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MCI Communications

MCI Communications Corp. was an American telecommunications company that was instrumental in legal and regulatory changes that led to the breakup of the AT&T monopoly of American telephony and ushered in the competitive long distance telephone industry.

Founded in 1963, it grew to be the second largest long-distance provider in the U.S. It was purchased by WorldCom in 1998 and became MCI WorldCom, and afterwards being shortened to WorldCom in 2000. WorldCom's financial scandals and bankruptcy led that company to change its name in 2003 to MCI. The MCI name disappeared in January 2006 after the company was bought by Verizon.

History

Founding

MCI was founded as Microwave Communications, Inc. on 3 October 1963 with John D. Goeken being named the company's first president. The initial business plan was for the company to build a series of microwave relay stations between Chicago, Illinois and St. Louis, Missouri. The relay stations would then be used to interface with limited range two-way radios used by truckers along U.S. Route 66 or by barges on the Illinois Waterway. The long distance communication service would then be marketed to shipping companies that were too small to build their own private relay systems. In addition to the radio relay services, MCI soon made plans to offer voice, computer information, and data communication services for business customers unable to afford AT&T's TELPAK service.

The fledgling business began a process of raising capital and submitting applications to the Federal Communications Commission (FCC) for appropriate licenses. Hearings on Microwave Communications' initial application occurred between 13 February 1967 and 19 April 1967 resulted in a recommendation that the FCC approve MCI's application.

Another FCC ruling that would affect the company was the 26 June 1968 ruling in the Carterfone case that deemed AT&T's rules prohibiting private two-way radio connections to a telephone network were illegal. AT&T quickly sought a reversal of the ruling, and when the FCC denied their request brought suit against the FCC in the U.S. Court of Appeals. The FCC's decision was upheld thus creating a new industry: privately (non-Bell) manufactured devices could be connected to the telephone network as long as the manufacturer met interface standards.

In 1968 William G. McGowan, an investor from New York with experience in raising venture capital, met with the board of Microwave Communications to discuss financing plans for the business. As a result of meetings in June and July, Microwave Communications of America, Inc (MICOM) was incorporated on 8 August 1968 as an umbrella corporation to help build a nationwide microwave relay system. McGowan also made an investment into the new corporation large enough to pay off all outstanding debts of the combined businesses and create a cash reserve. The investment also provided McGowan a stake in the company and a seat on the board.

Licensing and build out

Despite a 1967 recommendation that MCI's application be approved, final authorization for MCI to begin operations was delayed until after H. Rex Lee became an FCC Commissioner in October 1968. Following Lee's joining of the commission, MCI began a series of submissions including a proposal for a low-cost educational television network designed to show MCI as being more flexible to public needs than AT&T. While MCI was performing this lobbying, the President's Task Force on Communication Policy issued a report recommending that specialized common carriers be allowed free access into the private line business.

The FCC issued a final ruling on Docket 16509, MCI's licensing request, on 14 August 1969. By a decision of 4–3 MCI was licensed for operation. This ruling was quickly appealed by AT&T, and after a denial of the appeal by the commission AT&T filed a suit with the U.S. Court of Appeals to have the ruling overturned.

Following the FCC approval for MCI to begin building microwave relay stations between Chicago and St. Louis, Microwave Communications of America began to form subsidiary corporations and file applications with the FCC to create microwave relays between other city pairs. Between September 1969 and February 1971 fifteen new regional carriers were created allowing for interconnection between a number of major cities in the United States. In July 1969, MICOM also purchasing an equity position in Interdata, an independent regional carrier that was applying to build a microwave relay chain between New York City and Washington, D.C. MCI began selling data transmission services to paying customers on 1 January 1972.

To pay for the microwave transmission and relay equipment needed for build out, MICOM began a series of private stock offerings on May 1971. In July 1971 MICOM was restructured into MCI Communications, and the restructured company began the process of absorbing the regional carriers into a single corporation. MCI went public on 22 June 1972, selling an initial offering of 3.3 million shares.

In 1983, in conjunction with Mike Milken and Drexel Burnham Lambert, the company issued a $1.1 billion hybrid security - at the time the largest debt financing in history. The financing allowed company management to put an extra $500 million in cash on their balance sheet so that customers, suppliers and investors would know they were financially strong. The immediate effect was that management no longer was forced to spend so much time raising capital. By 1990, MCI had become the nation’s second-largest telecommunications company, establishing a fiber-optic network spanning more than 46,000 miles. The company offered more than 50 services in more than 150 countries that included voice, data and telex transmissions, MCI Mail and MCI Fax.

In the 1980s Western Union organized its cable systems properties and its right-of-way rights of its telegraph lines into a subsidiary called Western Union International. In 1990 it sold this subsidiary to MCI Communications which renamed it to MCI International and moved its headquarters from New York City to Westchester County, New York.

Anti-trust suits

When it ran into problems competing with AT&T, which at the time had a government-supported monopoly in telephone service, it moved to Washington, D.C. to be close to federal regulators and lawmakers. The joke is that in its early years, MCI had more lawyers than land lines or that it was "A law firm with an antenna on the roof". MCI ordered interconnections from the local exchange carriers, which in most cases was a Bell Operating Company, owned by AT&T. The relationship between MCI and the Bell Operating companies were not that of a typical supplier and customer, as the local operating companies were generally reluctant to do business with a company that its parent was attempting to put out of business. In a decision that became a turning point in the competitive telecommunications industry, Illinois Bell disconnected MCI circuits for what MCI believed was no other reason than to restrain trade. MCI filed an antitrust lawsuit against AT&T in 1974, and eventually changed the telecommunications industry. On June 13, 1980, a jury in Chicago awarded MCI 1.8 billion dollars in damages to be paid by AT&T. The suit, coupled with the Department of Justice antitrust suit also brought against AT&T eventually led to the voluntary breakup of the Bell System.

