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Where's MCI WorldCom on wireless?

After withdrawing from the bidding war over Airtouch Communications, MCI WorldCom is left on the sidelines of the wireless phone market, with no clear plan ahead.

After officially withdrawing from the bidding war over Airtouch Communications last week, MCI WorldCom is left on the sidelines of the wireless phone market, with no clear plan ahead.

It's a familiar position for the company. MCI WorldCom CEO Bernard Ebbers has taken the firm though more than 68 acquisitions over the last several years, while studiously avoiding the wireless arena.

That resolve showed some signs of weakening last week. In a short statement, the company said it had "explored" possibilities of a merger or other agreement with AirTouch Communications, but had decided against making a bid for the company.

The move seemed to show a new willingness to look at adding a wireless component to the company's international data and voice services. But analysts cautioned against expecting Ebbers to move quickly toward another wireless player.

"I think it was opportunistic," said Mark Langner, a telecommunications analyst with Hambrecht & Quist. "I don't think it was necessarily some kind of sea change in the company's decision making process."

Data now, wireless later
For the last several years, MCI WorldCom has focused on building a solid end-to-end network of voice and data services around the world. An aggressive campaign of acquisitions and fiber-optic investments has given it one the most extensive networks in the telecommunications world.

But while the company has focused on reinventing itself as an international leader in data traffic, competitors like AT&T and Sprint have poured money into their own wireless ventures. While still young, the companies have now built up two of the leading wireless services in the United States, and are now beginning to attract customers away from using traditional local--and to a lesser extent--long distance services.

MCI WorldCom itself does offer some wireless products, such as paging and mobile phone services. But this business has been limited to reselling the products of local providers.

"At this point there is still a lot of supply out there," said MCI WorldCom spokesman Paul Adams. "At some point there may be a cheaper way for us to enter the wireless services market. But right now, the way we've chosen is cost-effective."

The company still views the wireless market as immature, and as more a complement to other services than a necessary piece of its corporate puzzle, Adams said.

"We have always focused on the areas that have been considered core telecom functions," said Adams. "Wireless is a contiguous service. It's not really the foundation for our portfolio of telecom services."

Changing strategy to fit the market
Most analysts say MCI WorldCom made the right choice in steering away from AirTouch. The mobile company does not have a national footprint, and its high asking price would have put a dent in MCI WorldCom's ability to keep earnings strong.

"We would recommend that MCI go with something like Nextel," said Roger Wery, a telecommunications analyst with consulting company Renaissance Worldwide. "It would be important to have a national footprint, because it would be their first move into wireless."

Nextel is another independent mobile phone company with a national footprint and a market capitalization of about $8 billion, compared to the $55 billion reportedly being bid for AirTouch by the British-based Vodafone Group. MCI WorldCom has looked at doing a deal with Nextel, but in the end decided against purchasing the company.

Ebbers has several other factors allowing him to sit out of the wireless market for now, analysts noted.

Although companies like AT&T, Sprint, and Bell Atlantic are aggressively trying to establish themselves as the top U.S. players, the market has yet to establish itself squarely in the corporate telecommunications mainstream.

MCI WorldCom is positioning itself to offer packages of data, voice, and multimedia services to international companies, and wireless service will not make or break these deals, said Langner.

The company has time to wait while smaller players like Nextel build out their networks and reach profitability. Ebbers has been strict in saying he will only acquire companies with a positive balance sheet, in order to avoid diluting MCI WorldCom's earnings.

Analysts say the company eventually will have to have its own wireless infrastructure, however.

"Over time it will become part of the mainstream, and at that point integration becomes important," Langner said. "And in order to do true integration?they really need to own their own network. They can't just resell."

But this shift won't happen tomorrow, giving Ebbers time to pick and choose among its potential wireless acquisitions, analysts said.

"The wireless market needs to develop a little before other opportunities develop," Langner added. "To go out and pay anything for a company now is not necessarily the best strategy."