MCI WORLDCOM INC
10-K, 2000-03-30
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

     [X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          For the fiscal year ended December 31, 1999
                                     OR
     [ ]  Transition Report Pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934
          For the transition period from _____________ to _________________

                         Commission File Number 0-11258
                   _________________________________________

                               MCI WORLDCOM, Inc.

             (Exact name of registrant as specified in its charter)
                   _________________________________________

          Georgia                                      58-1521612
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)


500 Clinton Center Drive, Clinton, Mississippi           39056
  (Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code:  (601) 460-5600
Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.01 Par Value
             Series B Convertible Preferred Stock, $.01 Par Value
                        Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                             Yes [X]     No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [  ]

                   The aggregate market value of the voting
    stock held by non-affiliates of the registrant as of March 6, 2000 was:

                Common Stock, $.01 par value:  $132,280,191,567
              Series B Convertible Preferred Stock:  $75,222,104

There were 2,855,843,069 shares of the registrant's common stock outstanding as
of March 6, 2000, net of treasury shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement of the registrant for the
registrant's 2000 Annual Meeting of Shareholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year end of December 31, 1999, are
incorporated by reference into Part III.

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                                    GLOSSARY

AT&T Divestiture Decree -- Entered on August 24, 1982, by the United States
District Court for the District of Columbia.  The AT&T Divestiture Decree, among
other things, ordered AT&T to divest its wholly owned BOCs from its long lines
division and manufacturing operations and generally prohibited BOCs from
providing long distance telephone service between LATAs.

Access charge -- Expenses incurred by an IXC and paid to LECs and CAPs for
accessing the local networks of the LECs in order to originate and terminate
long distance calls and provide the customer connection for private line
services.

BOC -- Bell System Operating Company -- A local exchange carrier owned by any of
the remaining four RBOCs, which are holding companies established following the
AT&T Divestiture Decree to serve as parent companies for the BOCs.

Backbone -- A centralized high-speed network that interconnects smaller,
independent networks.

Bandwidth -- The number of bits of information which can move through a
communications medium in a given amount of time.

CAP -- Competitive Access Provider -- A company that provides its customers with
an alternative to the BOC for local transport of private line and special access
telecommunications services.

Collocation -- The ability of a CAP to connect its network to the LEC's central
offices.  Physical collocation occurs when a CAP places its network connection
equipment inside the LEC's central offices. Virtual collocation is an
alternative to physical collocation pursuant to which the LEC permits a CAP to
connect its network to the LEC's central offices on comparable terms, even
though the CAP's network connection equipment is not physically located inside
the central offices.

DS-3 -- A data communications circuit capable of transmitting data at 45
megabits per second (sometimes called a T-3).

Dedicated -- Telecommunications lines dedicated or reserved for use by
particular customers.

Digital -- A method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1.  Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
variable analog signal.  The precise digital numbers minimize distortion (such
as graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).

IXC -- Interexchange Carrier -- A long distance carrier providing services
between local exchanges.

Internet -- A global collection of interconnected computer networks that use
TCP/IP, a common communications protocol.

LANs -- Local Area Networks -- The interconnection of computers for the purpose
of sharing files, programs and various devices such as printers and high-speed
modems.  LANs may include dedicated computers or file servers that provide a
centralized source of shared files and programs.

LATAs -- Local Access and Transport Areas -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree.  The BOCs are generally
prohibited from providing long distance service between the LATA in which they
provide local exchange services, and any other LATA.

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LEC -- Local Exchange Carrier -- A company providing local telephone services.
Each BOC is a LEC.

Line costs -- Primarily includes the sum of access charges and transport
charges.

Local exchange -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.

Local Number Portability -- The ability of an end user to change LECs while
retaining the same telephone number.

Multicasting -- A single-to-multiple transmission technology that delivers a
single stream of live data to several recipients at the same time.

Network switching center -- A location where installed switching equipment
routes local or long distance calls and records information with respect to
calls such as the length of the call and the telephone numbers of the calling
and called parties.

OC-12 -- Optical Carrier Level 12 Signal  --  A transmission rate for SONET, a
high-speed data transport service used on fiber optic cabling, at 622 megabits
per second.

OC-48 -- Optical Carrier Level 48 Signal -- A transmission rate for SONET, a
high-speed data transport service used on fiber optic cabling, at 2,488 megabits
per second.

