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MCI, Inc. (formerly WorldCom and MCI WorldCom) was a telecommunications company. For a time, it was the second-largest long-distance telephone company in the United States, after AT&T. WorldCom grew largely by acquiring other telecommunications companies, including MCI Communications in 1998, and filed for bankruptcy in 2002 after an accounting scandal, in which several executives, including CEO Bernard Ebbers, were convicted of a scheme to inflate the company's assets. In January 2006, the company, by then renamed MCI, was acquired by Verizon Communications and was later integrated into Verizon Business.

Key Information

WorldCom was originally headquartered in Clinton, Mississippi, before moving to Ashburn, Virginia, when it changed its name to MCI.[1][2]

History

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Foundation

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In 1983, in a coffee shop in Hattiesburg, Mississippi, Bernard Ebbers and three other investors formed Long Distance Discount Services, Inc. based in Jackson, Mississippi, and in 1985, Ebbers was named chief executive officer.

The company acquired more than 60 telecommunications firms, and in 1995, it changed its name to WorldCom.[3]

In 1989, it merged with Advantage Companies Inc.[4] In 1995, it was renamed LDDS WorldCom and moved to Clinton, Mississippi.

The company grew rapidly in the 1990s through mergers and acquisitions.

WorldCom's first major acquisition was in 1992. It outbid larger rivals Sprint Corporation and AT&T to secure the $720 million acquisition of Advanced Telecommunications Corporation. The deal made WorldCom a substantially larger player in the telecoms market.[5]

Other acquisitions followed: Metromedia Communication Corp. and Resurgens Communications Group (1993),[6] IDB Communications Group, Inc (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996)—the last of which brought along MFS' newly acquired UUNET Technologies, Inc.

MCI acquisition

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MCI WorldCom logo (1998–2000)

On November 4, 1997, WorldCom and MCI Communications announced a $37 billion merger to form MCI WorldCom, making it the largest corporate merger in U.S. history. MCI divested its "internetMCI" business to gain approval from the United States Department of Justice.[7] On September 15, 1998, the merger was consummated, forming MCI WorldCom.

In February 1998, WorldCom acquired CompuServe from H&R Block. Retaining the CompuServe Network Services Division, WorldCom traded its online service to America Online for AOL's network division, ANS. In June 2001, WorldCom acquired the corporate parent of Digex, Intermedia Communications, and then sold all of Intermedia's non-Digex assets to Allegiance Telecom.

Proposed Sprint merger

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WorldCom logo (2000–2003)

On October 5, 1999, Sprint Corporation and MCI WorldCom announced plans for a $129 billion merger. Had the deal been completed, it would have been the largest corporate merger in history, creating a merged company that would have surpassed AT&T as the largest communications company in the United States. But the U.S. Department of Justice and the European Union were concerned that the deal would create a monopoly. On July 13, 2000, the boards of directors of both companies terminated the merger. Later that year, MCI WorldCom renamed itself back into "WorldCom".[8]

Accounting scandals

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See also: Cynthia Cooper, Bernard Ebbers, Eugene Morse, and WorldCom scandal

Between September 2000 and April 2002, the board of directors of WorldCom authorized several loans and loan guarantees to CEO Bernard Ebbers so that he would not have to sell his WorldCom shares to meet margin calls as the share price plummeted during the bursting of the dot-com bubble. By April 2002, the board had lost patience with these loans. Directors also believed that Ebbers did not seem to have a coherent strategy after the Sprint merger collapsed. On April 26, the board voted to ask for Ebbers' resignation. Ebbers formally resigned on April 30, 2002 and was replaced by John W. Sidgmore, former CEO of UUNET. As part of his departure, Ebbers's loans were consolidated into a single $408.2 million promissory note.[9][10][11]: 216–218  In 2003, Ebbers defaulted on the note and WorldCom foreclosed on many of his assets.[12]

Beginning modestly during mid-1999 and continuing at an accelerated pace through May 2002, Ebbers, CFO Scott Sullivan, controller David Myers and general accounting director Buford "Buddy" Yates used fraudulent accounting methods to disguise WorldCom's decreasing earnings in order to maintain the company's stock price.[12]

The fraud was accomplished primarily in two ways:

  1. Booking "line costs" (interconnection expenses with other telecommunication companies) as capital expenditures on the balance sheet instead of expenses.
  2. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts".

In June 2002, a small team of internal auditors at WorldCom led by division vice president Cynthia Cooper and senior associate Eugene Morse worked together, often at night and secretly, to investigate and reveal what was initially valued as $3.8 billion worth of fraudulent entries in WorldCom's books.[13][14] The investigation was triggered by suspicious balance sheet entries discovered during a routine capital expenditure audit. Cooper notified the company's audit committee and board of directors in June 2002. The board moved swiftly, forcing Myers to resign and firing Sullivan when he refused to resign. Arthur Andersen withdrew its audit opinion for 2001.[11]: 223–264  Cooper and her team had exposed the largest accounting fraud in American history, displacing the fraud uncovered at Enron less than a year earlier. By the end of 2003, it was estimated that the company's total assets had been fraudulently inflated by about $11 billion,[12] the largest accounting fraud ever uncovered until the exposure of Bernard Madoff's giant Ponzi scheme in 2008.

