FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

MFS Communication Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MFST)") else Response.Write("(NASDAQ: MFST)") end if %>
Suite 200
3555 Farnam Street
Omaha, NE 68131
(402) 977-5300

UNION CITY, Ca., November 6, 1996/FOOLWIRE/ --- MFS Communications released third quarter 1996 results last week. On May 7th MFS announced a series of initiatives including accelerated interconnects of MFS's networks to local exchange carrier networks, the expansion of the number of cities they serve in the US and internationally, the addition of inter-city and undersea fiber capacity, and the provision of a series of Internet-related services. They indicated then that their results would be impacted by these initiatives along with 3 other key drivers.

ON TRACK TO HIT Q4 TARGETS. The first results from their existing core operations. Second the positive contribution from UUNet. And finally, the effect of Telecom Act implementation. They indicated that the improving performance from core operations plus the benefits from the UUNet transaction should more than offset the increased spending on new initiatives and that they would be disappointed if they did not reach EBITDA break-even on a run rate basis some time during the fourth quarter. Their results for the third quarter demonstrate that MFS is successfully moving forward in implementing their new initiatives and they are on track to achieve their EBITDA targets in the fourth quarter.

FINANCIAL RESULTS FOR Q3. In the third quarter, consolidated revenue was up 100% to $308 million from the third quarter last year. Communications services revenue was up 86% while systems integration revenue was up over 180%. Their revenue run rate or annualized monthly recurring revenue (the portion of the customer's bill they send out each month) continued to show significant increases.

Their run rate was $1.175 billion at the end of the third quarter compared to $565 million a year ago, an increase of 108%. MFS had a consolidated EBITDA loss of $11.7 million in the third quarter, compared to a loss of $22.9 million in the third quarter of 1995. The improvement is the first evidence of the positive impact of co-carrier implementation.

At the beginning of 1996 they began to break out revenue and EBITDA from each of their operating groups within the communications segment.

MFS TELECOM FINANCIAL RESULTS. The MFS Telecom companies are responsible for their services to major US accounts. This group has third quarter revenues of $74.3 million, up 8% from the second quarter of 1996, and had a positive EBITDA contribution of $12.5 million. Base competitive access operations (their version of same store sales) continued to show excellent results, generating $24.7 million in EBITDA on revenues of $45.5 million. That represents an EBITDA margin of 54.3%.

MFS INTELLINET FINANCIAL RESULTS. The Intellinet group includes their services to medium and small businesses and includes most of their switch service offerings. This group accounted for $85 million in revenue in the third quarter, up only slightly from last quarter's revenues as they focused on converting existing customers to unbundled local loops. This conversion resulted in margin improvement and a reduction in EBITDA losses which narrowed from $22.3 million in the second quarter to $20.9 million this quarter.

INTERNATIONAL OPERATIONS. International operations includes services between and within several international business centers, primarily in Western Europe. International turned in strong results for the third quarter. Revenue was $43 million, up 22% from the second quarter, while EBITDA losses narrowed to $6.2 million.

UUNET FINANCIAL RESULTS. Results for the third quarter include UUNet operations from August 12th and includes almost all of MFS's Internet activity. Their financial results include $42.7 million in revenue and $3.6 million in EBITDA from UUNet activities. On a full-quarter basis, UUNet revenue was $71.7 million, up 26% from their second quarter levels.

EQUITY OFFERING TO FUND CAPITAL EXPENDITURES. In July they completed a $1.3 billion equity offering to fund substantially all of the up-front capital expenditure requirements associated with the new initiatives. The impact of accelerated build-out is also evident in the increase in capital expenditures in the third quarter which rose to $234 million versus $175 million last quarter. While much of this increase is tied to expansions in the US and the development of European networks, about half of their total spending was for success-based capital expenditures -- expenditures that are directly tied to new orders from their customers. As anticipated, they also saw significant impact of the new initiatives on operating expenses in the third quarter as they positioned MFS for accelerated growth in 1997.

