07/14/97 MAKING WORLDCOM LIVE UP TO ITS NAME

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MAKING WORLDCOM LIVE UP TO ITS NAME
CEO Ebbers is expanding its reach with local and Net service
Bernard J. Ebbers is not your typical telecommunications pioneer. He doesn't have a cellular phone or a pager. He doesn't even use E-mail or voice mail to communicate with execs at WorldCom Inc., the $5.6 billion telecommunications company he heads. Instead, the 55-year-old president and CEO spends a good part of his day walking around the company's Jackson (Miss.) headquarters talking to employees. ''When you come to the table with a pe [physical education] degree like I do,'' Ebbers jokes, ''you don't know a lot about the technical stuff.''
Don't let the self-deprecating charm fool you. In the past 12 years, Ebbers has done nearly 50 mergers and acquisitions to build WorldCom into the fourth-largest long-distance company in the U.S. Revenues are expected to grow 30% this year, to $7.3 billion, with earnings of $350 million. His boldest move: last year's $12.5 billion stock deal to buy local phone competitor MFS Communications Co. That also gave WorldCom a beachhead in cyberspace through uunet Technologies Inc., the Internet service provider MFS had just bought. Today, WorldCom boasts major local, long-distance, and Internet networks, something not even AT&T can yet claim.
Now, Ebbers has to prove that he can exploit the powerful arsenal he has assembled. It won't be a cakewalk. When WorldCom was just selling long-distance service, it could rely on a simple sales pitch: Its prices are often 15% below that of its rivals. But now, it has the more complicated task of selling integrated local, long-distance, and Net services to small and medium-size corporations. That requires building a far more sophisticated sales force than the one it has. ''They've done the deals,'' says Mark Kastan, a vice-president with Merrill Lynch & Co. ''Now they have to make them pay.''
At the same time, WorldCom is going into battle absent one big weapon: wireless communications. Ebbers insists that corporations don't need cellular phones packaged with their other services, but rivals disagree. ''They're beginning to put together some of the pieces, but there are big holes,'' says Daniel Schulman, AT&T's vice-president for strategy and local marketing. ''They're missing a key ingredient called wireless.''
Nonsense, says Ebbers. What he believes will be important in the future is owning a chunk of the telephone and Internet infrastructure. So he's focusing on expanding the reach of WorldCom's networks. Ebbers is overseeing a massive building spree, shelling out $2.5 billion this year--up from $1.6 billion in 1996--on voice and data networks in the U.S. and Europe, including $350 million to expand the company's Internet presence. That's about 34% of expected revenue this year vs. some 11% and 20% for AT&T and MCI, respectively.
HIGH SCHOOL COACH. Ebbers' early years hardly marked him as a telecom firebrand. Raised in Edmonton, Alberta, he landed a basketball scholarship at Mississippi College where he earned his pe degree. He coached high school teams for just one year before his entrepreneurial spirit surfaced in 1974 and he bought into a Mississippi hotel. After building up a chain of hotels--he still has investments in some properties--Ebbers and a group of investors started long-distance company LDDS in 1983. Because of his business background, the board asked Ebbers to take over as president two years later when the company was stumbling. He quickly began gobbling up smaller long-distance players.
Ebbers' focus on long distance worked until passage of the Telecommunications Act of 1996. In the newly deregulated era, it was clear the long-distance market would only grow more crowded as such upstarts as Denver-based Qwest Communications International Inc. built new networks and Baby Bells moved into the long-distance turf. Ebbers decided to go after what has become the industry's holy grail: offering customers ''one-stop shopping'' for all their telecom services.
So WorldCom, which changed its name from LDDS WorldCom earlier this year, looked to expand beyond offering long-distance voice and data. Ebbers landed MFS, which gave WorldCom first-class local networks--now up and running in 41 U.S. cities--and a national Internet backbone.
But for all those pluses, the MFS deal also forced Ebbers to break a rule in his M&A playbook. While he had promised investors that all acquisitions would add to WorldCom's bottom line, the MFS transaction diluted earnings. MFS was still operating at a loss, and amortizing goodwill from the deal will cost about $440 million annually for the next five years. That sent earnings in the first quarter, ended Mar. 31, down 50%, to $43 million. ''I swallowed deep, ducked my head, and did the deal,'' says Ebbers.
Despite the financial hit from the MFS acquisition, WorldCom has remained a Wall Street darling. The company's annual report boasts that $100 invested in WorldCom stock at the end of 1989 was worth $2,214 at the end of 1996, vs. $162 for AT&T investors and $151 for MCI Communications Corp. shareholders. The stock, now around $32, is up 20% so far this year. ''Our goal is not to capture market share or be global,'' says Ebbers. ''Our goal is to be the No.1 stock on Wall Street.''
To keep that stock price rocketing skyward, Ebbers has to make the MFS deal pay off quickly. UBS Securities llc analyst Linda B. Meltzer expects Worldcom will save $350 million this year by combining the networks and operations of the three companies. She estimates the total cost savings over the next five years could top $820 million.
Longer term, the real challenge is to translate the company's rich asset base into big revenue gains. WorldCom is targeting small and midsize corporations, hoping to provide them with a complete list of telecom services. In June, the company began selling a package that includes long-distance, local, and Internet service in 28 cities. The offering will expand to 46 cities by yearend.
But don't expect WorldCom to spend much time wooing the big corporate multinational customers. Competition from big telecom players makes that end of the market hotly contested, and margins are thin. Still, Ebbers plans to continue WorldCom's growth. While he does not think the company needs a wireless partner for now, he's not ruling out future long-distance or local acquisitions. And Ebbers sees no need to pursue a global alliance. While MCI is selling out to British Telecommunications and both AT&T and Sprint have global alliances, WorldCom is building a network worldwide, largely on its own.
FOR SALE SIGN? Many competitors and industry pros, however, figure it's only a matter of time before WorldCom finds an international dance partner. Experts point to GTE Corp. and Cable & Wireless plc. WorldCom already is teaming up with Cable & Wireless in construction of a transatlantic cable. ''Eventually, this industry will consolidate into three or four integrated players,'' says John E. Lathrop, an analyst with Boston-based Massachusetts Financial Services Co., one of WorldCom's largest shareholders.
For his part, Ebbers, who owns 14.2 million WorldCom shares, worth $450 million, says that his company may be too big for most players to swallow. WorldCom's market capitalization is some $30 billion. But he doesn't rule out a sale if the price is right.
For now, though, Ebbers must prove he's as good at managing a global business as he has been at building one.
By Amy Barrett in Washington, with Peter Elstrom in New York

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