By this time, the U.S. Attorney for the Southern District of Mississippi, the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission were already looking into the matter as well. The SEC launched a formal inquiry into these matters on June 26, 2002.[11]: 265  The SEC was already investigating WorldCom for questionable accounting practices.[15]

The fraud came to light just days after Andersen was convicted of obstruction of justice in the Enron scandal, a verdict that effectively put Andersen out of business. In his post-mortem of the Enron scandal, Conspiracy of Fools, journalist Kurt Eichenwald argued that Andersen's failure to uncover WorldCom's deceit would have brought Andersen down even if it had escaped the Enron fraud unscathed.[16]

Bankruptcy

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On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history at the time. (It would be overtaken in September 2008 by the bankruptcies of Lehman Brothers and Washington Mutual in a span of 11 days.) The WorldCom bankruptcy proceedings were held before U.S. Federal Bankruptcy Judge Arthur Gonzalez, who simultaneously heard the Enron bankruptcy proceedings, which were the second-largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of the criminal proceedings against WorldCom and its officers and agents were originated by referral from Gonzalez or the Department of Justice lawyers. By the bankruptcy reorganization agreement, the company paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged investors.[17]

Effective December 16, 2002, Michael Capellas became chairman and chief executive officer.[18] On April 14, 2003, WorldCom changed its name to MCI, and relocated its corporate headquarters from Clinton, Mississippi, to Ashburn, Virginia.[19]

Even before then, however, employees from the MCI side of the merger had taken over top executive posts, while many longtime executives from the old WorldCom were pushed out. In late 2002, the company began moving most of its operations to its campus in Ashburn, which had opened in 2000. Capellas, for instance, spent most of his time in Northern Virginia. After the name change, one executive from the old MCI said, "We're taking our company back." Another wrote in an email, "My company was not founded in a motel coffee shop."[11]: 320 

In May 2003, in a controversial deal, the company was given a $45 million no-bid contract by the United States Department of Defense to build a cellular phone service in Iraq as part of the U.S.-led reconstruction effort despite the fact that the company was not known for its expertise in building wireless networks.[20][21]

WorldCom agreed to pay a civil penalty of $2.25 billion to the U.S. Securities and Exchange Commission. The deal was approved by federal judge Jed Rakoff in July 2003.[22] In a sweeping consent decree, the SEC and Rakoff essentially took control of WorldCom. Rakoff appointed former SEC chairman Richard C. Breeden to oversee WorldCom's compliance with the SEC agreement. Breeden actively involved himself with the management of the company, and prepared a report for Rakoff, titled Restoring Trust, in which he proposed extensive corporate governance reforms, as part of an effort to "cast the new MCI into what he hoped would become a model of how shareholders should be protected and how companies should be run".[23]

Post-bankruptcy

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Bernard Ebbers

The company emerged from bankruptcy in 2004 with about $5.7 billion in debt and $6 billion in cash. About half of the cash was intended to pay various claims and settlements. Previous bondholders ended up being paid 35.7 cents on the dollar, in bonds and stock in the new MCI company. The previous stockholders' stock was cancelled.[24]

It had yet to pay many of its creditors, who had waited for two years for a portion of the money owed. Many of the small creditors included former employees, primarily those who were dismissed during June 2002 and whose severance and benefits were withheld when WorldCom filed for bankruptcy.

Citigroup settled with Worldcom investors for $2.65 billion on May 10, 2004.[25] In March 2007, 16 of WorldCom's 17 former underwriters reached settlements with investors.[26]

On March 15, 2005, Ebbers was convicted on all charges related to the $11 billion accounting scandal: fraud, conspiracy and filing false documents with regulators. Other former WorldCom officials charged with criminal penalties in relation to the company's financial misstatements include former CFO Scott Sullivan (entered a guilty plea on March 2, 2004, to one count each of securities fraud, conspiracy to commit securities fraud, and filing false statements),[27] former controller David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on September 27, 2002),[28] former accounting director Buford Yates (pleaded guilty to conspiracy and fraud charges on October 7, 2002),[29] and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on October 10, 2002).[30]

On July 13, 2005, Ebbers received a sentence that would have kept him imprisoned for 25 years. At time of sentencing, Ebbers was 63 years old. On September 26, 2006, Ebbers surrendered to the Federal Bureau of Prisons prison at Oakdale, Louisiana, the Oakdale Federal Correctional Institution, to begin serving his sentence; he was released in late 2019 for health reasons and died in February 2020, after serving 13 years of his sentence.[31]

In December 2005, Microsoft announced a partnership with MCI to provide Windows Live Messenger customers voice over IP service to make telephone calls—called "MCI Web Calling".[32] After the merger with Verizon, this product was renamed "Verizon Web Calling".

In January 2006, the company was acquired by Verizon Communications and was later integrated into Verizon Business.[33]

See also

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References

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Further reading

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Revisions and contributorsEdit on WikipediaRead on Wikipedia

MCI Inc.

View on Grokipedia
from Grokipedia

MCI Inc. was an American telecommunications corporation that provided long-distance voice, data networking, and services, emerging in 2003 from the bankruptcy reorganization of its predecessor WorldCom Inc. and operating independently until its acquisition by Verizon Communications Inc. in 2006.
The company traced its roots to Corporation, founded in 1968 to challenge the monopoly using microwave technology for long-distance transmission, but MCI Inc. specifically arose after WorldCom's 1998 acquisition of led to aggressive expansion and eventual collapse.
WorldCom filed for Chapter 11 on July 21, 2002—the largest in U.S. history at the time—with over $107 billion in assets, following the disclosure of $11 billion in fraudulent that inflated earnings to sustain and fund acquisitions.
Under CEO , the fraud involved improper capitalization of operating expenses as assets, uncovered by internal auditors in June 2002, leading to criminal convictions including Ebbers' 25-year prison sentence for and .
MCI Inc. emerged from on April 20, 2004, having shed $70 billion in debt and $45 billion in annual interest obligations through negotiations and asset sales, restoring operations but facing competitive pressures in a deregulated market.
Its acquisition by Verizon for $8.5 billion in cash and closed on January 6, 2006, integrating MCI's enterprise and government contracts into while marking the end of MCI as a standalone entity.

