Lci: For Whom The Bells May Troll

With less than a 1% share of the $70 billion long-distance business, lci International Inc. is not costing the Big Three carriers much sleep. But maybe they should pay closer attention. lci is prime takeover bait for the Baby Bells, which will be free to enter the long-distance business if Congress passes telecommunications-reform legislation this fall. The Baby Bells "are certainly possible acquirers," says analyst Bruce J. Roberts of Ladenburg, Thalmann & Co. And lci is an attractive target. The No.6 carrier's revenues are expected to soar 34%, to $622 million, in 1995.

That's not bad for a company that was near bankruptcy just four years ago. lci was on the verge of defaulting on $70 million in high-yield "junk" bonds in 1991. The McLean (Va.) company was overstaffed and choking on bad acquisitions. And it took its eye off its core business to pursue new markets such as cellular calling and videoconferencing.

"MCI LITE." Enter ceo H. Brian Thompson, 56. In 1990, he had left mci Communications Corp., where he was executive vice-president, because it appeared he would never grab the top job. S.G. Warburg & Co., a major lci investor, asked him to give the company a once-over. Thompson liked what he saw and signed on as chairman and ceo in July, 1991. Warburg pumped in $37 million in capital, while Thompson cut a new deal with bondholders. Then, he started raiding mci. Nine of lci's top 11 managers are former mciers, prompting some wags to call lci "mci Lite."

Thompson hacked away at the company's cost structure, laying off 25% of the workforce. He cleaned up the balance sheet and dumped the peripheral businesses. Then, he changed the company's focus from that of a regional Midwest player to a national carrier offering a full range of services to corporations and residential customers. Today, lci's 1,400-mile network in the Midwest is the nucleus of a nationwide system covering some 60 million circuit miles--a big draw for an acquisitive Bell. "They're one of the few companies in the second tier that have their own facilities," notes analyst Stuart P. Conrad of C.J. Lawrence/Deutsche Bank Securities.

Thompson also has a lot of experience slugging away at the industry giants. His big innovation: lci was the first long-distance company to offer a flat phone rate--no matter how great the distance. Thompson found another edge by exposing one of the industry's dirty little secrets: The Big Three carriers round each residential call up to the next full minute. He claims the practice costs consumers upward of $2 billion a year. lci, by contrast, bills in six second increments. That and flat billing have helped lci expand its residential business sixfold since 1993, to 20% of revenues.

Thompson says that he is not interested in selling out, now that the business is going so well. But he acknowledges that he has held informal talks with a number of companies and would be stupid if he refused to accept a good offer. For now, lci is doing the buying. In May, Thompson announced plans to acquire long-distance carrier Corporate Telemanagement Group Inc. for $120 million. In an industry where bigger is better, lci may be the focus of a lot of eyes.

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