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. It was headquartered in Washington, D.C.
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, with the name afterwards being shortened to WorldCom in 2000. WorldCom's financial scandals and bankruptcy led that company to change its name in 2003 to MCI Inc. The MCI name disappeared in January 2006 after the company was bought by Verizon.
History
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Founding
MCI was founded as Microwave Communications, Inc. on October 3, 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 between February 13, 1967 and April 19, 1967 resulted in a recommendation that the FCC approve MCI's application.
Another FCC ruling that would affect the company was the June 26, 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, AT&T 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 August 8, 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 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 4â€"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 purchased 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 January 1, 1972.
To pay for the microwave transmission and relay equipment needed for build-out, MICOM began a series of private stock offerings in 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 June 22, 1972, selling an initial offering of 3.3Â million shares.
In the 1970s, Western Union organized its cable systems properties and the right-of-way rights of its telegraph lines into a subsidiary called Western Union International, which was subsequently sold to Xerox for their planned intra-city office network aspirations. In 1982, it sold this subsidiary to MCI Communications, which renamed it MCI International and moved its headquarters from New York City to Westchester County, New York.
In 1983, in conjunction with Michael Milken and Drexel Burnham Lambert, the company issued a $1.1 billion hybrid securityâ€"at the time the largest debt financing in history. The financing allowed company management to state 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.
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 relocated to Washington, D.C. to be close to federal regulators and lawmakers. 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 said 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 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 $34.7 billion, MCI accepted the buyout 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." The ads were created by Ally & Gargano.
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, the $400 million "purchase price", in effect providing MCI with the financing it needed to continue its expansion.
In 1975, MCI began experimenting with offering switched voice telecommunications in direct competition with AT&T. Until then 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 sold voice services 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. When GE later bought RCA and broke it up MCI purchased the RCA Global Communications division. Many more Danray switches 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. Referred to as MAFOS (Mid-Atlantic Fiber Optic System), the fiber cable ran between New York City and Washington D.C. and was activated for service in 1984. Eventually, single-mode fiber became the standard for US telecommunications 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 calling numbers they had included in their "calling circle", which could contain up to 20 MCI customers.
The company also introduced a dial-around collect calling service called "1-800-COLLECT". Actors Phil Hartman, Chris Rock, and Arsenio Hall starred in some of 1-800-COLLECT's commercials, but the most commonly used spokesperson was the fictitional Eva Savealot, played by actress Alyssa Milano. The service and its associated phone number were eventually bought by another company, which as of 2014 is still offering collect call phone call services, albeit for highly inflated prices.
In 1995, MCI introduced 1-800-MUSIC-NOW, a short-lived telephone-based and online music store.
Beginning in late 1982, MCI developed a data network using the CCITT X.25 packet switching protocol and an electronic mail service called MCI Mail. It was launched on September 27, 1983. 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 1989 (see below). The CCITT X.400 standard was developed in 1984 but was not fated to play a significant role in email interconnection. During this time, Vint Cerf (one of the developers of the TCP/IP protocol) was vice president of Engineering for MCI Digital Information Services and led the development of MCI Mail .
In the mid-1980s, MCI partnered with IBM and Merit Network (a network run by triad of universities in Michigan) to respond to a National Science Foundation NSF proposal to develop a high-speed telecommunications network called NSFNET. This network 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. In 1988, Vint Cerf was working at CNRI and obtained support from MCI and permission from the Federal Networking Council to interconnect MCI Mail with the NSFNET. In 1989, it was the first commercial e-mail service to do so. Immediately, most of the other commercial e-mail providers also got permission to interconnect to the Internet, leading to their interconnection with each other.
In 1994, NSF announced that it would terminate the NSFNET operation and support the development of Network Access Point operation to link the networks that had been interconnected by NSFNET. NSF also proposed that an academic research network be built called the Very high-speed Backbone Network Service (vBNS) and MCI responded. MCI also built a separate commercial Internet service MCI.net. From 1995 to 1998, MCI's network was an integral part of the global Internet backbone. MCI commercial Internet service was sold to Cable & Wireless as part of the merger of MCI with Worldcom that year.
MCI also attempted a try at television in the mid-1990s. They partnered with News Corporation to form American Sky Broadcasting, named after News Corps' British satellite TV service. They intended to broadcast from two satellites at the 110 degree orbital slot; but the venture never started broadcasting, likely due to a crowded satellite TV field. The orbital slot and an uplink center were sold to EchoStar; the planned satellites Tempo 1 and Tempo 2 were sold to PrimeStar and have since been reused by DirecTV.
Impactful Legislation on MCI
MCI and the other inter-exchange carriers (IXC) were all severely impacted by the Telecommunications Act of 1996. The original intent of the Act was to provide more competition but the bill actually did the opposite. The implementation of the Act led to a complete reversal of the growth of the telecommunications sector. Where the divestiture of AT&T (Ma Bell) in 1984 led to dozens of long distance companies being formed, the Telecommunications Act of 1996 provided for the consolidation where today in 2016 only AT&T, Sprint & Verizon exist. Within two years of the ACT, MCI was part of a consolidation effort that started with Worldcom purchasing them and ultimately led to bankruptcy and loss of retirements for their loyal employees and finally absorption into Verizon.
The end of MCI marked the end of an era in which the global telecommunications market prospered through wide spread innovation, customer service, and high growth fostered by a free market open to a wide number of competitors. Today, the telecommunications market is an oligopoly ushered in by the opposite form of government involvement that created the breakup of Ma Bell in 1984.
See also
- Bell System divestiture
References
Sources
- Cantelon, Philip L. (1993). The History of MCI: 1968â€"1988, The Early Years. Dallas: Heritage Press. LCC HE8864.M375C36 1993.Â
- Kahaner, Larry (1987). On The Line. Warner Books. ISBNÂ 0-446-38550-6.
External links
- MCI Inc. at the Wayback Machine (April 12, 1997 and May 16, 1997 are functional links of the former MCI Communications)
- William G. McGowan's MCI, 1968 to 1991 (Online exhibit produced by the Hagley Museum and Library on the life of MCI CEO William McGowan)
