战略行为经济学 Case: MCI vs AT&T

March 20, MCI Communication

AT&T:

1. Proprietary Tech: NO

2. Economies of scale: Yes

a) Incremental cost small (network)

b) Big fixed cost - both capital and operation (network)

c) Billing: Highly automatic, big fixed cost

d) Marketing: fixed cost

e) Consumer business advertising: fixed cost

3. Customer captivity

a) Big business customer: reliability required – hard to switch

b) Small business customer: for sales/supply management, etc, price sensitive

c) Household: not often switch; inertia

Regulation: competitive advantage in this case is not easy to break even for regulation. MCI took 10 digit long-distance service and tried to beat AT&T. Failed in one year and then FCC suggested AT&T increase price by 5%.

Sprint: no cost advantage. No EOS. Low price strategy will fail while quality is AT&T’s strength.

MCI:

(1) Stay away from AT&T, follow AT&T price.

a) Geographic (Rural Areas?)

b) Individual contact

(2) Away from Sprint too

(3) Worse service and lower cost: MCI 20-digit service vs AT&T 10-digit

Stupid Wall Street on profitable growth: Enron traded at P/E = 70 while ROC = 4-6%. But Wall Street won’t be stupid for ever!

Cost Structure (USD/customer):

	Fix Cost	Variable Cost	Access Fee	Total cost
AT&T	7.5	2.5	10	$20
MCI	22.5	2.5	10	$35

Note: AT&T is 10x size of MCI, so its fixed cost is distributed to a much bigger base.

AMD vs Intel is a very similar situation.

Funding options:

1. Sell stock: Market skeptic

2. Sell bonds + modest statement: No sell

3. Sell bonds + ambitious statement: invite fight from AT&T