History

Founding and Early Challenges (1963–1971)

Microwave Communications, Inc. was founded in 1963 by John D. Goeken, an entrepreneur in the sector, to develop a relay system providing point-to-point private line services between Chicago, Illinois, and , Missouri. Goeken recognized limitations in existing services, which restricted long-distance use for truckers and businesses due to signal range and high costs, proposing instead a shared network accessible to multiple customers for voice and transmission. On December 31, 1963, the company submitted initial applications to the (FCC) for construction permits and operating licenses to build this 240-mile facility. The initiative encountered severe regulatory and financial obstacles amid AT&T's entrenched monopoly on interstate infrastructure. AT&T, controlling over 90% of long-distance lines through its subsidiary, contested MCI's application through petitions claiming it would duplicate facilities, disrupt tariff regulations, and harm obligations. The FCC's review process involved protracted hearings from onward, with initial conditional authorizations overshadowed by appeals and delays, preventing construction until resolution. Concurrently, MCI grappled with capital shortages, as early investors proved insufficient for engineering and legal expenses, leading Goeken to court additional funding. In 1968, William G. McGowan, a financier with experience in ventures, invested $50,000 for half ownership, assuming chairmanship and reorienting the company toward aggressive expansion plans, including renaming it Corporation to reflect broader ambitions beyond alone. McGowan's leadership emphasized challenging AT&T's pricing through lower rates for high-volume users, but operations remained stalled by ongoing FCC proceedings and limited revenue. By 1971, after the FCC rejected AT&T's final oppositions, MCI secured definitive approval to construct the route, a landmark ruling that validated specialized entry and catalyzed future , though the firm still faced execution risks in deployment.

Antitrust Victories and Market Entry (1971–1983)

In 1971, MCI launched its initial commercial service, providing private-line between and , targeting business customers with dedicated point-to-point connections at rates up to 40% below 's offerings. This marked MCI's entry into specialized services, authorized by the FCC in 1969, but AT&T resisted full interconnection to its local exchange networks, limiting MCI to basic facilities access and hindering switched long-distance capabilities. MCI escalated legal challenges in 1974 by filing an antitrust lawsuit against in the U.S. District Court for the Northern District of , alleging 22 counts of monopolistic practices, including , denial of interconnections, and exclusionary tariffs that prevented MCI from competing in expanded voice services. A pivotal early victory came via a December 31, 1973, preliminary injunction from the U.S. District Court for the Eastern District of , mandating to interconnect MCI's facilities with local loops on reasonable terms, which the FCC reinforced on April 23, 1974, by ordering equal access provisioning. These rulings enabled MCI to extend services beyond private lines, launching Execunet in July 1975—a discounted switched long-distance offering for business users via customer-dialed access. The FCC initially restricted Execunet in 1976, deeming it unauthorized public message toll service, but the U.S. Court of Appeals for the D.C. Circuit overturned this in the 1977 Execunet I decision, affirming MCI's right to offer switched interstate services without 's prior approval for each call type, thus validating competitive entry into the long-distance market. MCI capitalized on this by expanding its microwave network to over 20 cities by 1980 and introducing residential long-distance marketing that year, achieving annual revenues exceeding $400 million by 1983 through aggressive pricing and network buildout. A 1980 jury verdict awarded MCI $1.8 billion in damages for 's anticompetitive conduct from 1968–1975, though later appealed and partially reversed in 1983, the case pressured toward concessions and underscored MCI's role in eroding monopoly barriers ahead of the 1982 Modified Final Judgment divestiture.

Post-Divestiture Growth (1984–1997)

Following the 1984 divestiture of 's regional operating companies, experienced accelerated growth in the newly competitive long-distance market, unencumbered by the prior monopoly structure. The breakup enabled MCI to expand its customer base and infrastructure without the regulatory barriers that had previously favored , leading to rapid increases in revenue and . In 1984, MCI reported revenues of $1.96 billion, reflecting its established position as a challenger carrier. By 1988, annual revenues exceeded $5 billion, driven by aggressive pricing and service improvements targeted at business customers. This expansion culminated in revenues surpassing $10 billion by 1992, as MCI captured a growing share of interstate calls through cost efficiencies and network reliability. MCI's infrastructure investments were pivotal to its post-divestiture success, particularly in fiber-optic technology. In 1984, the company pioneered the deployment of , which offered higher capacity and lower compared to multi-mode systems, enhancing transmission efficiency across its network. By 1985, MCI secured rights-of-way along 7,300 miles of railroad tracks and procured over 100,000 miles of to extend its backbone. These efforts resulted in two complete transcontinental fiber-optic routes by 1989, including a key Houston-to-Los Angeles link, solidifying MCI's national footprint and enabling it to handle surging traffic volumes. Market share in long-distance services grew from over 5% in 1984 to approximately 19% by 1997, positioning MCI as the second-largest provider behind and eroding the incumbent's dominance among large business users, where MCI secured nearly one-third of the segment. International and diversified services further bolstered MCI's trajectory. In 1991, MCI acquired Overseas Telecommunications Inc., gaining digital satellite services to 27 countries and broadening its global reach. A investment by British Telecom, acquiring a 20% stake, provided capital for further expansion and signaled MCI's attractiveness to international partners. By the mid-1990s, MCI's share of U.S. long-distance calls peaked at 20% in 1995 before stabilizing at 18% in 1997, supported by innovations like volume discounts and dedicated lines for enterprises. This period of sustained investment and market gains set the stage for MCI's eventual merger pursuits, though it also highlighted vulnerabilities in residential segments where competition intensified.

WorldCom Merger and Integration (1998–2001)


WorldCom announced its intent to acquire on November 10, 1997, in a stock-swap transaction initially valued at approximately $37 billion, marking the largest corporate acquisition in U.S. history at the time. The deal faced regulatory scrutiny from the U.S. Department of Justice, (FCC), and , requiring MCI to divest its Internet business, internetMCI, to Cable & Wireless for $1.75 billion to address antitrust concerns over dominance in Internet backbone services. Shareholder approval was obtained on March 11, 1998, followed by clearance on July 8, 1998, and FCC approval on September 14, 1998. The merger closed on September 15, 1998, creating MCI WorldCom, Inc., with WorldCom's CEO at the helm and the company positioned as the second-largest U.S. provider after , combining MCI's $19.7 billion in 1997 revenues with WorldCom's $7.4 billion. The transaction involved issuing 1.13 billion shares and $7 billion in cash, elevating MCI WorldCom's scale in long-distance, data, and services while inheriting substantial from the acquisition. Proponents argued the merger would yield operational synergies, including network efficiencies and reduced reliance on local exchange carriers, potentially saving hundreds of millions annually through traffic rerouting and administrative consolidation. Integration efforts from to 2001 focused on consolidating networks and operations to realize cost savings, such as $47 million from shifting WorldCom traffic to MCI facilities and $113 million on dedicated lines by mid-1999, though full synergies proved elusive due to scattered systems and organizational silos inherited from disparate acquisitions. The company pursued further expansion, attempting a $129 billion merger with Sprint in 2000, which regulators blocked on July 13, 2000, over monopoly fears, shifting emphasis to internal efficiencies amid rising industry competition and excess capacity. By 2001, MCI WorldCom reported strained revenues from telecom sector downturns, with line costs—comprising about 50% of expenses—pressuring margins despite touted merger benefits, as integration challenges persisted in aligning legacy MCI and WorldCom practices.

