Last January, a handful of top executives and consultants gathered at MCI Communications Corp., the company that breathed life into long distance competition, to see whether their business had gone as far as it could go.

In its 40th quarter, at the end of 1986, MCI had posted its first loss ever: a staggering $448 million. MCI was leaderless. Founder and Chairman William G. McGowan was gravely ill after a heart attack in December.

MCI had been left gasping by a double whammy of federally mandated long distance price-slashing and steeply rising fees for completing long distance calls over the networks of Bell companies. Fifteen percent of the company's work force had been axed. Rapid advances in fiber optics -- thin glass strands that transmit information in light pulses -- spurred MCI's need to write off half a billion dollars worth of outdated technology.

Worse still, the regional Bell companies, ideally positioned to use their networks to provide potentially devastating long distance competition, were asking Congress and the courts for permission to get back into the game they were barred from under the terms of the Bell System breakup in 1984.

"We looked at going out of the telecommunications business," said V. Orville Wright, the man who now shares the office of chief executive with McGowan and who led the rigorous look at MCI. "We looked at going into other businesses, such as electric utilities, radio and television, things like that. There was the question that long distance didn't have a bright future."

The hard look at MCI's future eventually involved 23 MCI executives who gathered for a series of meetings last summer in downtown Washington unbeknownst to McGowan, who was then recovering from a heart transplant in April. The agenda included a look at financing, technology, marketing, the regulatory environment and prospects for growth.

"We divided up into three or four groups to specifically focus on each area," said C. Bert Roberts Jr., president of MCI. "Those groups met and thrashed out, tested assumptions and interacted, broke up into smaller groups again and had informal sessions at night."

MCI executives nixed diversification away from their core business, rejected emphasizing the residential market over the business market, and decided at all costs to fight a reentry by the regional telephone companies into the long distance market -- a position a federal judge reaffirmed just a few months ago.

"They all finally came out saying, 'I believe. It's a very good business, and we can do it,'" Wright said.

MCI's strategy is simple. "It's a given that we have to compete with AT&T across the board -- you can't give them one area where they can wield power," says Roberts.

"Before, we competed in the markets that came kind of easy to us," said MCI Chief Financial Officer Daniel F. Akerson. "For example, we didn't want to compete for operator services because it was very labor intensive."

"We've decided not only do we have to compete in every segment, we have to compete in every product -- 800 service, operator service, data, international -- the whole nine yards," he said. "Somebody has to discipline the market leader."

McGowan, who resumed full-time work seven weeks ago, says he is pleased with the steady stream of new MCI products and services giving AT&T a run for its money.

"We see the results," he said. "Between the two of us, we're the ones that introduce new services, and MCI introduces more than a customer has seen in 15 or 20 years and they love it."

In the last eight months, MCI has won the long distance account of United Airlines in a joint marketing effort with International Business Machines Corp., which owns 17 percent of MCI. It is negotiating six other deals where customers will buy computers from IBM and telephones from MCI.

It has signed up the Pentagon for $30 million worth of long distance service, is rolling out operator service and is expanding its 800 and bulk long distance offerings. Its customers everywhere will soon be able to call anyplace in the world that has direct dial.

The strategy of becoming all things to all customers is paying off. Last Monday -- what has become "Black Monday" for victims of the stock market collapse -- MCI posted third-quarter profits of $22 million, up 22 percent from the same period a year ago. Its stock has emerged virtually unscathed from the stock market roller coaster of the past week.

Analysts say MCI could post profits as high as $83 million for the year, regaining a good deal of ground toward 1985 profit levels of $113 million through cost controls and a concentrated strategy of offering new products. Next year, the company could make $170 million in net profit, said Robert Morris III, an analyst with Prudential-Bache Securities.

After the roughest year in MCI history, both the company and McGowan are recovering, the latter minus three packs of cigarettes a day and on a slower schedule. "We in effect added one more executive, not the 70-hour executive but a 40- to 50-hour executive," he said. Analysts say that what brought MCI through the rough spots was its management team, with or without Bill McGowan.

