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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.