PUC -- Public Utility Commission -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as the Company, within the state (sometimes referred to as
Public Service Commissions, or PSCs).

RBOC -- Regional Bell Operating Company -- Any of the remaining regional bell
holding companies which the AT&T Divestiture Decree established to serve as
parent companies for the BOCs.

Reciprocal Compensation -- The same compensation of a competitive LEC for
termination of a local call by the BOC on its network, as the competitor pays
the BOC for termination of local calls on the BOC network.

Settlement Rates -- The rates paid to foreign carriers by United States
international carriers to terminate outbound (from the United States) switched
traffic and by foreign carriers to United States international carriers to
terminate inbound (to the United States) switched traffic.

SONET -- Synchronous Optical Network -- A standard way to interconnect high
speed traffic from multiple vendors.

TCP/IP -- Transmission Control Protocol/Internet Protocol -- A suite of network
protocols that allows computers with different architectures and operating
system software to communicate with other computers on the Internet.

T-1 -- A data communications circuit capable of transmitting data at 1.5
megabits per second.

T-3 -- A data communications circuit capable of transmitting data at 45 megabits
per second (sometimes called DS-3).

Tariff -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the subscriber or user and the supplier or carrier.

Transport Charges -- Expenses paid to facilities-based carriers for transmission
between or within LATAs.

World Wide Web or Web -- A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.

                                      ii
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<TABLE>
<CAPTION>

                                 TABLE OF CONTENTS
                                                                                   Page
                                                                                   ----
<S>          <C>                                                                    <C>
Cautionary Statement Regarding Forward-Looking Statements.........................   1

                                     PART I

Item 1.      Business.............................................................   1

Item 2.      Properties...........................................................  25

Item 3.      Legal Proceedings....................................................  26

Item 4.      Submission of Matters to a Vote of Security Holders..................  26

                                     PART II

Item 5.      Market for Registrant's Common Equity and Related Shareholder Matters  26

Item 6.      Selected Financial Data..............................................  28

Item 7.      Management's Discussion and Analysis of Financial Condition
              and Results of Operations...........................................  30

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk...........  54

Item 8.      Financial Statements and Supplementary Data..........................  56

Item 9.      Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure............................................  56

                                      PART III

Item 10.     Directors and Executive Officers of the Registrant...................  57

Item 11.     Executive Compensation...............................................  57

Item 12.     Security Ownership of Certain Beneficial Owners and Management.......  57

Item 13.     Certain Relationships and Related Transactions.......................  57

                                    PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K......  57

Signatures........................................................................  59

Index to Financial Statements and Financial Statement Schedule.................... F-1

Exhibit Index..................................................................... E-1
</TABLE>
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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The following statements are or may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995:

(i) any statements contained or incorporated herein regarding possible or
assumed future results of operations of MCI WorldCom's business, anticipated
cost savings or other synergies, the markets for MCI WorldCom's services and
products, anticipated capital expenditures, the outcome of Euro conversion
efforts, regulatory developments or competition;

(ii) any statements preceded by, followed by or that include the words
"intends," "estimates," "believes," "expects," "anticipates," "should," "could,"
or similar expressions; and

(iii) other statements contained or incorporated by reference herein regarding
matters that are not historical facts.

Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements; factors that could cause actual results to differ materially
include, but are not limited to, those discussed under Item 7.  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Item 7A. "Quantitative and Qualitative Disclosures about Market Risk." Potential
purchasers of MCI WorldCom capital stock are cautioned not to place undue
reliance on such statements, which speak only as of the date thereof.

The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by MCI WorldCom or persons acting on its behalf.
MCI WorldCom does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

                                 PART I

ITEM 1.   BUSINESS

General

Organized in 1983, MCI WORLDCOM, Inc., a Georgia corporation ("MCI WorldCom" or
the "Company") provides a broad range of communications, outsourcing, and
managed network services to both U.S. and non-U.S. based corporations. MCI
WorldCom is a global communications company utilizing a facilities-based, on-net
strategy throughout the world. The on-net approach allows the Company's
customers to send data streams or voice traffic across town, across the U.S., or
to any of our facilities-based networks in Europe or Asia, without ever leaving
the confines of the MCI WorldCom network. The on-net approach provides the
Company's customers with superior reliability and low operating costs. Prior to
September 15, 1998, the Company was named WorldCom, Inc. ("WorldCom").

