Background
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In early 1983 in Hattiesberg, Mississippi, the beginnings of what we know as WorldCom,
Inc. began to take shape. Bernie Ebbers, along with business associates Bill Fields, David
Singleton, and Murray Waldron, began laying the groundwork for the start of LDDS or
Long Distance Discount Service. They began their search to locate the firm’s headquarters
by going from area to area and asking how many long distance companies these
communities had in the area. They found their location in this town when they received
the answer, “What’s that?” when they inquired about the service. In 1984, LDDS opened
for business by reselling AT&T services to local people and businesses. The first year
of operation proved to be a tough start for them in that they lost money that year and
almost went out of business.
In 1985 Bernie Ebbers took the financial reigns of the company and, by applying
techniques he used in other businesses he had owned, was able to bring profitability to
LDDS. It was soon after that the company began to grow, going through a series of merger
and acquisitions over the course of the next 15 years. In June 1999, WorldCom’s stock
hit its peak at $64.50 per share. The time seemed right for the next deal. In October of
that year, WorldCom and Sprint announced a $115 billion merger agreement, with
WorldCom, Inc. being the principal. This proposed merger was subsequently called off
in June 2000 after objections from U.S. and European regulators. This caused WorldCom’s
stock to drop and forced the sale of three million shares to pay off their debt. WorldCom’s
aggressive growth strategy had come to an abrupt end and investment for the future in
this manner came to a standstill. In essence, WorldCom moved from being a growth by
acquisition company to an operating company and, because of this, a new style of
management had to be found.
Corporate Strategy
The corporate strategy was one of growth by merger and acquisition through concentric
diversification. This growth would occur at a phenomenal rate and would, according to
Ebbers, focus in five areas. These areas were: Voice, Local Service, Internet, Data, and
International. The growth strategy was simple. They would build a customer base and
then go and merge with or purchase smaller local long distance companies. The subject
of integration was never addressed much at this level and the results of this strategy were
borne out at the business and functional levels. To many outsiders of WorldCom, such
as the investors and stockholders, the company was performing quite well and growth
was occurring at a phenomenal rate.
The numbers reported to investors showed that WorldCom was making its earnings
expectations, while actual numbers showed them making less. Corporate profits and
viability reported at the upper levels did not give a true picture of the firm. The basis
for this growth strategy was inadvertently formed at the business level by one of the
firm’s capacity planners. A model was developed which showed that a sales forecast
could be translated into the amount of traffic that could be expected given the value of
certain variables in the equation. In the best-case scenario, indications were that Internet
traffic would double every 120 days or at 1,000 percent annually. This was slowly
disseminated throughout the organization and soon became the model by which they
conducted themselves. Industry analysts and the person who developed this model
knew that this was not true. Their original strategy of being a reseller of phone lines and
growth by merging with smaller firms slowly transformed them into a complex multinational
owner of long distance lines.
What was actually occurring was that no formal strategy was adopted for conducting the
company’s business and no long term plan existed for its business development. In
essence, the basic corporate strategy was one of “doing the next deal.”
Through the years 1988-1994, LDDS acquired more than one-half dozen communications
companies, both large and small and began expanding their reach throughout the United
States. In 1989 LDDS became a publicly traded firm through its acquisition of Advantage
Companies, Inc. In 1992, they merged in an all-stock deal with long-distance service
provider Advanced Telecommunications Corp. The following year saw them acquire
long distance providers Resurgent Communications Group, Inc. and Metromedia in a
three-way stock and cash transaction. The result of this merger was the formation of the
fourth largest long distance network in the United States.
In 1994 growth continued through the acquisition of the domestic and international
communication network of IBD Communications Group, Inc. in an all stock deal. The
following year they acquired voice and data transmission company Williams Telecommunication
Group, Inc. (WilTel) and changed its name to WorldCom, Inc. This name
change better reflected the mission and strategy of the organization.
In 1996, WorldCom, Inc. merged with MFS Communications Company, Inc., which owned
local network access to facilities via digital fiber optic cable networked in and around
major U.S. and European cities. This acquisition played a large part in fulfilling the growth
strategy in the area of local service. That same year saw the acquisition of UUNET, which
was a large player in the small, but growing segment of the telecommunications industry.
It also provided WorldCom with a nationwide Internet backbone, plus local fiber optic
networks for businesses in major cities.
WorldCom then went on to complete three mergers two years later. These were some of
the largest to be known in history. They were MCI Communications ($40 billion), Brooks
Fiber Properties, Inc. ($1.2 billion) and CompuServe ($1.38 billion). The addition of
Brooks Fiber provided local telecommunications service in selected cities of the United
States. Their services included local exchange carriers, long distance customers, Internet
service providers, wireless carriers and business, government and institutional carriers.