MCI, the residential unit of beleaguered telephone and Internet giant WorldCom Inc), has picked up more than 250,000 customers on “The Neighborhood” plan two months after kick-starting a strategy to bundle local and long-distance services throughout the nation.
The high adoption rate has beat MCI’s own expectations and signifies a critical turning point for a unit that is struggling to stem revenue losses as the regional bell operating companies gain regulatory approval with their local fiefdoms to provide long-distance service, say analysts.
WorldCom has picked up a majority of customers on The Neighborhood through a partnership announced in late March with Z-Tel Technologies Inc. Z-Tel resells the Bells’ local networks and owns proprietary billing software and telephone technology such as web-enabled voice mail.
On Monday, Z-Tel announced its partnership with MCI and several cost-cutting measures during the past several months helped the Tampa, Fla.-based provider achieve positive EBITDA (earnings before interest, taxes, depreciation and amortization) in April. MCI partners with Z-Tel in 22 states, while it provides local service in another 10 states through resale.
“The better-than-anticipated adoption rate of MCI has realized with The Neighborhood has already increased the number of subscribers hosted on our platform by more than 250,000,” said Gregg Smith, Z-Tel president and CEO, in a statement released Monday.
MCI has acquired approximately 300,000 customers on The Neighborhood plan, said Z-Tel spokeswoman Sarah Bialk, citing a WorldCom executive’s comments last month at a Goldman Sachs telecommunications conference.
A WorldCom spokeswoman could not confirm the report by Monday afternoon.
Vik Grover, Kaufman Bros. L.P. wireline services director, said The Neighborhood is a “critical element’ to WorldCom’s success, adding the Baby Bells may find it difficult to match the bundled offer since the UNE-P model gives MCI a local footprint throughout the United States, with little to no capital expenditures. Moreover, UNE-P increasingly is becoming a competitive local service offering as public utility commissions slash wholesale prices in many states, the analyst said.
MCI may have figured out a way to scoop up local telephone customers in American neighborhoods, but the company isn’t getting a free ride.
Under the agreement MCI will pay $50 million over four years for software license fees related to the company's sophisticated back-office systems, according to Z-Tel. Plus Z-Tel will earn undisclosed revenue for every new line MCI uses to offer local services and per-minute usage fees based on proprietary capabilities, such as Z-Tel's custom-built voice mail, that U.S. homes access. MCI has declined comment on the financial terms of the agreement.
