MCI faces a 'brutal pricing environment'

Users and analysts have predicted that prices for voice and data networking services will fall as MCI prepares to emerge from...

Users and analysts have predicted that prices for voice and data networking services will fall as MCI prepares to emerge from Chapter 11 bankruptcy protection early next year.

MCI officials have sought to dispel such talk since US Bankruptcy Court Judge Arthur Gonzalez approved the company's financial reorganisation plan last month. Chief executive officer Michael Capellas said after the ruling that MCI already faces "a brutal pricing environment".

Capellas vowed not to start a price war with rivals such as AT&T and Verizon Communications, although he added that MCI "will protect our territory, and we will be competitive".

Vinton Cerf, senior vice president of technology strategy at MCI, said that it would be "silly to initiate a price war and make up revenues in volume", adding that as voice revenues fall for all telecoms suppliers, MCI will put even more emphasis on IP network services and "increase the range and function of products and services we offer".

But several analysts said there is room for MCI, which is still legally known as WorldCom, to drop prices, and some users also see cost reductions ahead.

Jack Pavelko, lead telecommunications analyst at chemicals maker BASF, said MCI's emergence from bankruptcy would put pressure on competitors to drop their prices as well, but he lamented such a possibility.

"Already, we get no customer service from carriers, and now they'll be fighting over fractions of pennies," he said, referring to the per-minute cost of long-distance voice services.

"Not in my lifetime will I ever work with MCI. They deflated prices for three years, and their emergence from bankruptcy will push the market into further chaos."

BASF spends about $28m a year with Sprint and AT&T for voice and data services. MCI made a short presentation at BASF last month, but Pavelko said he was unimpressed by the sales pitch.

Howard Anderson, senior managing director of YankeeTek Ventures, and founder of The Yankee Group market research firm, said that demand for long-distance voice services is diminishing and that some users can already get prices of one cent per minute.

"You can't get much cheaper than that," Anderson said. "There might not be an actual price war, but as MCI emerges, it will start more competition on pricing. MCI is still respected."

AT&T spokesman John Heath said that whatever MCI does on pricing for a wide range of voice and data services, AT&T will keep pace.

"We've been able to compete with MCI very effectively when they were cheating in the past, and we'll continue to do so," Heath said.

Matt Hamblen writes for Computerworld

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