MCI WorldCom leverages its facilities-based networks to focus on data and the
Internet. MCI WorldCom provides the building blocks or foundation for the new
e-conomy. Whether it is an emerging e-business or larger, more established
company who is embracing an e-business approach, MCI WorldCom provides the
communications infrastructure to help make them successful. From private
networking - frame relay and asynchronous transfer mode ("ATM") - to high
capacity Internet and related services, to hosting for complex, high-volume
mega-sites, to turn-key network management and outsourcing, MCI WorldCom
provides the broadest range of Internet and traditional, private networking
services available from any provider.


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The Company's core business is communications services, which includes voice,
data, Internet and international services.  During each of the last three years,
more than 90% of operating revenues were derived from communications services.

The Company serves as a holding company for its subsidiaries' operations.
References herein to the Company include the Company and its subsidiaries,
unless the context otherwise requires. Additionally, information in this
document has been revised to reflect the stock splits of the Company's common
stock.

Business Combinations

SkyTel.  On October 1, 1999, MCI WorldCom acquired SkyTel Communications, Inc.
("SkyTel"), pursuant to the merger (the "SkyTel Merger") of SkyTel with and into
Empire Merger Inc. ("Empire"), a wholly owned subsidiary of MCI WorldCom.  Upon
consummation of the SkyTel Merger, Empire was renamed SkyTel Communications,
Inc.  SkyTel is a leading provider of nationwide messaging services in the
United States.  SkyTel's principal operations include one-way messaging services
in the United States, advanced messaging services on the narrow band personal
communications services network in the United States and international one-way
messaging operations.

As a result of the SkyTel Merger, each outstanding share of SkyTel common stock
was converted into the right to receive 0.3849 shares of MCI WorldCom common
stock, par value $.01 per share ("MCI WorldCom Common Stock"), or approximately
23 million MCI WorldCom common shares in the aggregate.  Holders of SkyTel's
$2.25 Cumulative Convertible Exchangeable Preferred Stock (the "SkyTel Preferred
Stock") received one share of MCI WorldCom Series C $2.25 Cumulative Convertible
Exchangeable Preferred Stock (the "MCI WorldCom Series C Preferred Stock") for
each share of SkyTel Preferred Stock held.

Upon effectiveness of the SkyTel Merger, the then outstanding and unexercised
options and warrants exercisable for shares of SkyTel common stock were
converted into options and warrants, respectively, exercisable for shares of MCI
WorldCom Common Stock having the same terms and conditions as the SkyTel options
and warrants, except that the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 0.3849.  The SkyTel
Merger was accounted for as a pooling-of-interests; and accordingly, the
Company's financial statements for periods prior to the SkyTel Merger have been
restated to include the results of SkyTel for all periods presented.

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MCI.  On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI"), for approximately $40 billion, pursuant to the merger (the "MCI
Merger") of MCI with and into TC Investments Corp. ("Acquisition Subsidiary"), a
wholly owned subsidiary of the Company.  Upon consummation of the MCI Merger,
the Acquisition Subsidiary was renamed MCI Communications Corporation.  Through
the MCI Merger, the Company acquired one of the world's largest and most
advanced digital networks, connecting local markets in the United States to more
than 280 countries and locations worldwide.

As a result of the MCI Merger, each outstanding share of MCI common stock was
converted into the right to receive 1.86585 shares of MCI WorldCom Common Stock
or approximately 1.13 billion MCI WorldCom common shares in the aggregate, and
each share of MCI Class A common stock outstanding (all of which were held by
British Telecommunications plc ("BT")) was converted into the right to receive
$51.00 in cash or approximately $7 billion in the aggregate.  The funds paid to
BT were obtained by the Company from (i) available cash as a result of the
Company's $6.1 billion public debt offering in August 1998; (ii) the sale of
MCI's Internet backbone facilities and wholesale and retail Internet business
(the "iMCI Business") to Cable and Wireless plc ("Cable & Wireless") for $1.75
billion in cash on September 14, 1998; (iii) the sale of MCI's 24.9% equity
stake in Concert Communications Services ("Concert") to BT for $1 billion in
cash on September 14, 1998; and (iv) availability under the Company's commercial
paper program and credit facilities.  See Note 5 of Notes to Consolidated
Financial Statements.