"The reality of the situation is that MCI had a good strategy and good management and their efforts came to fruition," said Frank Governali, an analyst with Kidder Peabody. "They said they would go to the Fortune 500 and win contracts for total information services and you don't do that overnight."

Analysts say MCI's long distance market share is about 9 percent and that increasing it is going to be tough.

"Life for MCI in the last two years has been 40 miles of bad road, and they still have 10 miles to go," said Howard Anderson, president of The Yankee Group, a market research firm. "The ball game is still AT&T."

But MCI's positioning is better than that of US Sprint, MCI's other major competitor, he said. Sprint has roughly 6 percent of the market and numerous management and billing problems, say analysts.

"Sprint, once thought to be a much more serious competitor, has proven to be more of a tempest in a teapot," said Anderson. The company will post losses of about $940 million this year, analysts estimate.

Now that McGowan is back, he is easing into MCI and helping to shape new strategies, but he will be sharing responsibilities with Wright. Wright, MCI's former vice chairman, was called in from retirement by McGowan to take his place before the heart transplant at Pittsburgh's Presbyterian-University Hospital.

McGowan had been responsible for drastic actions at MCI in 1986 and had already articulated, but not made formal, a strategy to begin competing on every level with AT&T. The results of the eight-month evaluation were presented to McGowan in Virginia Beach, where he recuperated for a month in late summer.

"I briefed him in September down at the beach," says Wright. "That's when we had decided we had to come to a conclusion what we were going to do now that he had recovered his health."

The office of chief executive is now shared by the pair. "I will be primary contact point on finance, regulatory and public affairs, {and} corporate development, and Orville will be marketing operations, engineering, ield operations and budgets," said McGowan. "I was the one who encouraged it."

After nine months of being away from MCI, McGowan "is clearly not up to speed on where we are because things move so rapidly here all the time, and he's not involved in any of what I call the current decisions or what we're going to do," said Wright. "Only the future will tell how it shapes up."

The next decision McGowan will make is whether to accept IBM's offer of a $400 million credit line that would give the computer giant an MCI stock option that could boost its stake in the company to 30 percent, said Wright.

But McGowan is looking further into the future. He says global voice and data traffic is going to grow by 20 percent a year, and MCI is going to be there to carry it on behalf of big business customers. "Most users ... go through a complicated selection process and choose one {company}, and we get our fair share," he said. "A lot of customers are picking two. That would mean we would probably be restricted to 50 percent of the market, which I'd be happy to take."

Wright is aiming to double the company's $3.6 billion in revenue in the next five years by growing faster than the market. Meanwhile, the company is planning to cut capital expenditures from $1.1 billion in 1986 to $500 million by 1990 to help boost profit margins.

"We're going to compete with AT&T on everything," Wright said. "We will be tailoring or customizing a lot of services to fit specific types of customers, big customers. Service is the key when we are head to head with AT&T."

Analyst Robert Morris III says the company could well double its revenue in the next eight years. The company has already taken about 4.8 percent of the $4 billion to $5 billion international calling market this year, bringing in revenue of about $180 million to $200 million, he said.

The customers they have signed for toll-free 800 service will be providing them with $100 million a year in revenue, he said. It's a small start in the $4 billion-a-year 800 market, but new software developed by the regional telephone companies is enabling customers to switch to MCI without much expense and allows MCI a foothold to offer existing customers other services.

McGowan's illness, though devastating on many levels, taught MCI's younger managers to be better and tougher, and it's showing, said Morris.

"MCI was a child of Bill McGowan's and when he got sick the kids grew up and went to college," he said. "On his return he has found he has a more mature, disciplined, responsible company to work with and that is exhibited in its improved cost controls, its disciplined approach to entering markets, and in its improved earnings and revenue growth." ,MCI Corp.

MCI CORP.

MCI Communications Corp., nine months ended Sept. 30, 1987: Revenue: $2.9 billion

Profits: $55 million

Employes: 14,000

Long-distance market share: 9 to 10 percent

Total network miles: 34,000

Capital expenditure: $800 million

Debt: $2.7 billion

Cash on hand: $750 million