Accounting Fraud Exposure (2002)

On June 25, 2002, MCI WorldCom, Inc. disclosed that it had misclassified $3.8 billion in operating expenses as capital expenditures, primarily line costs related to access charges from local phone companies, thereby overstating earnings for 2001 and the first quarter of 2002. This restatement converted reported profits of $1.4 billion in 2001 and $130 million in Q1 2002 into losses of approximately $1.66 billion and $667 million, respectively. The improper involved 49 entries totaling $3.8 billion, executed without proper documentation or justification, to meet earnings expectations amid declining telecom revenues post-dot-com bubble. The fraud was uncovered by an team led by Cynthia Cooper, who in late May 2002 initiated a of accounts after noticing unusual entries during a routine . Cooper's team identified transfers of current expenses to capital assets, a practice directed by senior financial executives including Controller David Myers and Scott Sullivan, under pressure from CEO to sustain aggressive growth targets. Despite initial resistance from management, Cooper escalated findings to the on June 17, 2002, prompting external validation and the public disclosure. Ebbers, who had emphasized a culture of "making the numbers," was later implicated in knowingly overseeing the manipulations to conceal WorldCom's deteriorating financial position. The revelation triggered immediate regulatory action, with the U.S. Securities and Exchange Commission filing civil fraud charges against WorldCom on June 26, , alleging deliberate misrepresentation of financial health. WorldCom's stock price plummeted over 50% in days, erasing billions in , and on , , the company filed for Chapter 11 bankruptcy protection, marking the largest such filing in U.S. history at $104 billion in assets. Subsequent probes expanded the fraud's scope to over $11 billion in overstated assets from 1999 onward, underscoring systemic failures in oversight by external auditors and the board. Ebbers resigned as CEO on April 29, 2002, prior to the exposure, but faced criminal charges leading to his 2005 conviction for and .

Bankruptcy and Restructuring (2002–2004)

WorldCom, Inc. filed for Chapter 11 protection on July 21, 2002, in the United States Bankruptcy Court for the Southern District of New York under case number 02-13533, constituting the largest corporate bankruptcy in U.S. history at the time with reported assets of $107 billion and liabilities exceeding $41 billion. The filing was precipitated by the prior disclosure of $3.8 billion in improperly capitalized line costs—later revised upward to over $11 billion in total accounting restatements—but enabled the debtor-in-possession to continue operations while negotiating with creditors. Throughout the reorganization, WorldCom pursued aggressive cost reductions, including the of approximately 17,000 employees announced shortly after filing and further cuts totaling around 7,500 positions in 2004, alongside divestitures of non-core assets to streamline its . transitioned with the appointment of as CEO in December 2002, replacing , who faced ongoing SEC and criminal probes; the company also settled civil fraud charges with the SEC in 2003, agreeing to disgorge $750 million in ill-gotten gains without admitting liability. Creditors, primarily bondholders, approved a plan that converted much of the to equity, yielding them about 35.7 cents on the dollar through new shares and bonds, while equity holders from the pre-bankruptcy era were effectively wiped out. The bankruptcy court confirmed the reorganization plan on October 31, 2003, after resolving disputes over asset valuations and priorities, allowing WorldCom to emerge on April 20, 2004, rebranded as MCI, Inc., with over $35 billion in debt eliminated and a leaner focused on core long-distance and data services. This 21-month process preserved significant network infrastructure, averting a total that could have disrupted U.S. , though it left unsecured s with substantial losses estimated in the tens of billions.

Final Acquisition by Verizon (2005–2006)

In February 2005, , having emerged from in April 2004 with significantly reduced debt, became the target of acquisition interest from major firms seeking to expand long-distance and enterprise services. Verizon Communications Inc. announced on February 14, 2005, its agreement to acquire MCI for approximately $6.7 billion in cash and stock, outbidding rival Communications International Inc. in a competitive process. The deal valued MCI shares at about $17.50 in Verizon stock plus cash, though MCI later amended terms in March 2005 to guarantee shareholders at least $23.10 per share in combined cash and stock consideration, reflecting adjustments for a special pre-merger of up to $5.60 per share paid by MCI. The merger faced scrutiny from antitrust regulators due to concerns over reduced competition in wholesale services. The U.S. Department of Justice approved the transaction on October 27, 2005, conditioned on divestitures of certain MCI and Verizon assets, including fiber-optic routes and dark fiber capacity in specific markets, to preserve competitive alternatives for enterprise customers. The Federal Communications Commission followed on November 1, 2005, granting approval with similar conditions, emphasizing that the combination would not harm broadband or voice competition while enabling network efficiencies. The acquisition closed on January 6, 2006, with Verizon assuming approximately $6 billion in MCI debt as part of the total enterprise value exceeding $8.5 billion, integrating MCI's operations into to form a major provider of global IP and enterprise solutions. MCI's network and customer base, including key government and contracts, complemented Verizon's regional strengths, though post-merger synergies involved workforce reductions and asset rationalization to address overlapping infrastructure. The transaction marked the end of MCI as an independent entity, dissolving its legacy from the into Verizon's portfolio.

