MCI Announces First Quarter 2005 Results

Cost savings and efficiencies drive operating profit to $115 million Cash, cash equivalents and marketable securities total $5.4 billion 1Q05 Statement of Operations (For the 3-Month Periods Ended March 31, 2005, December 31, 2004, and March 31, 2004) ASHBURN, Va., May 5, 2005 - MCI, Inc. (NASDAQ:MCIP) today reported its results for the first quarter ended March 31, 2005. Revenues for the first quarter were $4.8 billion, down 4 percent sequentially and 12 percent year-over-year. Operating expenses fell sharply compared to the year-earlier quarter when the Company incurred significant expenses related to its reorganization, which became effective April 20, 2004. In the first quarter of 2005, access costs, costs of services and products and selling, general and administrative (SG&A) expenses totaled $4.3 billion, down 16 percent compared to $5.2 billion in the comparable 2004 period. Depreciation and amortization expense was $328 million, down 37 percent, as compared to $521 million a year earlier. Operating income before depreciation and amortization was $443 million for the quarter. Operating income before depreciation and amortization for last year's first quarter would have been $251 million which includes the effect of approximately $157 million of severance and restatement expenses. Operating income was $115 million for the quarter compared to an operating loss of $270 million in the comparable 2004 period. Income from continuing operations before taxes was $28 million in the first quarter versus a loss of $362 million in the first quarter of 2004. In the quarter, results benefited from unusual items of $52 million, as they did in the fourth quarter of 2004. The Company reported a net loss of $2 million or 1 cent per basic and diluted share in the first quarter of 2005. MCI recorded a loss of $388 million or $1.19 per basic and diluted share in the year earlier quarter. MCI had approximately 325 million shares outstanding at the end of first quarter 2005. "We achieved solid performance in the first quarter," said Michael D. Capellas, MCI president and chief executive officer. "Focusing on our IP leadership strategy, you will see us accelerate our push into network security, managed network services and hosting, better positioning us in the industry's highest growth segments."

Consolidated Results

Segment Results

MCI's operations are organized into three distinct business units defined by their respective customer bases: Enterprise Markets, US Sales & Service and International & Wholesale Markets. The quarterly operating results of these business segments follow: Enterprise Markets Enterprise Markets, which includes the company's most sophisticated, high-end accounts in business and government, provides local-to-global business data, Internet and voice services, as well as managed network services and solutions.

In the first quarter, Enterprise Markets generated $1.2 billion of revenues, down 3 percent sequentially and 3 percent year-over-year. Operating income was $54 million in the first quarter of 2005, compared to an operating loss of $27 million a year earlier. In the quarter, results benefited from unusual items as they did in the fourth quarter of 2004. US Sales & Service US Sales & Service (USS&S) is comprised of Commercial Accounts, which includes small to large business customers based in the U.S., plus SkyTel; and Mass Markets, which includes consumer and small business customers.

During the quarter, USS&S generated $2 billion of revenues, down 2 percent sequentially and 14 percent year-over-year. Commercial Accounts generated $937 million of revenues, down 1 percent sequentially and 9 percent year-over-year. Mass Markets revenues fell to $1.1 billion, down 4 percent sequentially. Compared to the year earlier quarter, Mass Markets revenue declined 18 percent, driven significantly by MCI's reduced emphasis on this segment. Operating income for USS&S in the first quarter was $112 million, compared to an operating loss of $58 million a year earlier, reflecting lower consumer marketing expenses and other cost reduction initiatives. In the quarter, results benefited from unusual items as they did in the fourth quarter of 2004. International & Wholesale Markets MCI's International & Wholesale Markets segment serves customers throughout the international regions, as well as wholesale customers in the United States.

International & Wholesale Markets segment revenues declined 6 percent sequentially and 14 percent from the year earlier quarter. International revenues were $903 million in the quarter, down 7 percent sequentially and 6 percent year-over-year. International voice revenues declined, primarily as a result of a new pricing strategy to improve margins. Wholesale revenues declined to $679 million, down 4 percent sequentially and 23 percent year-over-year. The segment's operating loss was reduced to $51 million in the first quarter of 2005 from an operating loss of $185 million in the year earlier quarter. First quarter results benefited from unusual items as they did in the fourth quarter of 2004.

