MFS Communications Company, Inc. History

Address:

One Tower Lane, Suite 1600
Oakbrook Terrace, Illinois 60181
U.S.A.

Telephone: (706) 218-7200
Fax: (706) 218-1216

Public Company
Incorporated: 1987 as Kiewit Communications Company, Inc.
Employees: 654
Sales: $141.1 million
Stock Exchanges: NASDAQ
SICs: 4813 Telephone Communications Except Radiotelephone

Company History:

A leading provider of communication services for businesses and government agencies in the United States, MFS Communications Company, Inc. competes with regional telephone companies by supplying such customers with telephone and data services through fiber-optic networks, enabling its customers to place long-distance telephone calls and transmit data without going through the local phone utility. Through five subsidiary companies, divided into two business segments, telecommunications services and network systems integration and facilities management, the company operated in 24 U.S. cities in 1994, with additional operations in the United Kingdom and Germany. Before the conclusion of the decade, MFS Communications planned to extend its service area to approximately 50 additional cities, an objective that included establishing service in ten international markets.

One of a new breed of telecommunication companies engendered by the deregulation of the telephone industry in the early 1980s, MFS Communications began operating in 1988 as a wholly owned subsidiary of Kiewit Diversified Group Inc., which in turn was a wholly owned subsidiary of Peter Kiewit Sons' Inc., one of the largest construction and mining companies in the United States. Peter Kiewit Sons' entered the telecommunications business as part of a diversification strategy the company effected during the early 1980s, engaging in a series of acquisitions that led to the formation of Kiewit Holdings Group in 1986. From Kiewit Holdings Group evolved Kiewit Diversified Group, which oversaw the parent company's interests in telecommunications and incorporated MFS Communications' predecessor, Kiewit Communications Company, Inc., in 1987.

Led by James Q. Crowe, who would continue to oversee the company once it became MFS Communications, Kiewit Communications was founded to test a theory formulated by himself and other members of Kiewit's management regarding the rapidly changing telecommunications market, the dynamics of which were transforming in the wake of the consent decree that deregulated the telephone industry and ushered in a new era of competition. Before deregulation, they theorized, competition in the telecommunications industry had been predicated on technology, guided by regulation, and driven by expansion into new markets; a company's success was largely determined by its ability to extend the geographic boundaries of its operations. The emphasis had been on securing new markets essentially through technological sophistication and financial might, but, as with monopolized industries before it, the telecommunications industry paid little attention to marketing toward specific types of customers or developing diversified services to suit the divergent needs of its clientele.

This was the direction Crowe and others saw the telecommunications industry moving toward after deregulation: a market reorganized around customers, spawning specialized market niches that addressed the specific needs of specific customers. Indeed, many of the characteristics that defined the industry before deregulation would continue to characterize it in its new competitive era. Technology and market expansion would continue to be the foundation from which growth and success would develop, but in a more competitive arena customer satisfaction and loyalty would play a much larger role in determining success in the industry.

With this perspective in mind, Kiewit Communications was organized to provide telecommunications services to specific clientele: large corporations and government agencies. In so doing, the company carved a niche in the broadly defined telecommunications market as a bypass provider of telecommunication services, generating revenue by enabling its customers to place long-distance telephone calls without going through the local telephone utility, thereby avoiding additional connection fees charged by the local utility.

Initially targeting financial institutions--large banks and investment firms&mdash the company's primary type of customer, Kiewit Communications began operating in 1988 with an emphasis on building its presence in its newly created market niche at the expense of short-term profits, structuring its growth around particular customer types located in particular metropolitan areas. Six years later, the company still had not recorded a profit, but prodigious growth had been recorded, as each metropolitan area added to the company's network increased its presence and influence in the U.S. telecommunications market and limited its capability to post any profit.

Chicago was the first city in which Kiewit Communications provided telecommunication services through a fiber-optic network, beginning in April 1988. By the end of the following year, seven more metropolitan areas were added, bringing Kiewit Communications' revenues for the year to $397,000. Its net loss, however, approached $18 million, significantly more than the $2.9 million recorded as a loss the previous year, evidence that the company's initial intent was not to operate at a profit, but to establish itself as a long-term participant in the telecommunications market through rapid growth. This strategy was made possible by the financial support of its parent company, Peter Kiewit Sons', and afforded Kiewit Communications an opportunity to grow more rapidly and pay less attention to the bottom line than other, newly emerging competitors.