MFS is in the process of strengthening its operating infrastructures to both support the increased network infrastructure and to also take full and immediate advantage of MFS's existing interconnection agreements. Third quarter results indicate they are on track with earlier statements. They are very disappointed they did not reach EBITDA break-even on a run-rate basis prior to the end of 1996.

OPERATING RESULTS. This has been an extremely active quarter for them. They completed their major equity offering in July. They completed the acquisition of UUNet Technology in early August and then announced their merger with Worldcom at the end of August. They have had a significant number of major events in this quarter. All of these moves are aimed at the strategic development of a company that can deliver a full range of integrated end-to-end communications services for businesses through their own network facilities. All of their strategic moves this quarter have been aimed at that goal and, really, all of their tactical maneuvers in each operating company have been aimed at that goal.

INTEGRATING UUNET AND REFOCUSING SALES EFFORTS. They are expanding very rapidly in all areas and they have spent a great deal of energy this quarter focusing on integrating UUNet's Internet product line such that the core MFS sales forces can sell these products. They also increased their focus on central office, unbundled loop implementation, and turned the focus of their sales force towards selling full-service solutions, especially those utilizing their own network facilities. Both of these moves have very important strategic value but they also bring short term margin improvement. MFS continues to see strong topline growth opportunity everywhere they go and the limitations on growth right now are on the supply side, not on the demand side.

MFS TELECOM OPERATING RESULTS. This group which is responsible for MFS's major accounts in the US continues to deliver very strong topline growth. In the third quarter their revenue was $74.3 million representing a growth rate of 45% over the 1995 third quarter. The Internet-related opportunities both at ISPs and at major corporations has been exceptionally strong. One other item of note is that their base cities in those areas (those cities that have been in operation since the beginning of 1994) have delivered consistent growth over the past few quarters, but much more importantly, have shown consistently improving margins. In this quarter againshowing an EBITDA margin of 54%. They think that says an awful lot about the potential they have as their developing markets begin to mature.

MFS INTELLINET OPERATING RESULTS. This group serves small and medium size companies in the US with a full set of communications offerings. This unit has been under some transition this quarter as they changed the focus from primarily reselling long distance and local services to a richer mix including a much higher mix of their own local services. This transition, as expected, has resulted in a slowdown of the sequential growth rate, although they did deliver 23% growth over last year's third quarter.

DEPLOYMENT AND SALES REFOCUS. They have been focusing a lot of attention on both the deployment side and on the sales side in terms of deploying co-carrier facilities and converting to unbundled loops. In fact, today they have approximately 18,000 unbundled loops in service as compared to slightly over 6,000 at the beginning of 1996.

SALES REFOCUS RESULTS IN EXCESSIVE DEMAND. Focusing the local sales force on selling their own local services as opposed to the prior focus (reselling local and long distance services) has reduced their churn rate significantly below 2% and improved their margins, although they really feel the big margin improvements will come in future quarters. This new sales focus has led to a huge increase in local service orders which they have not been able to install fast enough and therefore their backlog has increased over the quarter.

REDIRECTING HEADCOUNT TO MEET DEMAND. Therefore, an area they are spending a great deal of time on is automating the provisioning process, adding headcount to the install process and focusing generally on increasing their capacity. In that vein, they have reduced their sales headcount in the Intellinet unit and reallocated that headcount into their network installation organization which they believe will help reduce the backlog and increase revenue growth over time. They believe they have made excellent progress this quarter and think they are in a much better position for the future.

INTERNATIONAL OPERATIONS. This unit continues to exhibit extremely rapid growth. Their international revenues this quarter of about $43 million represented a 279% growth rate over the third quarter last year. This reflects the extremely fertile environment they face in most international business centers around the world. Their main issue here is not one of finding demand, but one of prioritizing between markets that all have extremely strong demand.

NEW ATLANTIC UNDERSEA CABLES. They announced a major initiative to build and install a high-capacity submarine cable system in the Atlantic which they believe will prove to be a major strategic advantage for them as they face this expanding opportunity base in Europe, which to a large extent has been driven by the Internet and Internet-related technologies.