Balance Sheet

At December 31, 2004, cash, cash equivalents and marketable securities were approximately $5.5 billion. During the first quarter, MCI paid $41 million in bankruptcy claims, invested $228 million in property, plant and equipment and disbursed $130 million to shareholders in the form of a dividend. At March 31, 2005, cash, cash equivalents and marketable securities totaled $5.4 billion. Total debt of approximately $5.9 billion included $257 million of capitalized leases. The Company incurred interest expense of $120 million in the quarter, and paid semi-annual cash interest of $212 million on May 2, 2005, to holders of its Senior Notes.

Earnings Guidance

MCI continues to expect 2005 revenues of $18 billion to $19 billion. MCI expects to generate operating profit before depreciation and amortization of $1.8 billion to $2.0 billion, excluding merger-related costs. MCI has increased its capital expenditure plan to the range of $1.2 billion to $1.3 billion for 2005 from its previous guidance of $1.0 billion . Depreciation and amortization are estimated at $1.4 billion to $1.5 billion for the year. The Company does not anticipate declaring any future quarterly dividend payments. According to its merger agreement with Verizon, a special dividend will be paid following shareholder approval of the transaction.

Conference Call

Management will host a conference call to discuss today's results at 8:30 a.m. EDT. Investors are invited to access a live audio feed at the company's website, www.mci.com. An audio archive of the discussion will be available on the website for 30 days.

About MCI

MCI, Inc. (NASDAQ: MCIP) is a leading global communications provider, delivering innovative, cost-effective, advanced communications connectivity to businesses, governments and consumers. With the industry's most expansive global IP backbone, based on the number of company-owned points of presence, and wholly-owned data networks, MCI develops the converged communications products and services that are the foundation for commerce and communications in today's market. For more information, go to www.mci.com.

Forward-Looking Statements

This document contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: a significant change in the timing of, or the imposition of any government conditions to, the closing of the previously announced proposed transaction between MCI and Verizon; actual and contingent liabilities; and the extent and timing of our ability to obtain revenue enhancements and cost savings following the previously announced proposed transaction between MCI and Verizon. Additional factors that may affect the future results of MCI and Verizon are set forth in their respective filings with the Securities and Exchange Commission, which are available at investor.verizon.com/SEC/ and www.mci.com/about/investor_relations/sec/. This release references certain financial measures which are deemed to be non-GAAP. The Company believes that the inclusion of these measures is important because it provides readers of the report a different view of its operating results. In particular, MCI presents information about operating income, excluding certain various non-cash items, including depreciation and amortization, impairment charges and gains and losses on property dispositions. MCI presents this information to allow investors to determine its cash operating expenses, and because these expenses have varied significantly over time due to changes in MCI's balance sheet relating to fresh-start reporting and impairment. In connection with the previously announced proposed transaction between MCI and Verizon, Verizon filed, with the Securities and Exchange Commission ("SEC") on April 12, 2005, a proxy statement and prospectus on Form S-4 that contain important information about the previously announced proposed transaction between MCI and Verizon. These materials are not yet final and will be amended. Investors are urged to read the proxy statement and prospectus filed, and any other relevant materials filed by MCI or Verizon because they contain, or will contain, important information about MCI, Verizon and the previously announced proposed transaction between MCI and Verizon. The preliminary materials filed on April 12, 2005, the definitive versions of these materials and other relevant materials (when they become available) and any other documents filed by MCI or Verizon with the SEC, may be obtained for free at the SEC's website at www.sec.gov. Investors may also obtain free copies of these documents at www.mci.com/about/investor_relations, or by request to MCI, Inc., Investor Relations, 22001 Loudoun County Parkway, Ashburn, VA 20147. Free copies of Verizon's filings are available at www.verizon.com/investor, or by request to Verizon Communications Inc., Investor Relations, 1095 Avenue of the Americas, 36th Floor, New York, NY 10036. Investors are urged to read the proxy statement and prospectus and the other relevant materials when such other materials become available before making any voting or investment decision with respect to the previously announced proposed transaction between MCI and Verizon. MCI, Verizon, and their respective directors, executive officers, and other employees may be deemed to be participants in the solicitation of proxies from MCI shareowners with respect to the previously announced proposed transaction between MCI and Verizon. Information about MCI's directors and executive officers is available in MCI's proxy statement for its 2005 annual meeting of shareholders, dated April 20, 2005. Information about Verizon's directors and executive officers is available in Verizon's proxy statement for its 2005 annual meeting of shareholders, dated March 21, 2005. Additional information about the interests of potential participants will be included in the registration statement and proxy statement and other materials filed with the SEC.