Business Operations and Innovations

Core Services and Revenue Model

MCI Inc.'s core services focused on transmission, encompassing switched and dedicated voice services, data networking, and operations. The company provided domestic and international long-distance voice , targeting both residential and business customers through discounted per-minute rates and volume-based plans. Business-oriented offerings included virtual private networks (such as Vnet for multi-location call management), private lines for dedicated connectivity, and services for data transport. By the late 1990s, MCI had expanded into services, operating a major that handled significant traffic for service providers, including (ATM) and emerging IP-based transmission. Data services formed a growing segment, with MCI offering high-capacity transmission for enterprise clients via microwave, fiber-optic, and undersea cable infrastructure built over decades. These included , , and electronic mail services like MCI Mail, alongside and for packet-switched . Following the WorldCom merger, emphasis shifted toward integrated solutions for business markets, such as comprehensive and industry-specific expertise, though long-distance voice remained foundational until deregulation and technological shifts diminished its dominance. The relied heavily on usage-based billing for voice and transmission, supplemented by fixed fees for dedicated lines and rentals. In 1994, services accounted for 59% of ' revenue, with product and system sales contributing 28%, rentals and other services 10%, and and leases 3%. Business customers drove a disproportionate share of core revenues, reflecting MCI's strategy of undercutting AT&T's rates to capture enterprise volume in long-distance and . Post-2002 , revenues stabilized around enterprise and IP services, though overall figures declined from $32 billion in 2002 to $21-22 billion by 2003 amid market contraction and . Access charges from local exchange carriers and end-user payments formed the bulk, with transmission adding high-margin backbone leasing by the late 1990s.

Technological Advancements in Transmission

MCI initially relied on technology to establish its competitive long-distance network, constructing its first route between and starting in 1963 for point-to-point private line services. This system used towers to relay signals directly to the next station, bypassing traditional wired , with FCC approval for nationwide expansion granted on August 13, 1969, leading to a coast-to-coast microwave network by 1974. Although the underlying microwave technology originated during and was not unique to MCI, the company's large-scale implementation enabled it to challenge AT&T's dominance by offering reliable, albeit sometimes inconsistent in quality, transmission over long distances without physical lines. To address growing network demands and limitations of systems, MCI transitioned to in the early , ordering approximately 90,000 to 150,000 miles of single-mode in 1983—the largest such procurement at the time. Single-mode fiber, utilizing light impulses through narrower glass cores for longer-distance transmission compared to AT&T's multi-mode standard, allowed MCI to deploy its first operational segment between Washington, D.C., and New York in March 1984, leasing rights-of-way for installation. This upgrade supported 400 megabits per second per fiber, equivalent to 40,000 simultaneous voice calls—four times capacity—and enabled services like MCI Mail, an early system, while being immune to weather interference. By January 1987, MCI completed its first coast-to-coast fiber network, followed by a second transcontinental link in 1989. MCI achieved a milestone in network modernization by converting its entire system from analog to digital transmission in December 1991, following a $1.1 billion investment accelerated in 1990. This shift integrated advanced switches and equipment into an "," delivering superior voice clarity, faster data speeds, and enhanced overall reliability compared to analog systems. By the late , MCI's optical infrastructure supported speeds up to 40 gigabits per second, positioning it for emerging data-intensive applications.

Network Infrastructure and Expansion

MCI's foundational network infrastructure relied on radio relay technology, which enabled point-to-point transmission of voice and data signals via high-frequency radio waves bounced between tower-mounted antennas. The company initiated construction following FCC authorization on August 13, 1969, for its initial 25-mile link between and , operationalized to serve private-line customers underserved by AT&T's monopoly. This system was expanded rapidly in the , forming a coast-to-coast backbone by interconnecting with local exchanges and adding relay towers at intervals of approximately 20-30 miles to minimize signal attenuation. To accommodate surging demand post-1984 AT&T divestiture, MCI invested heavily in digital upgrades and diversification, incorporating links for redundancy and extending routes to support higher-capacity T1 carrier systems. By the early , the network spanned major U.S. population centers, with buildout costs financed through equity offerings and loans, enabling MCI to capture market share in long-distance services. International expansion began in the mid-, with direct interconnections to 30 countries by 1985, leveraging undersea cables and foreign / partnerships for transoceanic traffic. The shift to fiber-optic infrastructure marked a pivotal expansion phase, driven by microwave's capacity limitations amid data traffic growth. In 1985, MCI committed to deploying 2,900 miles of alongside 8,000 miles of supplementary routes, replacing analog segments with lightwave transmission for enhanced bandwidth and reliability. By the early , the company procured 60,000 miles of single-mode fiber from Corning to overhaul its terrestrial long-haul network, phasing out much of the microwave plant in favor of dense (DWDM) precursors. In 1994, MCI unveiled a $20 billion "network MCI" upgrade using fiber-optic rings, capable of data rates 15 times faster than prior systems, which fortified loop resiliency against single-point failures. Further fiber deployments included undersea and metro segments; for instance, MCImetro's $2 billion initiative in the mid-1990s laid urban fiber rings to bypass incumbent local exchange carriers for competitive access services. By the late 1990s, MCI had integrated (ULH) technology across 3,129 route miles, enabling terabit-scale capacities on upgraded spans between key nodes like New York and . These expansions, totaling tens of thousands of route miles by acquisition in 2006, positioned MCI as a Tier 1 backbone provider, though overbuild in the telecom bubble era strained capital amid commoditized pricing.