Upon effectiveness of the MCI Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into options
exercisable for an aggregate of approximately 125 million shares of MCI WorldCom
Common Stock having the same terms and conditions as the MCI options, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.86585.  The MCI Merger was accounted
for as a purchase; accordingly, operating results for MCI have been included
from the date of acquisition.  See Note 2 of Notes to Consolidated Financial
Statements.

Embratel.  On August 4, 1998, MCI acquired a 51.79% voting interest and a 19.26%
economic interest in Embratel Participacoes S.A. ("Embratel"), Brazil's
facilities-based national and international communications provider, for
approximately R$2.65 billion (U.S. $2.3 billion).  The purchase price is being
paid in local currency installments, of which R$1.06 billion (U.S. $916 million)
was paid on August 4, 1998, R$795 million (U.S. $442 million) was paid on August
4, 1999, and the remaining R$795 million (U.S. $440 million at December 31,
1999) will be paid on August 4, 2000. Embratel provides domestic long distance
and international telecommunications services in Brazil, as well as over 40
other communications services, including leased high-speed data, Internet, frame
relay, satellite and packet-switched services.  Operating results for Embratel
are consolidated in the accompanying Consolidated Financial Statements and are
included from the date of the MCI Merger.

CompuServe.  On January 31, 1998, MCI WorldCom acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the merger (the
"CompuServe Merger") of a wholly owned subsidiary of the Company, with and into
CompuServe.  Upon consummation of the CompuServe Merger, CompuServe became a
wholly owned subsidiary of MCI WorldCom.

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As a result of the CompuServe Merger, each share of CompuServe common stock was
converted into the right to receive 0.609375 shares of MCI WorldCom Common Stock
or approximately 56 million MCI WorldCom common shares in the aggregate.  Prior
to the CompuServe Merger, CompuServe operated primarily through two divisions:
Interactive Services and Network Services. Interactive Services offered
worldwide online and Internet access services for consumers, while Network
Services provided worldwide network access, management and applications, and
Internet services to businesses.  The CompuServe Merger was accounted for as a
purchase; accordingly, operating results for CompuServe have been included from
the date of acquisition.

ANS.  On January 31, 1998, the Company also acquired ANS Communications, Inc.
("ANS") from America Online, Inc. ("AOL") for approximately $500 million, and
entered into five year contracts with AOL under which MCI WorldCom and its
subsidiaries provide network services to AOL (collectively, the "AOL
Transaction").  As part of the AOL Transaction, AOL acquired CompuServe's
Interactive Services division and received a $175 million cash payment from MCI
WorldCom.  MCI WorldCom retained the CompuServe Network Services division.  ANS
provided Internet access to AOL and AOL's subscribers in the United States,
Canada, the United Kingdom, Sweden and Japan.  The AOL Transaction was accounted
for as a purchase; accordingly, operating results for ANS have been included
from the date of acquisition.

Brooks Fiber Properties.  On January 29, 1998, MCI WorldCom acquired Brooks
Fiber Properties, Inc. ("BFP"), pursuant to the merger (the "BFP Merger") of a
wholly owned subsidiary of MCI WorldCom, with and into BFP.  Upon consummation
of the BFP Merger, BFP became a wholly owned subsidiary of MCI WorldCom.  BFP is
a leading facilities-based provider of competitive local telecommunications
services, commonly referred to as a competitive local exchange carrier ("CLEC"),
in selected cities within the United States.  BFP acquires and constructs its
own state-of-the-art fiber optic networks and facilities and leases network
capacity from others to provide long distance carriers ("IXCs"), ISPs, wireless
carriers and business, government and institutional end users with an
alternative to the incumbent local exchange carriers ("ILECs") for a broad array
of high quality voice, data, video transport and other telecommunications
services.

As a result of the BFP Merger, each share of BFP common stock was converted into
the right to receive 2.775 shares of MCI WorldCom Common Stock or approximately
109 million MCI WorldCom common shares in the aggregate.  The BFP Merger was
accounted for as a pooling-of-interests; and accordingly, the Company's
financial statements for periods prior to the BFP Merger have been restated to
include the results of BFP for all periods presented.

Upon effectiveness of the BFP Merger, the then outstanding and unexercised
options and warrants exercisable for shares of BFP common stock were converted
into options and warrants, respectively, exercisable for shares of MCI WorldCom
Common Stock having the same terms and conditions as the BFP options and
warrants, except that the exercise price and the number of shares issuable upon
exercise were divided and multiplied, respectively, by 2.775.

