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Digital technology does not necessarily enhance every analog consumer electronic application. For example, many audio devotees say that analog vinyl recordings from the 1950s more accurately reproduce sound; that audio CDs sound harsh and brittle by comparison. A CD's 16 bits of memory is not enough to fully reproduce a human range of sound. Furthermore, a CD's analog sampling rate is not fast enough to capture all the sound. Digitizing communications networks has permitted more traffic to flow through fewer systems, but this very centralization makes the networks more vulnerable to failure, as the satellite pager services crash of May 1998 demonstrates. In addition, many newer digital cellular phone systems are designed with not enough channel capacity for good quality sound reproduction.

Cable & Wireless PLC has filed a lawsuit in US federal court against MCI Communications Corp., who it said is considering reneging on an agreement to sell its Internet transmission network to C&W. MCI had agreed to sell its Internet backbone to C&W in a concession to European and US regulators who are opposing C&W's pending $37 billion sale to WorldCom Inc. The suit, however, claims that despite a 'no-shop provision' in the agreement, MCI is planning to change its mind and instead sell the assets to other parties.

WorldCom's bid to acquire MCI for $37 billion could unravel if European Union antitrust regulators force WorldCom to divest its Internet business, UUNet Technologies, according to executive insiders. A European Union advisory panel will meet on Jun 19, 1998, to consider the WorldCom-MCI merger. Both companies are under pressure to make additional concessions before the committee's meeting, which marks an important step in the EU regulatory process that is due by mid-Jul 1998. MCI already has planned to sell its wholesale Internet business to Cable & Wireless, which the companies said would shed all of MCI's Internet business. Karel Van Miert, competition commissioner of the EU, said the deal between MCI and C&W did not fully resolve the commission's main concerns that WorldCom-MCI would hold a strong position in operating the Internet backbone. MCI could settle the matter by selling UUNet, according to another EU Commission member, but WorldCom CEO Bernard J. Ebbers has ruled out such a scenario.

Sprint Corp. is planning to transfer to a single communications network that will offer intergrated voice and data services. The company announced that it would transfer to a streamlined delivery system called the Intergrated On-demand Network (ION). The network will provide customers with a single connection that will increase the speed of telephone calls and Internet browsing.

Sprint announces a $2 billion telephone system redesign that could revolutionize the communications services industry. The No. 3 long-distance carrier is counting on its Integrated On-demand Network (ION) to boost call-handling 17-fold and slash long-distance calls by 70% while establishing new service and billing standards. Sprint, which triggered an industry change in 1988 with its all-fiber network, believes the rise of the Internet is forcing systems changes. Its code-named FastBreak features high-speed switches, data-packet routers and optical fiber designed to separate traffic into digital bits and reorganize them at their destination. By comparison, PC traffic data is largely responsible for overwhelming the decades-old system of circuits-switching. Sprint intends to introduce commercial operation of ION later in 1998, charging customers for monthly transmission of digital bits.

AT&T extended an unprecedented marketing offer to regional Bell telephone companies, inviting the local carriers to sell its long-distance service to their customers. Acceptance by the Bells would unite AT&T with the local phone monopolies for the first time since AT&T's 1984 breakup. AT&T Chmn C. Michael Armstrong believes the move will benefit his company by capitalizing on the Bells's recent mergers and marketing deals that would combine local- and long-distance service. Either AT&T could recoup its market share losses through an arrangement with the Bells, or possibly establish discrimination if the Bells reject its offer. The Bells noted AT&T's attempts to seek a restraining order against similar deals between long-distance carrier Qwest Communications and Bell companies U S West Communications Group and Ameritech. The AT&T move is part of Armstrong's ambitious plans to boost company growth.

SBC Communications is nearing an acquisition of fellow Baby Bell Ameritech, according to insiders. The expected stock swap, valued at more than $55 billion, could be announced as soon as today, the insiders added. Completion of the deal would reduce the number of remaining Bells to four, compared to seven formed from the 1984 breakup of the old AT&T. SBC would become the top US local phone monopoly, with annual revenue of more than $40 billion. Its business would control more than 57 million lines in 13 states spanning California, Texas, Illinois and all of Connecticut. The arrangement not only would boost SBC's Midwestern presence, it also would tower over WorldCom's pending $37 billion takeover of MCI. Such a move would add pressure on large competitors like AT&T and GTE to increase their size. Telecommunications companies are vying to combine local, long-distance and other customers services in an increasingly deregulated environment.

