MCI was committed to extending the reach and capacity of its network, and this needed to have external financing. However, facing new business environment, MCI is not sure whether their new financing to drive growth would be appropriate. In addition, MCI is looking for which way will be most effective financing.
(2) How did the problems arise?
Antitrust settlement between AT&T and the U.S Department of Justice in January 1982 had significantly altered the economic landscape for MCI. Due to the settlement, AT&T broke up their long distance telecommunications division by early 1984. This gave MCI the opportunity and threat at the same time. As an opportunity, MCI might be able to increase its growth because AT&T is going to compete on equal quality-of-service terms with MCI. As a threat, MCI will lose its cost advantages allowing AT&T’s competitive flexibility.
(3) Does the management adequately understand the problems and their causes? Yes. They are on the right track that is more external financing for investment is in need.
(4) What (if any) solutions to the problems is the management considering, and how good it is?? Regarding future financial policy, case hasn’t provided any solutions but explained the need for additional financing. There was the word from CFO, Wayne English, “Availability of funds the paramount consideration’; cost was “secondary”. However, as MCI doesn’t know how FCC antitrust settlement of AT&T will change the business environment, and how AT&T will come up with their service pricing.
(5) What and why would you do?
Judging from the case, this industry has huge fixed cost, and success of business highly depends on how MCI leverages it. Market share in this industry seems to be critical in terms of generating profit. In addition, AT&T antitrust shows, the customers are unlikely move to other carrier companies if they decide which...