'Convertible Bond': a bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder. “conversion ratio’’: the number of shares that the investor receives if he or she exercises the conversion MCI provided long distance telecommunications service in competition with AT&T. Timeline:
1971: FCC allowed new companies to enter the market for specialised long distance services, which consisted chiefly of private line service for large telephone users. June 1972, MCI began construction of its telecommunications network. Funding: 6mn shares (common stock) @$5, in total after commission $27.1mn; $64mn of credit from banks; $6.45mn from private investors; MCI still rely on AT&T facilities to carry calls from its subscribers to MCI transmission centres in each metropolitan area. FY1975, MCI revenue $6.8mn, losses of $38.7 mn. MCI has exhausted its credit from its banks. MCI sold shares for $8.2mn. 1976, ‘execunet’ service. And revenue started roaring.
1976 revenue, 28.4mn, first profit $100,000; 1977, 62.8mn;
Between 1976-1978, lease financing of new fixed investment was the only substantial source of funds available. 1978, withdrawal of the court’s ‘execunet’
Dec.1978, public market to issue convertible preferred stocks. Preferred offerings allowed MCI to retire its short to intermediate term bank debt and to issue further debt of a longer term kind. 1980, MCI provided ‘execunet’ to residential customers. Strong growth but constrained only by a lack of investment capital. July, 1980. Leasing actitvity decreased.
FY1981, demand for investment fund intensified, offer convertiable bonds.
Jan. 1982: Antitrust settlement between AT&T and US. Department of Justice. AT&T will need to break up before 1984.
Economics of scale and scope are important; basic call service and value added services. Increase in access charge after the AT&T antitrust settlement...
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