WorldCom has modernized the way businesses use technology. We are improving communications by integrating the Internet and access to data into everyday life. Streamlining e-commerce initiatives. And expanding our wholly owned, high-speed, global network.

We have led the charge into a new era of broadband, next-generation services. However, without the profits and cash generated by our deep roots in the voice wireline business, WorldCom never would have been able to target its investments and acquisitions toward the fastest growth areas of communications services: Internet, data and international. Furthermore, our large base of voice customers gives WorldCom a natural entree to upgrade these customers into our data and Internet services.

So, it is appropriate to understand this more mature part of our business, because it continues to generate tremendous amounts of capital and solidify our industry leading margins and fast growing earnings.

Deregulation and Techonology Spur Competition
The global telecom market has experienced significant deregulation in the last few years and presents a massive opportunity as state-owned monopolies are being privatized. The European Union began deregulation in 1998 and many other countries have followed suit. The global telecom market generated about $800 billion of revenues in 1999 and is growing faster than the U.S. market.

The U.S. got a headstart on the rest of the world with the break-up of AT&T in 1982 and then the Telecommunications Act of 1996. This led the U.S. telecom industry to evolve from a predictable, slow growth monopoly into a dynamic, competitive growth industry. While deregulation initially ignited competition in the U.S., it is technology that will increasingly do so going forward.

Technology is constantly changing how people communicate. Just think of the developments in the last several years — wireless phones, faxes, call waiting, voice mail, email and everything connected to the Internet. These changes result in opportunities for aggressive, savvy companies. A couple of the budding opportunities are Voice over Internet Protocol (VoIP) - allowing people to verbally communicate in real-time over the Internet and voice over Digital Subscriber Line (DSL). The VoIP development is in its early stages and not near wireline or wireless quality, but it appears destined for increasing popularity, and WorldCom will be positioned to capitalize on what will be one of the exciting developments in voice communications. Voice over DSL will allow companies to access voice and data over a single integrated access line.

As a result of the Telecom Act and ensuing federal and state regulatory initiatives, barriers are coming down as to what services companies may provide. WorldCom is offering local service in New York, which has in turn allowed Bell Atlantic, the incumbent local exchange carrier (ILEC), to provide long distance service in New York. And this is only the beginning of the traditional local and long distance carriers getting onto new turf. In addition, there are competitive local exchange carriers (CLECs) providing long distance and local service.

Shift to All-Distance Communications
What is evolving is all-distance service - a fine line between a local call and a long distance call. In the case of wireless service, there is no distinction with its nationwide service plans. Subscribers purchase a bucket of minutes that treat local and long distance calls the same.

WorldCom provides a single source for all-distance communications. Our strategy has been to maximize our global communications network by sending customers' data streams and voice traffic on our facilities based networks around the world. This on-net approach provides WorldCom customers with superior reliability and low operating costs. And when WorldCom transmits calls from end-to-end completely on its own network, we avoid access costs from ILECs, as well. Minimizing access costs is a key element of WorldCom's profitable outlook and motivates the company to continue to expand our network locally on a global basis, so we can drive more traffic on-net.

Positioned for Future
The company's low-cost leadership position will increasingly be a function of sales and marketing productivity, not network or technology costs. This is why the tremendous financial flexibility and scale created through our mergers are critical to our success and also why the communications industry, in general, is undergoing significant consolidation. The synergies as a result of our merger with MCI helped the company grow cash earnings to $5.1 billion in 1999.

The communications industry has seen dramatic changes since the Telecom Act and is set for more dynamic change. As local markets are opened to competition and lead to further ILEC participation in the long distance business, it is clear industry players will have to be nimble and well financed to compete effectively. Local competition, wireless competition, broadband competition and long distance competition are leading to a fast-moving market.