MFS Communications.  On December 31, 1996, MCI WorldCom, through a wholly owned
subsidiary, merged with MFS Communications Company, Inc. ("MFS").  Through the
acquisition of MFS (the "MFS Merger"), valued at approximately $12.5 billion,
the Company acquired local

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network access facilities via digital fiber optic cable networks installed in
and around major United States cities, and in several major European cities.
The Company also acquired a network platform, which consists of Company-owned
transmission and switching facilities, and network capacity leased from other
carriers primarily in the United States and Western Europe.

As a result of the MFS Merger, each share of MFS common stock was converted into
the right to receive 3.15 shares of MCI WorldCom Common Stock or approximately
707 million MCI WorldCom common shares in the aggregate.  Each share of MFS
Series A 8% Cumulative Convertible Preferred Stock ("MFS Series A Preferred
Stock") was converted into the right to receive one share of Series A 8%
Cumulative Convertible Preferred Stock of MCI WorldCom ("MCI WorldCom Series A
Preferred Stock"), or 94,992 shares of MCI WorldCom Series A Preferred Stock in
the aggregate. Each share of MFS Series B Convertible Preferred Stock was
converted into the right to receive one share of Series B Convertible Preferred
Stock of MCI WorldCom ("MCI WorldCom Series B Preferred Stock"), or
approximately 12.7 million shares of MCI WorldCom Series B Preferred Stock in
the aggregate.  In addition, each depositary share representing 1/100th of a
share of MFS Series A Preferred Stock was exchanged for a depositary share
representing 1/100th of a share of MCI WorldCom Series A Preferred Stock.

UUNET Technologies.  On August 12, 1996, MFS acquired UUNET Technologies, Inc.
("UUNET"), through a merger of a subsidiary of MFS with and into UUNET (the
"UUNET Acquisition").  UUNET is a leading worldwide provider of a comprehensive
range of Internet access options, applications, and value-added services to
businesses, other telecommunications companies and online services providers.

WilTel.  On January 5, 1995, MCI WorldCom completed the acquisition of the
network services operations of Williams Telecommunications Group, Inc.
("WilTel"), a subsidiary of The Williams Companies, Inc., for approximately $2.5
billion in cash (the "WilTel Acquisition").  Through this purchase, the Company
acquired a nationwide transmission network of approximately 11,000 miles of
fiber optic cable and digital microwave facilities.

Sprint Merger

On October 5, 1999, MCI WorldCom announced that it had entered into an Agreement
and Plan of Merger dated as of October 4, 1999, which was amended and restated
on March 8, 2000 (the "Sprint Merger Agreement"), between MCI WorldCom and
Sprint Corporation ("Sprint").  Under the terms of the Sprint Merger Agreement,
Sprint will merge with and into MCI WorldCom (the "Sprint Merger").

Sprint is a diversified telecommunications company, providing long distance,
local and wireless communications services.  Sprint's business is organized in
two groups: the Sprint PCS group and Sprint FON group.  Sprint built and
operates the United States' first nationwide all-digital, fiber-optic network
and is a leader in advanced data communications services.   In 1999 Sprint had
$20 billion in annual revenues and serves more than 20 million business and
residential customers.

Under the Sprint Merger Agreement, each outstanding share of Sprint's FON common
stock will be exchanged for $76.00 of MCI WorldCom Common Stock, subject to a
collar.  In addition, each share of Sprint's PCS common stock will be exchanged
for one share of a new MCI WorldCom PCS

                                       5
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tracking stock and 0.116025 shares of MCI WorldCom Common Stock. The terms of
the MCI WorldCom PCS tracking stock will be virtually identical to the terms of
Sprint's PCS common stock and will be designed to track the performance of the
PCS business of the surviving company in the Sprint Merger. Holders of the
shares of the other classes or series of Sprint capital stock will receive one
share of a class or series of the Company's capital stock with virtually
identical terms, which will be established in connection with the Sprint Merger,
for each share of Sprint capital stock that they own. Sprint will redeem for
cash each outstanding share of the Sprint first and second series preferred
stock before completion of the Sprint Merger. The Sprint Merger, valued at
approximately $129 billion, will be accounted for as a purchase and will be tax-
free to Sprint stockholders.