AT&T Chmn C. Michael Armstrong's efforts to reshape the telecommunications leader have not produced immediate results. Key 1998 plans call for placing more than $20 billion in AT&T's long-distance, local and wireless networks, plus a management overhaul. An Armstrong expansion plan entails investments and acquisitions to restore high-end phone use and emerge as the dominant Internet force. The 1st qtr 1998 results showed flat revenue, a fall in consumer revenue for the second consecutive quarter and mere single-digit growth in wireless business. Other problems include a recent drop in stock price and a nearly $18 million loss in market capitalization since early 1998. AT&T probably must reverse its slide by 1999 or lose its lead to competitors such as SBC Communications. Armstrong, who most overcome a nostalgic company culture and previous management spending errors, has the managerial experience and acumen to meet the challenge.

MCI's 1st qtr 1998 income of $101 million, or 14 cents a diluted share, represents a 66% decline from its 1st qtr 1997 report of $295 million, or 42 cents a share. An anticipated charge and increased investments in new services accounted for much of the dropoff, but strong growth in data traffic helped the company surpass analysts's forecasts. The results also demonstrate MCI's rebound from being an acquisition target since 1996, but its combined Internet business boom with buyer WorldCom could raise concern about their alliance. MCI applied most of its $85 million, or 12 cents a share, charge for depreciation costs linked to disposing mainframe computers. An investment in Brooks Fiber Properties, now part of WorldCom, netted a one-time gain of $31.5 million, or five cents a share. MCI would have gained $155 million, or 21 cents a share, without the charge and gain. Analysts had predicted a per-share gain of 18 cents. Revenue leaped from $4.89 billion to $5.29 billion for an 8.3% gain.

Lucent Technologies acquired data-equipment manufacturer Yurie Systems for $1 billion, or $35 a share. Yurie, despite its 1997 annual revenue of $51 million, has positioned itself well in the growing need for ATM switches. The deal will help Lucent catch up with aggressive data-networking suppliers such as Cisco Systems in the race to develop public-communications networks that can meet demand for high-speed data transmission and Internet access. Annual sales of ATM switches will leap from $100 million in 1998 to $600 million in 2000, according to Lucent's Data Network Systems Group. The acquisition of Yurie would trigger a one-time charge for 3rd qtr 1998 earnings, as well as a 'slight' dilution of its 1999 earnings, according to Lucent.

WorldCom reported a 1st qtr 1998 loss of $409.1 million, or 41 cents a diluted share, but revenue and traffic from its local, long-distance and Internet units surged. The telecommunications company's charges of $602 million, or 59 cents a share, included $429 million, or 42 cents, for research and development projects at two recent WorldCom acquisitions, the network services of America Online and CompuServe. Acquiring Brooks Fiber and retiring its high-yield debt accounted for $44 million and $129 million respectively. WorldCom's net income would have totaled $193 million, or 18 cents a share, without the charges. By comparison, the First Call consensus of analysts had projected per-share profits of 17 cents. Revenue improved to $2.35 billion, a 38% increase over the 1st qtr 1997's $1.7 billion.

AT&T's 1st qtr 1998 net income of $1.33 billion, or 81 cents a share on a diluted basis, represents an 18% improvement over 1st qtr 1997's $1.13 billion, or 69 cents a share. One of the industry's strongest balance sheets was weakened by a less than 1% rise in revenue, from $12.55 billion to $12.63 billion. A 5.1% decline in consumer long-distance revenue contributed to AT&T's single greatest challenge of strengthening revenue. Chmn C. Michael Armstrong criticized investors for failing to reward AT&T's succcess in reaching targets he outlined in Jan 1998. Quarterly income included $667 million, or 26 cents-a-share gain, from the sale of its customer-service subsidiary and its holdings in LIN Television, and a charge of $601 million, or 23 cents a share, for shuttering operations that were reselling local-phone services to AT&T's long-distance customers. A 77-cents-a-share profit, excluding these items, surpassed analysts' projections of 75 cents.