GROWTH IN EUROPE AND ELSEWHERE. While they have been in the UK the longest, they now operate in London, Frankfurt, Paris, and Stockholm on their own fiber networks. They also operate in Zurich, Milan, and Hong Kong on a resale basis as a precursor to deploying their own facilities. They also have data-only facilities (in other words they only sell data communications services) in Toronto, Sydney, and Tokyo. And, despite the extraordinary growth in development here, their EBITDA margin continues to improve which they think show the great potential offered by the generally higher price levels they experience internationally.

NETWORK TECHNOLOGIES GROUP OPERATIONS. This is their systems integration unit and it had a good quarter as well with growth of about 265% over the third quarter last year. This business unit is inherently project oriented, so they expect to see significant swings from quarter to quarter. But they do see significant opportunities for design and construction of various types of communications networks. This quarter, among other orders for example, they landed a major PCS contract which is an arena where they have some significant expertise and experience and where they think they are going to continue to see opportunity for growth.

UUNET FINANCIAL AND OPERATIONS DETAILS. UUNet has only been on board part of the quarter. Revenues were $71.7 million for the quarter, up 180% over the third quarter last year. EBITDA for the quarter on a standalone basis would have been approximately $7 million positive EBITDA as compared to an EBITDA loss of approximately $3 million in the same quarter last year. In this unit, as has been true for several quarters, demand remains extremely high in all areas.

NEW CONNECTIONS AND UPGRADES. UUNet's primary core metric is new high-speed connections to the Internet and they took orders for 1,555 new high-speed connections this quarter which compares to 613 in the third quarter last year. In addition, their were 321 orders for bandwidth upgrades during the quarter and as a result of significant new sales and bandwidth upgrades, revenue per connection which is a very important indicator of leverage in that business continued to improve during the quarter.

POP EXPANSION. In terms of network expansion, the UUNet Internet network also continued its expansion. It now has 845 points of presence (POPs) worldwide which would compare to the 188 at this time last year. 516 of those 845 POPs are outside the US which really gives them an excellent platform for the very significant international growth opportunity they continue to see.

STRATEGIC COMMENTS. During the course of the quarter they have had a number of significant regulatory developments. They talked about the conclusions they drew specifically out of passage of the Telecom Act, issuance by the FCC of the Interconnection Order and the partial stay of pricing matters in the Interconnection Order by a Federal Court.

REGULATORY ENVIRONMENT. In looking across all these events, they think it is fair to say that everyone should expect that there will be many twists and turns, changes in direction, recourse to courts, recourse to regulatory bodies, appeals, and appeals of appeals that will occur over the coming couple of years. They still have Access Charge Reform and Universal Service discussions to take place. There is an enormous amount of money involved in all of these issues and any party not happy with the outcome is certainly going to take recourse to whatever forum they believe they can get access to. And, every time there is a change in direction, there is going to be an enormous debate about whether local service providers or long distance service providers benefit the most. They have already seen that over the past quarter.

SOUND STRATEGIC POSITION. Their conclusion is that, strategically, this continues to underline a position they have had for some time and that is bundling services, while certainly right from a customer's point of view, is also right strategically since by bundling services, the eventual disposition of the margins (whether local or long distance) is much less important. In fact, that is the position they believe they are in today. As a combined provider, they have nowhere near the exposure to these enormous swings in regulatory position that they have seen and will see.

They also think that the stay clearly hurts resale strategies by those competitors who have previously assumed that they could provide local service simply by rebranding or reselling MFS's box service. It is their contention that even with the discounts contemplated by the Interconnection Order, reselling local service was a losing strategy. Now with the almost certain reduction in those resale discounts at the state level, reselling becomes even less attractive, again underlining the importance of providing service through your own facilities, using your own switches, using your own trunking infrastructure to connect those switches to the RBOC infrastructure and to each other.

