Online Extra: Michael Capellas On The New MCI

The CEO explains how Internet technology will be key to future growth and why he thinks his company has the edge there

After bringing his company out of bankruptcy earlier in April, 2004, an ebullient MCI CEO Michael Capellas chatted in his Ashburn (Va.) office with BusinessWeek Correspondents Catherine Yang and Brian Grow on Dec. 17. Sporting Christmas socks that read "Ho-ho," Capellas talked about the coming transformation of the long-distance carrier into a company that sits somewhere "between computing and communications." Edited excerpts of the conversation follow:

Q: What are your plans for MCI (MCIP ) now?


The first order of business when I came here was to get out of bankruptcy.... Now is the really fun stuff, as the unbelievable 2005 and 2006 technology transition happens.

The bad news is the traditional business lines continue to have pressure. The good news is over the next two years, there are two or three foundation-shaking technology shifts. And here is how we position the company to take advantage of it.

Q: What changes do you foresee in technology?


Internet usage goes up, as more people make more phone calls, stream audio, and stream video. The second thing is that the adoption of IP [Internet protocol] networking happens faster than anybody thought. [One example:] Everybody talks about voice over IP (VoIP). You have an IP network which carries data. If you put voice on it, that goes on top of it.

And wireless broadband grows faster than anybody believes. If you talk to the customers, the really heavy-duty CIOs, they really believe the future is WiMax wireless broadband [that connects] into an IP network. That's a structural change to the way people provide networking.

You put that all together, and the conclusion you draw is a very different world of networking.

Q: How would MCI benefit?


Our roots really have come out of the data side. IP is a natural evolution. We built our entire network with it. We are a major carrier of Internet traffic. We have a great heritage of innovation in the data world. Those are the things we build on.

Q: What new business will you pursue?


You may have to accept that the transport level may continue to have pricing pressure, and there will be some commoditization of the core [business]. We want to build on four big [new] areas of service.

The first is outsourcing. We run either whole networks or pieces of networks for big customers today.

The second one is contact centers, which is the integration of the call center with the Web and Web analytics.

The third one is security. Reliability is still the most important thing about a network company. But the No. 1 concern is security.

And the fourth one is hosting [of corporate software applications and digital content delivery].

In 2005 [moves in those areas] will differentiate us. We're one of the few companies that are really positioned to do that. We really think this is where the market is going. Nobody else is doing it as aggressively as we're doing it.

Q: Will you build or buy the knowhow to start new businesses in security and hosting?


You're not going to see big multibillion-dollar acquisitions. You may see us interested in innovative companies with [specific] capabilities -- smaller pieces, as opposed to trying to swallow a bigger business.

Q: In what areas are you interested in acquiring companies?


Security services, for sure [see BW Online, 1/19/05, "MCI Is Looking for Safety"]. Content delivery, for sure.

Q: Do you think you have the time to convert the IP core and build your new IP-based businesses?


Yeah, it's called $6 billion in cash. We have huge cash flow, a huge customer base, $5.5 billion in debt plus $300 million worth of capital leases. Let's just call it zero net debt and real positive cash flow. I have never felt constrained about capital investment.

I'm a great believer that once you decide what to do, speed is of the essence. I think we move faster than anybody else -- one, because we're smaller, and two, innovation has been part of the MCI culture for decades.

Q: With all the speculation of a possible acquisition of MCI, will MCI remain an independent company by the end of 2005?


The minute you start denying speculation, you're in a never-ending battle. What are you really worried about with speculation? You worry people won't be focused. My message to the troops is: We're going to define ourselves on our terms. When we're focused, we execute very well.

Q: To sum up, what is the new MCI?


We're not voice companies anymore. The difference is you have to understand computing architecture to understand networking. This is where our customers want to go. Sometimes you define yourself in terms of your competitors. But I've always been a great believer that you define yourself in terms of your customer, and whatever follows, follows. Networking is becoming more relevant after years of being a dying business.

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