The actual number of shares of MCI WorldCom Common Stock to be exchanged for
each share of Sprint's FON common stock will be determined based on the average
trading prices of MCI WorldCom Common Stock prior to the closing, but will not
be less than 1.4100 shares (if MCI WorldCom's average stock price equals or
exceeds $53.9007) or more than 1.8342 shares (if MCI WorldCom's average stock
price equals or is less than $41.4350).

Consummation of the Sprint Merger is subject to various conditions set forth in
the Sprint Merger Agreement, including the adoption of the Sprint Merger
Agreement by stockholders of Sprint, the approval of the Sprint Merger by
shareholders of MCI WorldCom, the approval of the issuance of MCI WorldCom
capital stock in the Sprint Merger by shareholders of MCI WorldCom, certain U.S.
and foreign regulatory approvals and other customary conditions.  Special
meetings of the shareholders of MCI WorldCom and Sprint have been called for
April 28, 2000 to vote on the merger proposals. It is anticipated that the
Sprint Merger will close in the second half of 2000.  Additionally, if the
Sprint Merger is consummated, the integration and consolidation of Sprint will
require substantive management and financial resources and involve a number of
significant risks, including potential difficulties in assimilating technologies
and services of Sprint and in achieving anticipated synergies and cost
reductions.

Company Strategy

The Company's strategy is to further develop as a fully integrated
telecommunications company positioned to take advantage of growth opportunities
in global telecommunications.  Consistent with this strategy, the Company
believes that transactions such as the MCI Merger, the CompuServe Merger, the
AOL Transaction, the SkyTel Merger and, if consummated, the Sprint Merger,
enhance the combined entity's opportunities for future growth, create a stronger
competitor in the changing telecommunications industry and allow provision of
end-to-end bundled services over global networks, which will provide new or
enhanced capabilities for the Company's residential and business customers.  In
particular, the Company believes that if consummated, the Sprint Merger will
enable the combined company to: (i) offer a unique broadband access alternative
to both cable and traditional telephony providers in the United States through a
combination of digital subscriber line ("DSL") facilities and fixed wireless
access using the combined company's "wireless cable" spectrum; (ii) continue to
lead the industry with innovative service offerings for consumer and business
customers; and (iii) continue as an effective competitor in the wireless market
in the United States.

                                       6
<PAGE>

Services

General. The Company provides a broad range of communications, outsourcing, and
managed network services to both U.S. and non-U.S. based corporations. MCI
WorldCom is a global communications company utilizing a facilities-based, on-net
strategy throughout the world. The on-net approach allows the Company's
customers to send data streams or voice traffic across town, across the U.S., or
to any of our facilities-based networks in Europe or Asia, without ever leaving
the confines of the MCI WorldCom network. The on-net approach provides the
Company's customers with superior reliability and low operating costs.

MCI WorldCom leverages its facilities-based networks to focus on data and the
Internet. MCI WorldCom provides the building blocks or foundation for the new
e-conomy. Whether it is an emerging e-business or larger, more established
company who is embracing an e-business approach, MCI WorldCom provides the
communications infrastructure to help make them successful. From private
networking - frame relay and ATM - to high capacity Internet and related
services, to hosting for complex, high-volume mega-sites, to turn-key network
management and outsourcing, MCI WorldCom provides the broadest range of Internet
and traditional, private networking services available from any provider.

At MCI WorldCom, our employees are our greatest resource. Built from over 60
acquisitions, MCI WorldCom benefits from the expertise and entrepreneurial
spirit of the companies who have come together to form MCI WorldCom. A
customer-focused attitude permeates MCI WorldCom. Everything we do, we do to
make our customers more successful.

Domestic Long Distance and Local Service. The Company provides a single source
for integrated local and long distance telecommunications services and
facilities management services to business, government, other telecommunications
companies and consumer customers.

There are several ways in which the customer can access the Company's network
for domestic long distance services.  Generally, a customer who has selected the
Company as its IXC can utilize the Company's network for inter-LATA long
distance calls through "one plus" dialing of the desired call destination.
Customers who do not select the Company as their IXC can utilize the Company's
network for all their long distance calls through two methods of "dial-up
access."  They can dial a local telephone number to access the Company's
computerized switching equipment and then enter a personal authorization code
and the area code and telephone number of the desired call destination.
Customers may also access the Company's network by dialing 10-10 plus the three
digit Carrier Identification Code belonging to the Company and the area code and
telephone number of the desired call location.  Additionally, consumers may
access the Company's services through dial around services, such as 1-800-
COLLECT.  Regardless of the method used, dial-up customers can access the
Company's network for all of their long distance calls, both intra-LATA and
inter-LATA. High volume customers can access the Company's network through the
use of high-capacity dedicated circuits.  Increasingly, DSL connections are
expected to offer high speed connectivity for a broader mix of customers on an
economical basis.