They also think that it is fair to say that the stay will not have a material affect on the margins associated with that kind of facilities-based provision of local service. There are a couple of offsetting components. For example they expect higher reciprocal compensation rates because of the stay, they expect a bit higher unbundled loop rates, and the combination of all of those they think is simply not material to their own business because they have existing interconnection orders. Those interconnection orders allow them to provide service and to provide service on attractive terms today and, because they have most-favored-nations clause and, in many cases retroactivity, MFS will continue to enjoy whatever improvements they or other parties might be able to achieve in those interconnection orders. In the meantime, they think they are breaking the ground, leading the way in developing all of the systems and procedures necessary to provide local service using unbundled loops.

THE STATUS OF NEW INITIATIVES. With respect to inter-city networks, the pending merger with Worldcom obviates the need to build inter-city networks here in the US. In fact, they get what they think is the finest inter-city network as part of the merger.

INTERNATIONAL APPROVALS. With respect to overseas, they received permission from the German regulatory authorities to own international facilities out of Germany as well as facilities between cities in Germany. That means that this year they expect to have international facilities authority from the UK, they already have it from the US, they have received it from the Netherlands, they have it in Sweden, and now Germany. This puts them in a position to develop a robust inter-city/inter-country network in Europe which is a good match to the next initiative they announced -- the undersea cables.

THE UNDERSEA CABLES. The undersea cables are twin cables and total about 11,000 kilometers of cable. They operate at 10 gigabits (10 billion bits per second), upgradeable without pulling the cable up to double and perhaps quadruple that amount. They expect to have the first leg of that cable in service next year if everything goes well.

ENORMOUS INTERNET SERVICES DEMAND. The cables are a very key matter, driven by the enormous demand for Internet services. Early on they got a number of questions about capacity requirements and it has been conventional wisdom in the industry that there is plenty of capacity here in the US between cities and internationally. They refer anyone who still might hold that view to a headline article in USA Today recently. It is just one of a whole series of indicators that point directly to the problem with capacity that is developing in the US and internationally.

INDUSTRY-WIDE CAPACITY CONSTRAINTS DUE TO INTERNET. The Internet is putting unprecedented amounts of demand and strain on the existing infrastructure. There simply has never been anything like it before. PacTel has now gone public with the fact that Internet-driven demand is actually overwhelming their current infrastructure and they have had to look to third parties to help supplement their existing bandwidth. That is just, MFS believes, the beginning of the tip of the iceberg. Underneath is an increasingly apparent shortage of capacity as the Internet becomes more and more important, particularly to business communications. They think their early move in the direction of addressing this capacity will put them in a good spot over the next few years.

US EXPANSION. With respect to their initiatives to expand the number of cities they operate in the US and internationally, they now have operations in 57 cities around the world. They are actively expanding a number of cities (Chicago, Los Angeles, New York, etc.) and that will continue as their development process cranks up.

INTERNET RELATED SERVICES -- QUALITY OF SERVICE GUARANTEES. The last of their initiatives was a series of plans involving Internet-related services. The key matter in that regard is the development of quality of service guarantees for Internet-based services. That is the key to making the Internet a useful tool for businesses' critical applications and they are happy to say that their UUNet companies, together with the kind of local capacity that MFS makes available, were able to announce the beginning of such quality of service guarantees. Over the next few weeks there will be more detail on this matter, but it is their clear intent to improve and guarantee the quality of service over the Internet and to make it into the kind of reliable business tool that the new services they will announce over that platform will have the kind of quality and reliability that businesses need -- things like fax over the Internet and other services depend on those quality of service guarantees and MFS thinks they are leading in that area.

THE WORLDCOM MERGER. This was a key announcement for the quarter, the year, and for their company. They are focusing a great deal of energy and resource in enabling them to offer a combined local and long distance service. Obviously that is a key development in making sure that they realize all of the potential of the merger. They are progressing along the announced schedule and are currently planning a stockholders meeting on December 20th. Approximately half of the states they have applied for have already approved the merger -- key states like Texas, Illinois, Massachusetts, Maryland have all approved. They see nothing at this point that would stop them from closing on schedule this year. Transition planning is also well along. They have now completed their first round of operational, financial, staff transition planning meetings and, if anything, they find opportunities to be even larger than they expected when they first announced the merger.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.