MCI Europe's Slippery Strategy

The European team at MCI (Nasdaq: WCOEQ, MCWEQ) has set its sights on the great "slippery eel" of the telecom market – the small and medium business sector.

Sounds tasty, eh?

MCI marketing executive Tim Gingell told the FT World Telecommunications Conference in London that the carrier, still known to many as WorldCom, would be concentrating on stealing SMB customers from national operators around Europe once it emerges from bankruptcy.

"Lots of SMBs are still with the PTTs, and are still paying very high access charges," notes Gingell, who says MCI will be putting its multi-billion-dollar network to good use. No, it's not quite as easy as it sounds. Gingell admits this has traditionally been a "slippery eel of a market."

Indeed, others have tried and failed before in the SMB market, says Julian Hewett, chief analyst at Ovum Ltd. "The SMB market has been held up as 'the next big thing' for years. But SMBs can be every bit as complex to service and manage as a larger, more lucrative account," says Hewett. "Even if a small company provides only 25 percent of the complexity of a large corporate, it usually only has 1 percent of the IT budget [compared with larger firms]. And I should know -– I've been running one for years," adds the Ovum man.

An executive from another European carrier attending the conference also had doubts about MCI's plans. The executive, who wished to remain anonymous, said the amount of time and effort in managing accounts and partners in the SMB sector outweighed any potential gains, and that many service providers had tried, and failed, to generate sustainable margins from this sector in the past.

The reason MCI has its eye on this sector, which in most assessments includes companies with up to 250 employees, is that it is worth tens of billions of dollars a year. While the actual size of the market is tough to pin down, market research firm benchmark-it estimates the U.K. market of about three million SMBs alone is worth almost £7 billion ($12.1 billion). Europe, meanwhile, has more than 20 million SMBs in total -- though Rob Pritchard at benchmark-it stresses that SMB spending on communications services would vary from country to country. MCI is due to emerge from Chapter 11 before the end of February 2004. Its European operation generated revenues of $3 billion in 2002, which accounted for 12.5 percent of the carrier's total revenues.

— Ray Le Maistre, International Editor, Boardwatch