Battles Against AT&T Monopoly

MCI Communications Corporation, under founder William , initiated its challenge to 's long-distance monopoly shortly after its formation in 1968 by acquiring Microwave Communications Inc. and focusing on for business users as a lower-cost alternative to 's services. resisted MCI's entry by denying reasonable to its local exchange networks, citing regulatory barriers and demanding exorbitant rates for access, which contested as exclusionary tactics to preserve dominance. In December 1973, MCI secured a pivotal federal court victory when U.S. District Judge John H. Pratt ordered to interconnect MCI's facilities with the network under the antitrust "essential facilities" doctrine, enabling MCI to complete calls via AT&T's local loops despite ongoing appeals. This ruling followed years of FCC proceedings and prior precedents like the 1956 Hush-A-Phone and 1968 Carterfone decisions, which had eroded AT&T's restrictions on customer-provided equipment but did not fully resolve competitive access issues. Emboldened, MCI filed a private antitrust lawsuit against in July 1974 in the U.S. District Court for the Northern District of Illinois, alleging 22 counts of , , and refusal to deal that stifled MCI's expansion during its formative years. The suit highlighted 's control over 90% of U.S. , which it leveraged to impose discriminatory rates and delay MCI's Hi/Lo service rollout between and , MCI's initial route operational since 1969. MCI's claims drew on evidence of 's internal strategies to undermine entrants, cooperating with the U.S. Department of Justice's parallel antitrust case filed in November 1974 seeking 's divestiture. A flashpoint emerged with MCI's Execunet service, tariffed in October 1974 for switched, metered long-distance calls at rates up to 40% below 's, prompting to complain to the FCC that it violated MCI's specialized authorization limited to private lines. The FCC initially revoked Execunet approval in 1975, but MCI relaunched it after a federal appeals court overturned the decision in 1978, affirming MCI's right to offer such services and forcing to interconnect under equal terms. 's opposition, including threats to withhold access, exemplified its broader campaign to maintain exclusivity, as detailed in trial records showing deliberate delays and higher settlement demands for MCI's connections. The antitrust trial concluded on June 16, 1980, with a jury finding liable on most counts and awarding MCI $1.8 billion in for lost revenues estimated at $600 million from blocked market entry between 1970 and 1975. appealed successfully on several liability issues, leading to a 1985 retrial that reduced damages to $37.7 million, though the verdict upheld findings of monopolistic exclusion and contributed evidentiary support to the DOJ's case culminating in 's 1982 divestiture of local operating companies. These battles, driven by McGowan's aggressive litigation, eroded 's fortress-like position, fostering competition that lowered long-distance rates by over 40% post-divestiture, though critics noted MCI's tactics amplified regulatory scrutiny without fully dismantling structural barriers until judicial intervention.

Influence on Deregulation and FCC Policies

MCI Communications exerted substantial influence on telecommunications deregulation by challenging FCC policies that protected AT&T's monopoly, beginning with its successful 1969 application for microwave facilities between and , which the FCC approved as the first non-AT&T interstate transmission service. This authorization evolved into the FCC's 1971 policy permitting specialized common carriers like MCI to offer private-line services, creating initial cracks in the regulated monopoly structure and setting precedents for competitive entry in point-to-point communications. MCI's legal victories, including appeals affirming its right to interconnect with AT&T's local exchanges at reasonable rates, compelled the FCC to reform access policies, transitioning from discriminatory practices to more equitable terms that facilitated rival networks. A landmark episode was MCI's 1978 launch of Execunet, an end-to-end long-distance service initially deemed unauthorized by the FCC, which ordered its discontinuation on grounds it exceeded MCI's specialized carrier license. Appellate courts overturned this in MCI Telecommunications Corp. v. FCC (), ruling that MCI could resell private-line capacity for switched service, a decision the declined to review, thereby forcing the FCC to accommodate competitive toll services and revise interconnection rules. This outcome accelerated by validating resale models and prompting FCC dockets on whether interstate message toll was a , ultimately contributing to equal access mandates that equalized dialing and billing for competitors post-1984. Through founder William McGowan's aggressive lobbying of and the FCC, MCI advocated for AT&T's structural divestiture, filing a 1974 antitrust suit alleging predatory practices that paralleled the DOJ's case and heightened pressure for the 1982 Modified Final Judgment breaking up the . McGowan's campaigns emphasized competition's benefits for lower prices and , influencing FCC shifts toward from detailed rate regulation. In the post-divestiture era, MCI supported FCC policies detariffing non-dominant carriers, as affirmed in MCI Telecommunications Corp. v. Co. (1994), where the upheld the agency's authority to make tariff filing optional, streamlining operations for efficient competitors. MCI occasionally criticized FCC haste in access charge deregulation, arguing it prematurely favored AT&T, but overall advanced a pro-competition regulatory paradigm.

Antitrust Litigation Outcomes

In 1974, MCI Communications Corporation initiated a major antitrust lawsuit against American Telephone & Telegraph Company (), alleging violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act, including through , denial of interconnections to AT&T's local exchanges, and other exclusionary practices that hindered MCI's entry into long-distance markets. A in 1980 awarded MCI $600 million in , which was trebled to $1.8 billion under antitrust law—the largest such award in U.S. history at the time—but an appeals court vacated this verdict in 1982 due to instructional errors and insufficient evidence on certain claims. The U.S. Court of Appeals for the Seventh Circuit, in a January 1983 ruling, affirmed AT&T's liability on most counts, including and attempted , while reversing some specific findings for lack of proof of recoupment potential, thereby upholding MCI's core allegations of anticompetitive barriers erected by the dominant . Following the 1983 appellate decision, further proceedings resulted in a 1985 jury award of $12.4 million in actual damages to MCI, trebled to approximately $37.7 million, a significantly reduced sum reflecting narrowed liability scopes and evidentiary challenges on damage calculations. This outcome, while modest compared to initial expectations, validated MCI's claims of systemic exclusion by and contributed evidentiary pressure to the concurrent U.S. Department of Justice antitrust case against , influencing the 1982 Modified Final Judgment that mandated 's divestiture of its local operating companies effective , 1984, thereby opening long-distance markets to greater . The MCI v. litigation thus marked a pivotal private enforcement action that reinforced public antitrust efforts, demonstrating how challenger firms could leverage courts to dismantle entrenched monopolistic structures without relying solely on government intervention. In later years, MCI's merger activities faced antitrust scrutiny with mixed resolutions favoring conditional approvals. The 1998 merger with WorldCom proceeded after U.S. Department of review, incorporating voluntary pricing commitments to mitigate concerns over reduced competition in services, though it later unraveled amid unrelated issues. For the 2005 Verizon acquisition of MCI, the DOJ filed suit to enjoin the deal citing overlaps in enterprise and long-distance markets, but resolved concerns through mandated divestitures of specific assets, including routes and contracts valued at over $2 billion, enabling clearance by early 2006 without blocking the transaction. These outcomes underscored a regulatory pattern of permitting consolidation in a maturing post-divestiture industry via structural remedies rather than outright prohibitions, preserving incentives for infrastructure investment while addressing risks.

