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.