Kiewit Communications focused on expansion, increasing the number of cities to which it provided long-distance and data transmission services to 12 by 1991--when Kiewit Communications became MFS Communications, Inc.--then to 14 the following year. In the course of this growth, the company's annual sales increased exponentially, rising from the $397,000 generated in 1989 to $10.6 million the following year, then soaring to $37.2 million by 1991 and $108 million in 1992. With robust revenue growth and market expansion, however, came further increases in MFS Communications' net losses, which peaked at $30.9 million in 1990, then slid to $13.1 million by 1992. As these losses mounted and growth continued unabated, the company, still operating as a second tier subsidiary of Peter Kiewit Sons', began to look for additional ways to finance its growth. The most obvious solution involved a public underwriting of MFS and a separation from Peter Kiewit Sons', which the company did the following year, in May 1993.

Once a publicly-held company, MFS Communications used the money raised from the sale of its stock&mdash⟩proximately $1 billion was realized in 1993 and early 1994&mdashø begin marketing the company's services to a new class of customers: small and medium-sized businesses employing between five and 200 employees and using between one and 250 telephones. Before MFS Communications' efforts toward entering this much larger and virtually untapped market materialized, the company unveiled a revolutionary telecommunications service in August 1993, when it built the first nationwide Asynchronous Transfer Mode (ATM) network, enabling customers to transmit voice, video, and data signals simultaneously through a single telephone or cable-television line. The company's establishment of nationwide ATM service evidenced its ability to offer more sophisticated telecommunication services than other much larger rivals, such as AT&T, MCI, and Sprint, without recording any profit, an ability that enabled the company to compete in a market dominated by wealthier competitors and provided a springboard for further market penetration.

The springboard provided by the establishment of an ATM network carried MFS Communications overseas the following month, when the company received a telecommunications license from the British government to build and operate a local fiber-optic network. Also utilizing an ATM network, the company's expansion overseas initially led to an agreement with roughly 70 business customers, primarily U.S. and U.K. multinational companies that MFS Communications had served in the United States, and established a base of operations for further European expansion. Entry into the United Kingdom, where telecommunication regulations were most permissible for such a foray, was also a suitable starting point because approximately 300 of the company's 800 business customers in the United States had operations in the United Kingdom. Building from this base, MFS Communications planned to operate additional telecommunication networks in Frankfurt and Paris in the imminent future, then expand to other areas in Europe within the next several years, drawing on its established clientele in the United States and in the United Kingdom to fuel its international growth.

As the company was defining itself in its new era of operations after becoming a public company, two strategic objectives were readily apparent: international expansion and the development of a small and medium-sized business clientele. The former was being executed through the construction and operation of a fiber-optic network in England under the purview of a subsidiary company, MFS International, Inc., while the latter was being executed through another of the company's subsidiary units, MFS Intelenet, Inc. Although plans were developing for both of these objectives as the company effected the transition from operating as a subsidiary of Peter Kiewit Sons' to becoming a publicly-held corporation, neither materialized in any substantive form until 1994, when the company's transatlantic audio, data, and video service began and it purchased Centex Telemanagement Inc. in a bid to accelerate the introduction of its fiber-optic network services to small and medium-sized businesses.

A San Francisco-based telecommunications management company with 11,000 customers, Centex was among the first businesses in the United States to manage local and long-distance telecommunication services for smaller business, giving MFS Communications valuable assets, experience, and talent in a market it hoped to considerably strengthen its presence. In addition to the Centex acquisition, MFS Communications also constructed two new fiber-optic networks in 1994 in Phoenix and San Diego, further broadening its service area in the United States, which by mid-1994 comprised 31 U.S. metropolitan areas either serviced or under development by MFS Communications' fiber-optic networks. Internationally, the company began offering telecommunication service in Frankfurt in July 1994, its first Continental European city of operation, and planned to begin offering service in Paris in September 1994. Positioned as such, the company entered the mid-1990s planning, as it had since its emergence in 1988, for further growth without expectations of posting a profit in the immediate future, but with considerable expectations of increasing its domestic and international presence.

Principal Subsidiaries: MFS Telecom, Inc.; MFS Network Technologies, Inc.; MFS Datanet, Inc.; MFS Intelenet, Inc.; MFS International, Inc.

MFS Communications Company, Inc. History

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