Financial Performance and Controversies

Revenue Growth and Market Share Gains

MCI Communications Corporation experienced rapid revenue expansion in its early decades, driven by innovative technology and legal victories that eroded AT&T's dominance in long-distance services. Founded in , the company reported negligible revenue initially but reached approximately $1 billion annually by 1981, following the 1971 approval of its microwave network and subsequent market entry. This growth accelerated after the 1981 Execunet court ruling, which invalidated AT&T's restrictions on customer access to MCI's facilities, enabling broader competition and spurring revenues to $3.6 billion by 1987. The 1984 divestiture of AT&T's local operations into the Baby Bells further catalyzed MCI's ascent, opening the long-distance market to intensified rivalry and allowing MCI to capture share through aggressive pricing strategies like its Hi/Lo tariff plan introduced in 1984. Revenues surpassed $5 billion by 1988 and doubled to $10 billion by 1992, reflecting a exceeding 30% from the mid-1980s amid expanding network infrastructure and customer acquisition. By 1993, MCI's revenues hit $12 billion, underscoring its transition from niche provider to major player. Market share gains were pronounced in the post-divestiture era, with MCI's portion of the U.S. long-distance market rising from 4.5% in 1984 to 8.7% by 1987, eroding AT&T's monopoly hold through volume growth and targeted business customer campaigns. The 1990 acquisition of Telecom USA added about 1.5% share, propelling MCI to the second-largest long-distance carrier behind AT&T, with fiber-optic expansions supporting sustained volume increases of over 12% year-over-year into the early 1990s. These advances positioned MCI with roughly 20% market share by the mid-1990s, facilitated by deregulation and infrastructure investments that lowered costs and enabled competitive undercutting of AT&T rates.

WorldCom-Era Accounting Irregularities

Following WorldCom's acquisition of MCI Communications in September 1998 for $37 billion in stock, the combined entity encountered mounting financial strain from the telecommunications sector downturn and unmet growth projections. To sustain investor confidence and stock price, executives initiated fraudulent accounting practices beginning in the second quarter of 1999. The core irregularity involved misclassifying routine operating line costs—payments to other carriers for network access—as capital expenditures, allowing these expenses to be depreciated over time rather than expensed immediately. This manipulation, directed by Scott Sullivan and executed by Controller David Myers, reduced reported line costs by $3.055 billion in 2001 and the first quarter of 2002 alone, contributing to an initial overstatement of earnings by $3.8 billion. Additional tactics included the premature reversal of $3.3 billion in accruals during 1999–2000 and artificial inflation of $958 million, resulting in total false entries exceeding $9 billion through the first quarter of 2002. Overall, these actions overstated assets by more than $11 billion, concealing the company's deteriorating financial health. CEO fostered a high-pressure environment prioritizing earnings targets, with personal stakes tied to stock performance through massive loans collateralized by shares. Sullivan conveyed directives to accounting staff to achieve specific cost reductions without legitimate business justification, leading subordinates like , Vinson, and Troy Normand to enter unsupported journal entries despite internal reservations. External auditors failed to detect the improprieties, later citing reliance on management's representations. In May 2002, as debt pressures intensified, Vice President of Cynthia Cooper's team scrutinized line cost variances during a routine , uncovering $500 million in unexplained capitalizations from the prior quarter. Further investigation revealed the full scope of $3.8 billion in fraudulent entries, prompting disclosure to the on June 17, 2002, and public announcement on June 25, 2002. Trading in WorldCom stock halted that day, and the company filed for Chapter 11 bankruptcy on July 21, 2002, with $107 billion in assets—the largest U.S. filing to date. The U.S. Securities and Exchange Commission charged WorldCom with , culminating in a $750 million settlement in 2003. Ebbers was convicted in July 2005 on charges of , , and making false filings, receiving a 25-year prison sentence in 2006; Sullivan pleaded guilty and was sentenced to five years. These events, encompassing MCI's assets under WorldCom control, underscored governance lapses and spurred regulatory reforms including the Sarbanes-Oxley Act of 2002.

Post-Scandal Audits and Reforms

Following the June 2002 disclosure of accounting irregularities totaling $3.8 billion—later restated to $11 billion—WorldCom retained as its new , replacing the disgraced , to conduct a comprehensive reaudit of from 1999 to 2002. This effort involved scrutinizing line-cost capitalizations that had been improperly classified as assets rather than expenses, confirming systemic failures in financial reporting. functions were bolstered, with the team led by Cynthia Cooper identifying initial discrepancies, leading to enhanced oversight protocols. During the Chapter 11 bankruptcy proceedings initiated on July 21, 2002, court-appointed examiners and subsequent post-bankruptcy audits uncovered additional irregularities, including $5.8 billion in overvalued acquisitions and a reclassification of WorldCom's reported $7.6 billion pretax profit in 2000 to a $48.9 billion loss after a $47 billion write-down. These audits, conducted with 1,500 personnel at a cost of $365 million, estimated total fraudulent overstatements at approximately $79.5 billion across 2000–2002, exposing broader issues like inflated asset valuations that misled investors and competitors. The Securities and Exchange Commission (SEC) investigation culminated in a $2.25 billion civil settlement, with $750 million allocated to victim restitution ($500 million cash and $250 million in stock). Under new CEO , appointed in December 2002, and CFO Robert Blakely in 2003, WorldCom implemented sweeping internal reforms outlined in the August 2003 "Restoring Trust" report by court-appointed corporate monitor Richard Breeden, comprising 78 recommendations codified into the company's articles of incorporation. These included replacing the entire with independent members (except the CEO), establishing a non-executive chairman role with a six-year , mandating director tenure caps at 10 years or age 75, and creating specialized committees such as an enhanced requiring at least three financially expert members meeting six to eight times annually. An Ethics Office was formed under the general counsel, mandating an annual employee "Ethics Pledge," comprehensive on ethics, securities laws, and accounting principles (developed with NYU and Darden curricula), and closure of the problematic , accounting department with over 400 new finance staff hires. Internal controls were fortified with assistance from & Touche, including auditor rotation policies (every 10 years, with reviews every five) and prohibition on stock options for executives for five years post-bankruptcy, shifting to cash-based compensation. These measures aligned with the Sarbanes-Oxley Act of 2002, which mandated CEO and certification of , rigorous assessments under Section 404, and independent oversight, directly addressing WorldCom's lapses. By April 20, 2004, the restructured entity emerged from bankruptcy as MCI Inc., having reduced debt by over $35 billion, trimmed its workforce from 88,000 to 55,000, and prioritized transparency through enhanced reporting and annual board strategic reviews incorporating and assessments. The reforms aimed to prevent recurrence by limiting management discretion and embedding accountability, though critics noted ongoing challenges in fully eradicating cultural issues from the Ebbers era.