Increased competition among phone companies is tending to frustrate, rather than benefit, customers. Phone service tactics include 'slamming,' in which bills arrive from phone companies that customers did not choose, or 'cramming' that involves paying for services not ordered. A changing industry landscape is weakening service and making it more complicated, according to phone-company executives and the regulators who track their service. Merger- and acquisition-minded companies are seeking to establish themselves in emerging markets, while investing heavily to provide advanced services such as Internet connections. These companies are attempting to save money by scaling back existing services. Insufficient staffing of operators to handle the volume of assistance request is causing delays. Some companies have relaxed order verification and outsourced marketing, which makes their service more vulnerable to scams. Customer complaints about phone service jumped 14% in 1998, according to the FCC.

AT&T provided new CEO C. Michael Armstrong and other top executives with handsome cash and stock-option grants following a tumultuous 1997, according to the telecommunications company's latest proxy statement filed with the SEC. Armstrong drew $14.9 million in restricted stock and restricted stock units to recoup his forfeited compensation at his former employer, Hughes Electronics. AT&T also guaranteed Armstrong, who joined the company in Oct 1997, $1.4 million in annual salary. Other rewards for Armstrong include an annual bonus that is at least equal to to his annual 1998 salary, as well as performance stock units that are also equivalent to his salaries in 1998 and 1999. Former Pres John R. Walter received a $26 million package, on top of his $1 million regular compensation for having worked seven months. John D. Zeglis, the current AT&T pres, received a 49% bonus in his 1997 salary and bonus to $1.61 million.

Motorola is experiencing consequences from its inability to correct flaws in its cellular-network equipment and software. The problems not only are weakening its expansion into new wireless systems, but executives close to the company said wireless-phone service PrimeCo Personal Communications has canceled its $500 million contract. PrimeCo could announce as early as next week that it will choose Lucent Technology equipment and software to replace the Motorola equipment. Lucent, Sweden's Telefon AB L.M. Ericsson and Canada's Northern Telecom have capitalized on Motorola's troubles in supplying PCS network systems. Motorola's market share in wireless systems has plunged from an industry-high 25% in 1996 to slightly more than 15% in 1998. Motorola already $3.5 billion in orders to supply the same equipment to two carriers in Japan.

WorldCom's 4th qtr 1997 profit of $142.9 million met analysts' earnings forecasts despite absorbing several major acquisitions in 1997. By comparison, the telecommunications carrier posted a 4th qtr 1996 loss of $2.14 billion related to an acquisition. WorldCom's long-distance, local, Internet and international businesses produced significant increases in revenue, traffic and profit margins. Its core communication-services business revenue jumped by 30%, featuring a 32% traffic increase. AT&T's revenue, meanwhile, remained unchanged. WorldCom's net income for the 4th qtr 1997 totaled 15 cents per diluted share, while basic earnings also amounted to 15 cents. The Jackson, MS-based company's revenue grew from $1.23 billion in 1996 to $2 billion in 1997, which represents a 62% improvement.

Sprint reported a 21% decline in 4th qtr 1997 net income, while Chmn William T. Esrey said the company is neither for sale nor looking for partners. Sprint's core local and long-distance phone businesses showed a 7.6% increase in revenue and 11% rise in operating profit. These numbers, however, were offset by increasing investments in a new wireless service class and an international joint venture. Esrey blasted market rumors that Sprint will add to its big partnerships or be acquired by one of the Bell companies, GTE or Sprint's foreign owners. Sprint's 4th qtr 1997 net income totaled $194.9 million, or 45 cents a diluted share, and basic earnings of 45 cents a share. By comparison, the company reported a 4th qtr 1996 net income of $245.3 million, or 56 cents a diluted share, and basic earnings of 57 cents a share. Revenue jumped from $3.58 billion in the 4th qtr 1996 to $3.85 billion in the 4th qtr 1997, representing a 7.6% growth.

