Jessica Altman

1
MCI WorldCom

• Jessica Altman
• Adam Markey
• Joseph Tworzydlo

www.mci.com
2
Table Of Contents

• Products and Services- Joe
• Supply- Joe
• Demand-Joe
• Pareto Improvement-Joe
• Externality-Joe
• Elasticity of telecommunications industry-
  Jessica
• Substitutes-Jessica
• Nonmonetary job characteristic- Jessica
• Primary and Secondary Markets-Jessica
• Substitution effect-Adam
• Fixed cost-Adam
• Accounting profit and economic profit-Adam
• Derived Demand-Adam

www.mci.com
3
Products and Services

• Provides over 65 countries with
• Internet Services
• Networking Services
• IP Communications
• Network Management Services
• Local Phone Service
• Long Distance Calling
• International Services
• Wireless Messaging
• Calling Cards
• Prepaid Calling Cards

www.mci.com
4
Supply

• MCI WorldCom has taken drastic measures to ensure
  that they may continue to supply enough services
  to keep up with the increasing demand for
  telecommunications
• Together with 7 other smaller firms, they have
  created an E-Business partnership
• Each of the 7 firms help MCI WorldCom as well as
  each other
• They provide top notch services for businesses
  and consumers

www.lycos.com
5
The Seven Partners

• KPMG Consulting
• Technology Solutions Company (TSC)
• EMC
• Commerce One Global Services
• Siemens
• Butler Telecom Network Service (Formally Known as
  Blue Storm)

6
Benefits of the Partnership

• Collaboration and enhanced expertise
• Integrated solutions that meet your needs and
  corporate objectives
• Local to global connectivity via voice, data,
  and internet services
• Experience, reach, and innovative technologies
  and services from predominant global
  communications company- WorldCom

7
Demand

• The demand for telecommunications services rises
  everyday
• With advancements in technology, businesses must
  stay up to date with technological advances in
  the industry
• Consumers and households also have an increasing
  demand for these services

www.lycos.com
8
The Demands for Business Include

• Local and long distance telephone services
• Conference calling
• Internet service providers
• Networkers

9
Pareto Improvement

• Any action that makes at least one person better
  off
• Harms no one
• In a market economy such as in the U.S., where
  trading is voluntary, literally hundreds of
  millions of pareto improvements take place
  everyday

www.lycos.com
10
Pareto Improvement

• Holds true for actions involving MCI WorldCom
• Example- long-distance phone calls
• If a person were paying 10 cents a minute to talk
  to a relative in another state, and talked for 10
  minutes, they would pay 1
• The call must be worth more than 1 to the
  person, or they wouldnt have made the call, thus
  they are better off after making the call
• MCI would value the persons 1 more than they
  value the service or they would not produce it,
  so they are better off too

11
Market Failures

• A market failure occurs whenever a market-left to
  itself- is inefficient. That is whenever the
  market participants fail to take advantage of
  every Pareto improvement.
• Three types
• Monopoly and imperfect competition
• Externalities
• Public Goods

12
Externality

• When a private action has side effects that
  effect other people in important ways, we have
  the problem of externalities.
• An externality is a by-product of a good or
  immediately activity that effects someone not
  involved in the transaction
• Two types
• Positive- when the by-product is beneficial to a
  third party
• Negative- when the by-product is harmful to a
  third party

www.lycos.com
13
Negative Externalities at MCI Worldcom

• -Lets say that MCI decides to upgrade its
  computer systems.
• -If MCI performs this upgrade, millions of
  internet customers will experience slow internet
  connection speeds.
• -This is called a negative externality because
  the by-product of the company performing an
  upgrade to their computer systems is slower
  connection speeds, which is harmful to the third
  party.

14
Elasticity

• Elasticity- the sensitivity of quantity demanded
  to price the percentage change in quantity
  demanded caused by a 1 change in price
• the relative responsiveness of a supply or demand
  curve in relation to price
• A curve with an elasticity greater than or equal
  to 1 is elastic.

15
Elasticity

• The more narrowly defined the industry, the more
  elastic it becomes
• Telecommunications industry is inelastic because
  there are no close substitutes
• MCI WorldCom is elastic because there are many
  close substitutes
• Is considered inelastic to companies who want a
  particular WorldCom service

16
Substitutes

• ATT
• Verizon
• AOL Time Warner
• Sprint
• Cable and Wireless

17
Compensating Wage Differentials

• -the differences in wage rates that makes two
  jobs equally attractive to workers
• MCI WorldCom has been laying off people so the
  jobs are not as attractive to prospective workers
• In 2001 they laid off 6 of the 85,000 workers

www.yahoo.com
18
Nonmonetary Job Characteristics

• Any aspect of a job- other than the wage- that
  matters to a potential or current employee
• Jobs considered intrinsically less attractive
  will tend to pay higher wages, with other things
  being equal
• For WorldCom, they must pay prospective emplyees
  more because of the job insecurity

19
Nonmonetary Job Characteristics

• 401K plan
• Dental
• Health Care
• Benefits
• Vacation
• Technical and Mechanical Training

20
Primary Market

• The market in which newly issued financial assets
  are sold for the first time
• Where a firm may obtain funds for its investment
  projects
• 1963 the company was created by John Goeken

21
Secondary market

• The market in which previously issued financial
  assets are sold
• The trading that goes on any given day
• Firm does not earn money from the bonds changing
  hands
• Gives feedback to the company for how many bonds
  it may issue in order to make more money and
  determined the price that may be charged for a
  newly issued bond
• If the price on the secondary market rises, the
  price on the primary market rises, if the price
  on the secondary market falls, the price on the
  primary market falls
• Profit for WorldCom is 2.4 of Stockholders
  equity
• It reflects the companies gain or loss,
  WorldComs stock value has drastically gone down
  because of the fraudulent activities

22
Substitution Effect

• When the price of long-distance service is less
  at MCI WorldCom than at Sprint, more people will
  buy their long-distance from MCI than Sprint
• It is the main effect is the main factor
  responsible for the law of demand

www.yahoo.com
23
Fixed costs

• Costs of goods sold in 2001 was 14,739,000,000

24
Accounting Profit 2001

• The total revenues were 35,179,000,000, a 10
  decrease from the year 2000
• The gross profits for the company were
  1,501,000,000, a 63.9 decrease from the
  previous year
• The company reported that its total assets were
  103,914,000,000
• Its total liabilities were only 45,984,000,000,
  leaving the stockholders equity to be
  57,930,000,000

25
Economic Profit

• Accounting profit- opportunity costs

26
Derived Demand

• That amount of personnel needed to run their
  networks will vary with the size of the networks