The market for local exchange services consists of a number of distinct service
components.  These service components are defined by specific regulatory tariff
classifications including:  (i) local network services, which generally include
basic dial tone charges and private line services; (ii) network access services,
which consist of the local portion of long distance telephone calls; (iii) long
distance network services; and (iv) additional value added services such as
caller identification, voice mail and call waiting.

Unlike the RBOCs and other large LECs which were organized geographically in
response to the regulatory environment that existed before the AT&T Divestiture
Decree, the Company is organized around its customers to take advantage of
ongoing technological, competitive and regulatory changes. The Company believes
this organization better positions it to serve customers' growing demands for
advanced communications.
                                       7
<PAGE>

The Company offers a broad range of related services that enhance customer
convenience, add value and provide additional revenue sources.  Advanced "800"
service offers features for caller and customer convenience, including a variety
of call routing and call blocking options, customer reconfiguration, termination
overflow to switched or dedicated lines, Dialed Number Identification Service,
real-time Automatic Number Identification, and flexible after-hours call
handling services. The Company's travel cards offer worldwide calling services,
caller-friendly voice mail with message waiting signal, message storage and
delivery, conference calling, personal greetings, speed dialing, customer
deactivation and reactivation of cards, customer card, and private-label card
options.  The Company is also a market leader for prepaid calling cards that
allow a purchaser to pay in advance for a specific number of long distance
minutes.

Internet.  The Company provides a comprehensive range of Internet access and
value-added options, applications and value-added services tailored to meet the
needs of businesses and other telecommunications providers.  The Internet
products and services offered by the Company include Internet access (dial-up
and dedicated, for both retail and wholesale), IP multicasting, managed
networking services and applications (such as virtual private networks,
Intranets and Extranets), Web hosting and electronic commerce and transaction
services (such as credit card transaction processing).

International Services.  The Company offers international public switched voice,
private line and data services to other carriers and to commercial, government
and consumer customers.  The Company has over 200 operating agreements with
foreign carriers to provide switched voice and/or private line services, thereby
making the Company a leading participant in the international telecommunications
market.

The Company offers public switched international telecommunications services
worldwide and provides direct services to approximately 65 foreign countries.
The Company sells public switched telecommunications services to corporate and
residential customers, and to domestic long distance carriers that lack
transmission facilities to locations served by the Company or need more
transmission capacity.  Customers can access the Company's international
switching centers to make international telephone calls via dedicated
connections or dial-up access.

The Company both delivers and receives international traffic pursuant to its
operating agreements. Historically, the terms of most switched voice operating
agreements, as well as established Federal Communications Commission ("FCC")
policy, require that inbound switched voice traffic from the foreign carrier to
the United States be routed to United States international carriers, like MCI
WorldCom, in proportion to the percentage of United States outbound traffic
routed by that United States international carrier to the foreign carrier. New
FCC policies authorizing alternative traffic routing arrangements and overseas
liberalization are having the effect of gradually breaking down the exchange of
international traffic pursuant to traditional operating agreements and
proportionate return.

The Company offers permanent and temporary international private line services
to customers for a number of applications.  These applications generally involve
establishing private, international point-to-point communications links for
customers with high traffic volumes or special needs, such as greater security
or route diversity.

                                       8
<PAGE>

MCI WorldCom also provides switched voice, private line and/or value-added data
services over its own facilities and leased facilities in the United Kingdom,
Germany, France, the Netherlands, Sweden, Switzerland, Belgium, Italy, Ireland
and other European countries.  The Company operates metropolitan digital fiber
optic networks in London, Paris, Frankfurt, Hamburg, Dusseldorf, Amsterdam,
Rotterdam, Stockholm, Brussels and Zurich.  The Company also offers certain
international services over leased facilities in certain Asian markets,
including Australia, Japan, Hong Kong and Singapore.  The Company was granted
authority in the first quarter of 1998 to serve as a local and international
facilities-based carrier in Australia and Japan.  In Japan, the Company is now
classified as a Type I carrier and operates metropolitan digital fiber optic
networks in Sydney and Tokyo.