MCI reported a $391 million loss in the 4th qtr 1997, including charges totaling $752 million for restructurings and other expenses. The long-distance telephone company otherwise met analysts' consensus estimates. Revenue growth and traffic surpassed expectations, a surprising development given several suitors' open courtship of MCI since 1997. Net loss totaled 56 cents share on a diluted basis, which includes 66 cents a share in after-tax charges. By comparison, MCI's 4th qtr 1996 income amounted to $303 million, or 44 cents a diluted share. The 4th qtr 1997 charge included $235 million in employee retention bonuses and sales incentives to retain long-term corporate customers; $252 million for revamping its many long-distance, local and Internet-based networks; and $265 million for bolstering its data centers. MCI also reported $5.11 billion in revenue, a 7.5% increase over the 4th qtr 1996's $4.75 billion. MCI has allowed WorldCom to purchase the company for $36 billion in stock and cash.

AT&T Chmn C. Michael Armstrong introduced a sweeping reorganization strategy to strengthen the telecommunications giant. Plans call for eliminating up to 18,000 jobs, absorbing as much as $1.2 billion in a pretax charges against 1st half 1998 earnings and investing aggressively. Armstrong told analysts that AT&T, which is seeking to expand in local Internet and wireless services while fending off potential long-distance telephone service rivals, would boost its competitiveness. AT&T will surpass analysts' earnings estimates for 1998 by at least 10% and report annual revenue growth ranging between 2% and 4%, according to Armstrong. The company plans to lower its current 128,000 employees to no more than 105,000 by 1999. AT&T also will slice up to 25% of its 136 senior officer positions, as well as freeze the salaries of 450 senior managers.

AT&T Chmn C. Michael Armstrong plans to lower the company's work force by up to 15% and reassign much of its senior management team, according to company insiders. Such a reduction would cut as many as 19,000 jobs, representing the largest to strike AT&T since the late 1980s. The telecommunications giant has struggled with downsizing efforts to maintain its relevance in a shifting communications era. Former Chmn Robert E. Allen, who broke up AT&T in 1996, did not follow through on his plans to cut 17,000 jobs from the new AT&T. Armstrong apparently is preparing to make aggressive moves to reach his stated goal of making AT&T the low-cost telecommunication provider. Armstrong also expects this plan to bring expenses as a percentage of revenue, which echoes the strategy of Worldcom and other competitors.

Lucent Technologies announced a 31% profit gain for the 1st qtr 1998, excluding charges. The company also said it will soon appoint Pres and CEO Richard McGinn as chairman to succeed Harry Schacht. Net income totaled $792 million in the qtr, down from $859 million in the 1st qtr 1997, but the amount would have reached $1.12 billion if not for one-time charges. Revenue from $7.94 billion in the 1st qtr 1997 to $8.72 billion. This 9.8% raise would have totaled 16% excluding businesses that Lucent sold or merged into joint ventures in 1997. Lucent's diluted per-share earnings of $1.21 a share represented a one-time, $427 million aftertax charge of $427 million for discontinuing research-and-development work following the company's acquisition of network server company.

Former managers of MFS Communications Co, acquired in 1996 by WorldCom Inc, announce plans for the first worldwide system of Internet-based local and long-distance networks. The managers are armed with $3 billion, and their new company will be called Level 3 Communications Inc. Their plan is to use Internet Protocol (IP) data-transmission networks instead of traditional telephone nets. IP challenges traditional phone technology by speeding transmissions and lowering operating costs. Fiber-optic systems, which are proliferating, could cause problems for Level 3 because so much transmission capacity is being put in place. So far, however, demand continues to increase rapidly and remains far ahead of supply.

New AT&T Chmn C. Michael Armstrong's plans call for a hiring freeze, cost reduction and effort to raise the company's stock quickly, according to company executives. AT&T's $4 billion sale of its Universal Card subsidiary to Citicorp has enabled Armstrong to redirect more than $2 billion in local-phone services spending. Armstrong aims to invest much of the planned savings into new networks and services, while higher stock values could enable AT&T to make significant contributions. The hiring freeze could signal additional job cuts for AT&T's current 133,000-person workforce. Job reductions could exceed the 17,000 total planned in 1995 and only partially taken, according to insiders. Armstrong also is targeting AT&T expenses that currently exceed $45 billion annually. Reductions could take place in the approximately $17 billion per-unit costs of AT&T-paid fees by finding alternatives to regional Bell companies that carry its traffic locally.

