With an acquisition deal announced last week, MCI Communications Corp. stands to acquire 80 new employees and additional share in a market where sales have hit $7 billion a year and continue to climb fast: international long distance.
MCI plans to buy Overseas Telecommunications Inc. (OTI), a small, Alexandria-based competitor that provides corporate customers with private phone, video and data links between the United States and foreign countries. Terms of the deal, which must be approved by federal regulators, were not disclosed.
Founded in 1984, OTI is one of the many children of the deregulation that has swept through the U.S. telecommunications field. The once-monolithic industry became a teeming hive of companies, many of them small and handling highly specialized roles in moving information electronically from one point to another.
OTI operates satellite earth stations for international communications, a business that until 1985 was the legal monopoly of another area company, Communications Satellite Corp. (Comsat). OTI now has 14 earth stations in the United States, handling the job of sending signals to a satellite or receiving them from one.
The transmissions could be conversations, sales reports, financial data or video footage -- anything that the client chooses. The company also has space on high-capacity fiber optic cables that were strung across the Pacific and Atlantic oceans in the late 1980s.
Small telecommunications companies like OTI face a fundamental choice as they grow, said Ed Cheramy, president of IDB Communications Group Inc., a Los Angeles company that was an unsuccessful suitor for OTI. "You either have to continue to put money up or you have to get out of the game. ... There's no place in the long term for a niche company."
OTI Chairman and founder K. Paul Singh said his company agreed to the sale because it wants to expand beyond its niche. "Customers are looking for one-stop shopping," he said. Being part of MCI will allow OTI to offer a full range of services to customers, such as other types of data transmission.
OTI has been profitable for the last 2 1/2 years, he said. As a private company, its records are not public. However, Cheramy said his analysis had valued the company at less than $25 million.
A Harvard Business School graduate and veteran of Comsat, Singh is a major shareholder in OTI, along with a consortium of venture capital firms and McMillan Communications, a British company. He will remain in charge of OTI after the sale and said he has no plans to leave.
From the deal, MCI will get new customers and some useful new hardware to augment its collection.
OTI uses all-digital equipment, which conveys information as the ones and zeros of computer language rather than the analog technology that, in improving forms, has been in use since the time of Thomas Edison. Digital technology generally offers greater flexibility and capacity and truer reproduction at the receiving end.
"There is a trend in the international marketplace to move away from analog to digital capacity," said Tom Faulders, senior vice president at the MCI Enterprise Group, which will oversee OTI. "What OTI does is give us a jump in that regard."
MCI already owns earth stations, but they are large ones to which many customers' calls are "trunked" over land lines. OTI's mode of operation is in many cases different. It sets up the earth station right at the customer's facility, bypassing the local telephone network. In countries where the public phone systems are not reliable -- and there are many of these -- this can be a major plus.
OTI has worked with Citicorp to build a communications system in which signals go straight from satellite to dishes at Citicorp facilities in Mexico, Colombia and Argentina. Other corporate clients of the company include Chrysler Corp., Digital Equipment Corp. and Chase Manhattan Bank.
Since the late 1980s, MCI has been working to expand its international reach and compete service for service with its prime rival, American Telephone & Telegraph Co.
Federal Communications Commission figures show that MCI had about 10 percent of a $7 billion market channeling communications in and out of the United States in 1989.
MCI's annual sales, now more than $7 billion a year, were just $128 million a decade ago. The company has grown both through internal expansion and acquisitions, the largest of which was the just-completed $1.25 billion purchase of Telecom USA, a regional long-distance company based in Atlanta.
OTI and MCI have competed against each other in the past for international business.
Singh, however, said he expected that regulators would not see the acquisition as raising antitrust problems because OTI is so small.
Singh and Faulders said the acquisition would not result in layoffs.