Accounting & Tax

MCI, Sprint Take $3.5 Billion Charges

''The long-distance business isn't what it used to be.''
Stephen TaubOctober 20, 2004

It’s been a long, hard road for long-distance phone companies.

On Tuesday, Sprint Corp. announced that it would take a $3.5 billion pre-tax, non-cash charge to write down the value of its long-distance business. “We have to maximize the value of these assets,” said Howard Janzen, president of Sprint’s business solutions division, according to the Associated Press. “The long-distance business isn’t what it used to be.”

The word came a day after MCI Inc. announced that the company would probably take $3.5 billion in non-cash impairment charges due to “recent regulatory decisions impacting its consumer business and to an increasingly competitive industry environment.” The former WorldCom said the charges include about $3.25 billion to impair property, plant, equipment, and other intangible assets and roughly $260 million to reflect the lower value of its name.

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(Those MCI charges are a pittance, of course, compared with the hit it took earlier in the year when the company completed its restatement of its 2000 and 2001 financials. In March, MCI said it would take impairment charges of $59.8 billion for those years, resulting from write-offs of goodwill and write-downs in the carrying value of property, plant, equipment, and other intangibles.)

And earlier this month AT&T announced an $11.4 billion asset-impairment charge resulting from “sustained pricing pressure and the evolution of services toward newer technologies in the business market as well as changes in the regulatory environment, which led to a shift away from traditional consumer services,” according to a company statement.

“As revenues crater in the traditional long-distance industry, these companies are not worth what they used to be,” said Scott Cleland, chief executive officer of research firm Precursor, according to Bloomberg. In addition to the deregulation of the telecommunications industry in the mid-1990s, added the wire service, in March a federal appeals court ruling effectively prevented the three telecoms from renting the networks of local phone companies at below-market rates.

“There is more competition, while wholesale rates for gaining access to the local phone companies’ networks are higher” because of the court ruling, said Jefferies & Co. analyst Richard Klugman, according to The Wall Street Journal.