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MCI hopes face-lift will attract the Street

Laboring with a long-depressed stock price and growing concern about its pending merger with Sprint, MCI WorldCom announces what executives called "a new face for the company."

Laboring with a long-depressed stock price and growing concern about its pending merger with Sprint, MCI WorldCom announced today what executives called "a new face for the company."

Kicking off an advertising campaign and a new suite of communications services aimed at online businesses, the company is attempting to position itself as a Web business leader, instead of as a traditional telecommunications provider.

That's a refrain already being sung by rivals across the communications industry. But as MCI WorldCom faces a skeptical Wall Street and an increasingly ugly outlook for the conclusion of its merger with Sprint, analysts said the company needed to make a move like this as soon as possible.

"They really need to do this now, before the (Sprint) transaction goes through," said Jilami Zeribi, analyst with market watcher Current Analysis, noting that regulators will likely force the company to sell off much of its Net assets. "MCI really needs to come out and build this brand now, so it looks like an offensive move instead of a defensive one."

MCI WorldCom's plan isn't unique among the big carriers, who uniformly are seeing revenue growth in their traditional voice business slow. For example, AT&T earlier this year launched its so-called ASP (application service provider) Ecosystem, targeting the burgeoning applications service provider industry. The big local phone companies have been moving quickly to provide their own business-to-business Web services.

The push in this direction is genuinely coming from the customer side, analysts say. But the moves also have the advantage of allowing the companies to tout themselves as Web-savvy firms in a market skeptical of the giants' abilities to adapt quickly.

"This is really driven primarily by the needs of customers," said Berge Ayvazian, president of the Yankee Group research firm. "Bolder and riskier moves (like these) allow them to reposition themselves out of the traditional carrier services market."

MCI WorldCom itself is badly in need of a bit of repositioning today, some analysts note.

The company's stock has been bottoming out for months. After reaching an optimistic split-adjusted high of almost 65 last summer, share prices have fallen to hover around the low 40's for the last month.

Much of the malaise has to do with concern about the company's pending merger with Sprint Communications, which is still being reviewed by the Justice Department and the Federal Communications Commission.

MCI WorldCom struck its then record-breaking merger with Sprint Communications in October. Although made in the context of unprecedented consolidation across the telecommunications industry, the combined size and competitive positions of the two players did raise eyebrows.

FCC Chairman William Kennard was unusually direct in his response to the merger, calling it a "surrender" and saying the companies would "bear a heavy burden to show how consumers would be better off."

That alone certainly doesn't mean the merger is doomed. But a feeling has grown among some analysts that the Justice Department too is leaning in an increasingly skeptical direction.

"This merger causes undue concentration in at least five different markets," said Scott Cleland, an analyst with the Legg Mason Precursor Group. "It's unlikely that the government is going to want to pursue a complicated divestiture that requires continuing regulatory oversight."

"Merger is job one right now," Cleland added. "The merger is front and center in all (MCI WorldCom's) thinking."

MCI WorldCom executives said the new campaign represented a genuine change in the company's business strategy, however.

"This represents a fundamental shift in the company, in how we make investments, how we train people, and how we devote resources," chief executive Bernard Ebbers said on a conference call with reporters.

Alongside the new suite of services, the company is launching a major new advertising campaign around its "Generation D." The D stands for "digital." Television and print ads telling stories of MCI WorldCom's role in the new digital economy will launch this weekend.

The company has also begun to drop the "MCI" from its name in the new campaign, a prelude to officially renaming the company "WorldCom" if the Sprint merger closes.