AT&T Chmn and CEO C. Michael Armstrong plans a crash program to improve the telecommunications giant's competitive position, according to executives close to the company. Plans call for cost reductions and targeted investments in local phone, Internet and global services. Armstrong's plan, still in formulation, will attempt to curb rival incursions into AT&T's core communications business. The plan is especially targeted at the Baby Bells, which plan expansion into its long-distance business. Executives said Armstrong plans to centralize marketing, continue selling tangential assets, discontinue other operations and invest in myriad networks to widen AT&T's international services. Armstrong also is collaborating with AT&T Pres John D. Zeglis on a lobbying campaign to support resuming merger discussions with Bell giant SBC Communications or combining with another large local phone company. Another plan consists of tying at least 75% of managers' compensation to company performance.

MCI accepts WorldCom Inc's offer and will be taken over in a stock deal valued at $51 a share, or $37 billion. The arrangement overrides WorldCom's previous $41.50-a-share stock offer, as well as a subsequent $40-a-share cash bid from GTE Corp. WorldCom's offer includes a $7 billion buyout of a 20% stake in MCI owned by British Telecom (BT). If GTE makes no counterbid, and if regulators approve WorldCom's offer, an MCI-WorldCom combination could emerge as one of the strongest communications companies. MCI is the second-largest long-distance company after AT&T, and WorldCom controls extensive local networks and important Internet 'backbones.' When the news of an agreement was released, WorldCom's shares fell $2.125 each, to $31. MCI's shares increased $4.625, to $41.50.

WorldCom Inc raises its MCI takeover offer by 20%, to about $36 billion, which amounts to $50 per share, up from $41.50. An industry observer says WorldCom's move is likely to cause MCI, which had offered $28 billion in cash for MCI, to increase its bid. An executive says a GTE offer of cash will be more attractive than WorldCom's stock deal. MCI, which is AT&T's main rival and owns local and Internet assets, is regarded by GTE as a particularly valuable prize. An MCI acquisition by GTE would mean GTE would get a $20 billion-a-year long-distance business, and at the same time, MCI would be eliminated as a competitive threat in local markets. In fact, MCI's expertise would benefit GTE in forthcoming battles with Bell companies and

AT&T directors may announce the appointment of new leader C. Michael Armstrong, as soon as today. Armstrong, the Chmn and CEO of Hughes Electronics, would succeed Robert E. Allen as AT&T chmn and CEO. Allen, in a surprise development, will resign within weeks after a 40-year career with the telecommunications giant. Allen's choice for replacement, Vice Chmn John D. Zeglis, is being promoted to Pres and COO. Board members are tacitly promising Zeglis that he will succeed Armstrong as chmn and CEO by 2000. AT&T has been struggling amid unprecedented industry upheaval. The AT&T board has drawn criticism for its inertia while Allen experienced mixed results during his tenure. Armstrong represents the first outsider to lead AT&T since 1900. Among the AT&T moves Armstrong must consider are whether to enter the $30 billion takeover competition for MCI. AT&T could attempt to purchase one of the MCI suitors, WorldCom or GTE. Another scenario could consist of coupling with a Baby Bell such as SBC Communications.

GTE made a $28 billion all-cash, or $40 a share, bid to acquire MCI. The stunning move pits GTE against Worldcom, which recently offered $30 billion of its stock, or $41.50 a share, for MCI. Worldcom is trying to overtake British Telecommunications' $18 billion deal to purchase the remaining 80% of MCI it does not already own. GTE Chmn and CEO Charles R. Lee is reversing his previous position of maintaining the Baby Bell's independence amid numerous deals in the telecommunications industry. the GTE offer, if accepted, would rank as the largest-ever cash takeover of a company. MCI stands second among long-distance carriers with a 20% share, compared with 60% for AT&T. GTE would position itself as a larger bundler of local and long-distance services if MCI accepts its offer. A GTE-MCI company would produce $45 billion in annual revenue, compared with AT&T's $52 billion.