly $6 billion of that revenue.
But the emphasis on how to get those revenues also is changing. MCI is evolving into a company that markets much more precisely and aggressively to business and government. "From our standpoint, the residential market is an add-on," says Wright, who points out that the bulk of MCI's revenues currently comes from the commercial side. "It is not the main thrust for our future in the short term. We're in the process of shifting back to serving business."
That doesn't mean that MCI will ignore residential customers or consider them second-class citizens. But it underscores the industry sentiment that the commercial side offers the greatest opportunity for the fastest growth. Within four years, says Wright, MCI could be making more than two-thirds of its revenue from the business side, with the percentage of the profit being even higher.
Accordingly, the company is restructuring itself by creating a "major target" sales staff to market the complete line of MCI's telecommunications services to major users such as banks and brokerage houses, something it had not really done seriously in the past. It is developing special teams to address vertical markets such as hospitals and law firms. Last month, the company appointed a director of government marketing. Later this spring, it plans to launch a multimillion-dollar, multimedia Benton and Bowles advertising campaign designed to make business users aware of what MCI can do for them.
"It's about time," says Howard Anderson, president of the Yankee Group, a leading telecommunications research group. "They have treated the business user as if he were a Third World visitor."
That problem did not stem from insensitivity to the business market. The company simply didn't have the capacity to adequately serve segments of the business market. Indeed, one of the reasons MCI launched its residential long-distance phone service was to soak up the off-hours capacity the company had left over at the end of the business day. This year alone, says McGowan, the company will expand its capacity by over 70 percent. Wright points out that this is the first time in MCI's history that the company is "building capacity ahead of what we think we need."
"Now they have a ton of capacity, and they're going back to the business user," says the Yankee Group's Anderson. "MCI is in a position today where no other company will be a lower-cost provider of circuits."
"The key thing is that they have the capacity," says Jerome Lucas of TeleStrategies, a Virginia-based telecommunications consulting firm. "Without that, you wouldn't have to take them seriously."
Where MCI once faced regulatory hurdles in dealing with the Federal Communications Commission and technical hurdles in actually installing a nationwide network, the real challenge it now faces is how to parcel and market that capacity.
"MCI is a voice company with a lust for the data market," says Anderson. "McGowan is the ultimate pragmatist; he goes into a market when the reality, not the conjecture, is there."
That was the driving force behind MCI's decision more than a decade ago to enter the long-distance market in direct competition with AT&T. That market was at the time a readily identifiable and quantifiable business opportunity.
"Every service we've brought forth was to a defined market that already exists," says Brian Thompson, MCI's director of development.
That's one reason why MCI has pushed so hard for direct access to foreign countries for direct international dialing. McGowan hopes to announce plans to offer direct-dial access to Germany, France or England by the end of this year.
The company's philosophy of aiming at defined markets also helps explain what is thus far MCI's riskiest foray into the new telecommunications market--MCI Mail, the company's new overnight or instantaneous electronic message service, in which it already has invested roughly $50 million.
Most efforts at providing electronic mail, such as those by Satellite Business Systems and GTE Telenet, have been abysmal failures that have cost companies tens of millions of dollars. MCI approached the problem from a different angle. Instead of viewing it as a pure electronic mail system, MCI cleverly positioned its mail as a message delivery system in competition with the U.S. Postal Service and overnight couriers such as Federal Express.
"Who better than us to take on a large, entrenched and unsophisticated competitor like the Post Office?," asks Robert Harcharik, who came to MCI in March to build MCI Mail and is now president of MCI Digital Information Services Corp. MCI Mail is expected to have carried more than 500 million messages by the middle of 1987. The group ultimately is expected to become one of MCI's fastest-growing and most profitable businesses.
Essentially, what MCI Mail does is meld electronic distribution with a paper delivery service to create a surrogate mail system. A personal-computer user, for example, dials into the system and leaves a message to be delivered. If the intended recipient is an MCI Mail subscriber and has any one of a number of compatible terminals, the message can be delivered electronically in an instant. Alternately, it can be printed out in a hard-copy version and delivered within four hours by Puralotor Courier or dropped into a U.S. Postal Service mailbox at the MCI point closest to the recipient. Pricing of the service is very competitive. In addition, data services such as Dow Jones News/Retrieval also are available.
"Our focus now is to zero in on vertical markets," says Harcharik, who was formerly president of Tymnet, a computer communications company. "We're looking at the financial industry, general sales and marketing divisions and distribution businesses."
Industry sources assert that MCI will strike a deal with a major banks before the end of the year to tap into an electronic funds transfer network through which consumers could pay their bills. Harcharik confirms that there are negotiations but declines to say whether a deal is imminent.
Harcharik also points out that new technologies, such as voice synthesis, can add to MCI Mail. Digital Equipment Corp. now produces computers that are capable of "reading" printed text aloud in a completely intelligible form. MCI Mail plans to use the Digital computers to read customers' messages aloud over the phone if they so desire, Harcharik says.
"By the end of the year," he says, "MCI Mail will be able to call you up and ask you to 'Touch 5' if you want to have your message read to you."
Jerry Taylor, president of Airsignal, MCI's paging group, poses another technological possibility. "Suppose we bundle in MCI Mail with your pager? That means you can be paged when you get a message in your mailbox."
"We've got to get a full-spectrum mentality," says Harcahrik, "The mentality we have is still long-distance phone calls, and we've got to get out of it. I don't know if I have fears. I've got frustrations" about making the transition from being a phone company to a full-service telecommunications provider.
MCI officials respond in the affirmative when asked if they will poll new long-distance customers about whether or not they own a personal computer to hook into MCI's network.
"I cannot imagine being the full-spectrum communications company of the 1980s without the answer to that being yes," says MCI's Carter.
Ultimately, MCI will choose just how much it wishes to leverage its line of new services off its cornerstone long-distance voice business. The critical question is: How well can MCI learn how to market a service line as opposed to simply selling telecommunications capacity?
"They're still basically marketing voice communications," says Jerome Lucas of TeleStrategies, "but they just continue making all the right moves. They're the innovators."