Merger offers

In 1991, British Telecommunications PLC purchased 20% of the company and later made an offer to purchase the rest in 1996. At the same time, GTE, now a part of Verizon, made a bid to purchase MCI for an all-cash purchase. While these offers were being considered by the MCI board, WorldCom, Inc. announced it was also interested in purchasing MCI and made a higher offer than either the BT or GTE offers. On November 10, 1997 in a stock-swap deal valued at US$34.7 billion, MCI accepted the buy-out from WorldCom. On September 15, 1998 the new company, MCI WorldCom, opened for business.

MCI innovations

After the opening of the long distance market in 1984, companies such as MCI and Sprint were able to compete for customers with AT&T. One of MCI's early advertising success stories was to hire the same actors used in a previous AT&T commercial. As in the AT&T commercial, the woman actor was crying. In the AT&T version, when the husband asked why, the wife replied "he said he loved me" referring to the conversation just ended with a son who was in a distant part of the country. It was part of AT&T's very effective "Reach Out" ad strategy. In the MCI version, when the husband asked the wife why she was crying, she replied "I just received my phone bill"... after which an announcer's voice stated "You're not talking too much, you're just paying too much. MCI: The Nation's New Long Distance Telephone Company".

Even before the competitive long distance market came into existence, MCI created (in late 1970) a subsidiary company named MCI Satellite, Inc. The idea was that satellites could provide 'long distance' service from anywhere to anywhere without having to build thousands of miles of terrestrial network facilities. In early 1971, MCI and Lockheed Missiles and Space Company created a joint venture named MCI Lockheed Satellite Corp. which was the first company to request FCC authorization as a Specialized Common Carrier using satellite based communications. A year later, MCI and Lockheed sought an additional source of funding and Comsat Corp. entered the venture which was renamed CML Satellite Corp. In need of cash, MCI sold its share of the venture to IBM Corporation in 1974 (Lockheed also subsequently sold its share to IBM). IBM and Comsat brought in Aetna Insurance Company as a third partner and renamed the company Satellite Business Systems (SBS). In a twist of fate, IBM, which years later became the sole owner of SBS sold the satellite subsidiary back to MCI in 1985.

In 1975, MCI began experimenting with offering switched voice telecommunications in direct competition with AT&T. Up to that point MCI sold point-to-point voice and data services using their microwave relay backbone. Starting with two Digital Tandem Switch (DTS) voice-switching systems designed specifically for them by the Collins Radio Company of cedar Rapids, Iowa (later a division of Rockwell International), MCI began offering competitive circuit-switched direct-dial services using a combination of their own microwave circuits and leased circuits from AT&T made available to them from the landmark Carterfone decision. One early customer was CNA Insurance in Chicago, served by one of the two Collins systems located at MCI's facilities on the 21st floor of Chicago's John Hancock building. The second Collins switch was located at MCI facilities in New York City and voice services sold to a variety of customers including RCA Global Communications under MCI's "Execunet" service banner. The experiment proved successful and a third switch was purchased from Danray Corporation (later purchased by Northern Telecommunications, now Nortel) and installed in the MCI Chicago facility alongside the Collins system. Many more Danray switched were purchased and deployed at strategic points of their service area to become the first viable competitor to AT&T's long-distance voice services for businesses.

MCI was the first company to deploy Single Mode Fiber Optic Cable (the standard had been Multi-mode) which was manufactured by Siecor, a joint venture between Siemens Telecom and Corning Glass Company. The fiber cable ran between New York City and Washington D.C. and was turned up for service in 1984. Eventually, Single Mode fiber became the standard for US Telecom carriers.

A later marketing strategy employed by MCI was the Friends & Family plan, an early type of loyalty program. In this program, customers would receive a reduced rate when both the caller and callee were MCI customers.

The company also introduced a dial-around collect calling service called "1-800-COLLECT". AT&T quickly responded with "1-800-OPERATOR" but AT&T's ineffective marketing campaign combined with people misspelling operator (either as "operater" or by dialing 1-800 then pressing the "0" (Operator) button) allowed MCI to benefit. Subsequently, AT&T renamed and re-introduced their dial-around collect service as 1-800-CALL-ATT ("Dial down the middle!") but this was also apparently too confusing for consumers and never came close to the success enjoyed by 1-800-COLLECT. Actor Ed O'Neill starred in some of 1-800-COLLECT's commercials.

In 1995 MCI introduced 1-800-MUSIC-NOW, a short-lived telephone-based and online music store.

In the early 1980s, MCI developed a data network using the CCITT X.25 Packet protocol and sold a service called MCI Mail. There were other commercially available Electronic Mail systems, such as IBM's Professional Office System (PROFs), but they didn't interface with each other until the development of the CCITT X.400 standard in 1984. During this time, Vint Cerf (one of the developers of the TCP/IP protocol) was head of MCI Digital Information Services and led the effort to interconnect MCI Mail with the Internet- the first commercial e-mail service to do so.

In the mid-to-late 1980s MCI partnered with several universities and provided the high speed telecommunications links between their computer systems. This network, operated under the auspies of the National Science Foundation was called NSFNet, used the TCP/IP protocol that had been developed by the U.S. Department of Defense ARPANet and was the immediate forerunner to the Internet. From the early 90's on, MCI's network was an integral part of the global Internet backbone.

See also

References

  • Cantelon, Philip L. (1993). The History of MCI : 1968-1988, The Early Years. Dallas: Heritage Press.
  • Kahaner, Larry (1987) On The Line, Warner Books. ISBN 0-446-38550-6

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