Industry Impact and Legacy

Contributions to Competitive Telecommunications

MCI Communications Corporation, originally founded as Microwave Communications, Inc. in 1968, introduced competition to the U.S. long-distance telecommunications market dominated by by deploying microwave relay towers for private line services between and . This approach bypassed AT&T's wire , enabling MCI to offer dedicated circuits at lower costs for business customers seeking high-capacity voice and data transmission. By 1969, the FCC granted MCI authorization for its initial 25-mile route, marking the entry of the first specialized and challenging AT&T's monopoly on intercity transmission. MCI's legal challenges against were pivotal in establishing rights and antitrust precedents. In 1974, MCI sued for refusing to provide equal access to local loops necessary for competitive long-distance service, resulting in a 1978 federal court order mandating for MCI's Execunet offering. Execunet, launched in 1975, allowed customers to dial a local MCI access number for discounted long-distance calls—often 40-50% below rates—prompting FCC intervention that initially halted the service but ultimately led to the 1976 Hi/Lo decision permitting full public switched long-distance competition. Further, MCI's 1980 antitrust suit against for yielded a of $1.8 billion in damages (later reduced on appeal), reinforcing findings of monopolistic practices and contributing to the momentum for the 1982 Modified Final Judgment that divested 's local operating companies. Technological advancements by MCI enhanced competitive infrastructure. Transitioning from microwave to fiber optics in 1983, MCI committed to installing 90,000 miles of single-mode fiber cable to support higher bandwidth and digital services, outpacing AT&T's initial reluctance and enabling scalable network expansion. These investments facilitated MCI's growth to a 10% in long-distance by the mid-1980s, driving industry-wide price reductions as competition eroded AT&T's pricing power; real long-distance rates declined by over 50% from 1984 to the early due to entrants like MCI. MCI's advocacy also influenced FCC policies favoring , such as equal access implementation post-1984, which standardized dialing and further lowered for rivals. Overall, MCI's persistent disruption shifted from monopoly control to a competitive framework, benefiting consumers through cost savings estimated in billions annually by the .

Economic Effects on Consumers and Markets

MCI's challenge to AT&T's monopoly in long-distance introduced that substantially lowered rates for consumers, shifting the market from regulated monopoly pricing to dynamic rivalry. By launching its Execunet service in 1975, MCI offered discounted rates for switched long-distance calls, initially at about half of AT&T's prices, which forced the incumbent to adjust downward and opened the market to additional entrants like Sprint. This pressure contributed to the 1982 antitrust , effective January 1, 1984, which divested AT&T's local operating companies and eliminated barriers to long-distance entry, enabling MCI to expand nationwide. Consumer benefits materialized through sustained price erosion and service innovations; for example, MCI's 1985 rate cuts reduced the cost of a ten-minute New York-to-San Francisco weekend call to $1.71, undercutting 's $1.82 equivalent. By 1990, MCI held 14.2% amid three-carrier dominance ( at 65%, Sprint at 9.7%), spurring further declines to as low as 7 cents per minute by 1999 through aggressive pricing plans like calling circles and flat-rate options. These reductions increased call volumes and household savings, with competition credited for broader access to affordable interstate calling. In broader markets, MCI's expansion promoted efficiency and infrastructure investment, as its microwave and fiber-optic builds pressured to modernize, while fostering resale and facilities-based rivals that diversified supply. The 1998 WorldCom-MCI merger, approved by the FCC and DOJ with $1.75 billion in divestitures (e.g., iMCI to Cable & Wireless), consolidated capacity but preserved rivalry in core services, avoiding immediate anticompetitive harms amid ongoing local and backhaul growth. However, the 2002 WorldCom —triggered by $11 billion in accounting irregularities—disrupted operations, eroded investor confidence, and temporarily heightened market volatility, though it did not reverse prior consumer gains from competitive pricing.

Criticisms of Aggressive Expansion Tactics

Critics of MCI's expansion tactics, particularly during the WorldCom era following the acquisition, highlighted the strategy's reliance on over 60 acquisitions to fuel rapid growth, which exacerbated accumulation and operational complexities. This approach, driven by CEO , involved aggressive bidding and integration of disparate entities, leading to a combined load exceeding $17 billion post-merger and ballooning to around $41 billion by 2002. Analysts contended that such tactics masked underlying weaknesses in , as the company bet heavily on sustained telecom demand that failed to materialize amid market saturation. The aggressive pursuit of through acquisitions was further faulted for creating intense internal pressures, where top management enforced relentless deal-making without adequate or realization, contributing to cultural clashes and inefficiencies across the enlarged entity. researchers warned that the WorldCom-MCI merger would heighten anti-competitive risks by consolidating long-distance and control, potentially stifling smaller rivals and raising despite regulatory approvals. Post-merger analyses, including from Cambridge Strategic Management Group, predicted operational strains from the "explosive growth" without structural reforms, foreshadowing integration failures that hampered service quality and cost controls. Earlier phases of MCI's growth in the and early also faced scrutiny for financing aggressive network buildouts—peaking at over $1 billion in annual capital expenditures—primarily through high debt and equity issuances, which exposed the firm to financial volatility after the divestiture. Detractors, including financial observers, argued this overleveraged expansion into fiber optics and long-distance services ignored maturing market dynamics, culminating in near-insolvency risks by the early and vulnerability to competitive price wars. Such tactics, while enabling initial breakthroughs against dominance, were seen by some as prioritizing volume over profitability, ultimately amplifying the telecom sector's overcapacity in the late .

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