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2HRS2GO: AT&T, MCI Worldcom take differing paths to success

NEW YORK -- You won't find greater contrasts of style and strategy, because other than an overwhelming sense of confidence, AT&T's C. Michael Armstrong and MCI Worldcom's Bernard J. Ebbers seem to have little in common.

Which company would you rather invest in? MCI Worldcom or AT&T?

Speaking during lunch yesterday at the annual PaineWebber Growth & Technology conference, Armstrong beamed with the self-satisfied expression that seems permanently etched on his face. Speaking with the tone a kind parent uses when explaining things to an extremely dense child, Armstrong populated his speech with phrases about "coefficients of market elasticity" and Big Picture visions. If you knew nothing about the communications business before hearing Armstrong yesterday, you'd have thought AT&T was some kind of technology leader, although the company certainly wasn't the first one to think of emphasizing packet-based networks over traditional circuits.

A few hours later, Ebbers practically barked out a presentation focused on more down-to-earth topics: business opportunities, expenses, market growth. Every question was answered with his trademark mix of bluntness (Question: "Would it make sense to merge with a Baby Bell?"; Answer: "Sure."; a few moments of silence before the crowd realizes that's all he's going to say) and humor occasionally bordering on sarcasm ("Bundling? What does that mean?").

But the differences help explain the different approaches of AT&T and MCI. The former, saddled with a largely residential customer base that isn't growing, needs a way to extract more money from it. AT&T needs home runs to jumpstart its offense, which thus explains the continuing list of big deals and big bets on cable and wireless.

Ma Bell's vigorous cable activity has observers wondering if MCI isn't being left behind. But Ebbers prefers to look at things from a practical point of view: MCI doesn't need a huge cable presence, because coaxial technology is mainly a consumer technology; MCI gets, at most, one-fifth of its revenue from residential business, so it doesn't need a big bet there anyway.

People also worry that MCI is being left behind in wireless service. Ebbers basically has the same answer: when our clients demand it, we'll get it.

"We're not going to do anything he (Armstrong) is doing, that's for sure," Ebbers joked. "If you don't have to do something from a customer point of view, is this the time to jump off the bridge? We have decided now is not the time."

It's an approach that makes sense because, unlike AT&T, MCI Worldcom business has already been growing rapidly. "They're doing a lot of things right," PaineWebber analyst Eric Strumingher says, noting that MCI Worldcom's stock price has doubled over the past year.

The more you look at AT&T and MCI, the more it seems that the market can easily accomodate them. The global communications market is huge and untapped -- MCI Worldcom for instance, has just 4 percent, and if it grabs 5 percent, the company will have met its revenue target for the year, Ebbers says. AT&T and MCI are feverishly building out their overseas networks, which isn't surprising considering that analysts expect the international market to expand at more than twice the inherent growth rate of the United States.

"This is why I like to be in the communications business instead of making cereal," Ebbers says.

He's not the only one.

Other issues:

  • Critical Path Inc.
  • (Nasdaq: CPTH) The provider of e-mail services for corporations and ISPs will start announcing strategic acquisitions in the second half of this year, CEO Doug Hickey told the PaineWebber audience. That can only help the company its take per mailbox, which currently comes out to about 32 cents a month, with expenses of 52 cents. By the third quarter of 2000, Critical Path expects basic e-mail box revenues to about 18 to 20 cents a month, at a cost of just 3 to 5 cents.

    Good margins to be sure, but Hickey's explanation for why Critical Path went back for a secondary offering so soon after an IPO was thin at best and disingenous at worst; basically, Hickey said Critical Path moves at the speed of thought: "It (secondary offering) didn't seem, quite frankly, soon to us."

    Speed in business is good, but going back to the market less than two months after the IPO still seems iffy. Why didn't you just expand the IPO in the first place?

    On the other hand, there's no point in quibbling about it at this point. From an investor's point of view, the business model is at least comforting: reliable revenue growth combined with steady decreases in costs per mailbox. It's hard to complain about that.

    The overall technology market was down in the middle of the afternoon. With two hours left in regular trading, the Nasdaq Composite index was down 40.06 to 2479.29, the S&P 500 had fallen 20.14 to 1298.50, and the Dow Jones Industrial Average had dropped 125.60 to 10564.60. 22GO>