The Company's foreign operations are subject to certain risks including
licensing requirements, changes in foreign government regulations and
telecommunications standards, interconnection and leased line charges, currency
fluctuations, exchange controls, royalty and tax increases, retroactive tax
claims, expropriation, import and export regulations, various trade barriers,
political and economic instability and other laws affecting foreign trade,
investment and taxation.  In addition, in the event of any dispute arising from
foreign operations, the Company may be subject to the exclusive jurisdiction of
foreign courts and may not be successful in subjecting foreign persons or
entities to the jurisdiction of the courts in the United States.  MCI WorldCom
may also be hindered or prevented from enforcing its rights with respect to
foreign governments because of the doctrine of sovereign immunity. There can be
no assurance that the laws, regulations or administrative practices of foreign
countries relating to MCI WorldCom's ability to do business in that country will
not change.  Any such change could have a material adverse effect on MCI
WorldCom's financial condition and results of operations.

The Company's international communications services are subject to certain risks
such as changes in United States or foreign government regulatory policies,
disruption, suspension or termination of operating agreements, and currency
fluctuations.  The rates that the Company can charge its customers for
international services may decrease in the future due to the entry of new
carriers with substantial resources and aggressiveness on the part of new or
existing carriers.  In addition, the consummation of mergers, joint ventures and
alliances among large international carriers that facilitate targeted pricing
and cost reductions, and the availability of international circuit capacity on
new undersea fiber optic cables and new high capacity satellite systems in the
Atlantic, Pacific and Indian Ocean Regions may impact rates.

Embratel.  MCI WorldCom's investment in Embratel further extends the Company's
local-to-global strategy.  Embratel's business consists principally of providing
intra-regional long distance, inter-regional long distance and international
long distance telephone service as well as data communications, text, Internet
services and mobile satellite and maritime communications.  Embratel operates
under a domestic long distance concession and an international long distance
concession (together, the "Concession") granted by Agencia Nacional de
Telecomunicacoes ("Anatel") on May 26, 1998.  Embratel's Concession has been
granted under the public regime (the "Public Regime").  See "Regulation -
Embratel."

Segment and Geographic Information.  Certain financial information about
operations by segment and by geographic area for 1999, 1998 and 1997 is included
in Note 15 of the Notes to Consolidated Financial Statements and is incorporated
herein by reference.

                                       9
<PAGE>

Other Services.  Through MCI Systemhouse Corp. and SHL Systemhouse Co.
(collectively "SHL"), the Company offered information technology ("IT") services
including outsourcing, IT consulting, systems integration, private network
management, technology deployment and applications and systems development.

In April 1999, the Company completed the sale of SHL to Electronic Data Systems
Corporation ("EDS") for $1.6 billion.  Additionally, in October 1999, the
Company and EDS finalized dual outsourcing agreements that are expected to
capitalize on the individual strengths of each company. Under these agreements,
MCI WorldCom has outsourced portions of its IT operations to EDS.  EDS has
assumed responsibility for IT system operations at more than a dozen MCI
WorldCom processing centers worldwide. In connection with this agreement,
approximately 1,300 MCI WorldCom employees transferred to EDS.  EDS has
outsourced select functions of its global network operations to MCI WorldCom
including network operations, management and engineering. In connection with
this network outsourcing agreement, approximately 1,000 EDS employees will
eventually transfer to MCI WorldCom.

The Company also designs, installs, and integrates "turnkey" transmission
facilities and communications networks primarily for international customers.
Services provided include fixed and transportable customer premise earth
stations, network management systems, systems integration consulting and project
management.

Ventures and Developing Business Markets. Avantel S.A. ("Avantel") is a business
venture between Grupo Financiero Banamex-Accival, Mexico's largest financial
group, and MCI WorldCom, in which the Company owns a 44.5% equity interest.
Avantel built Mexico's first all-digital fiber optic long distance network.  In
1996, Avantel became the first company to provide alternative long distance
telecommunications service in Mexico in competition with Telefonos de Mexico
("Telmex").  Avantel Servicios Locales, S.A. ("Avantel Local") is another
business venture between Grupo Financiero Banamex-Accival and MCI WorldCom, in
which the Company also owns a 44.5% equity interest.  Avantel Local has obtained
a license to offer a full range of local telephony services and is awaiting
regulatory decisions on interconnection terms and conditions.  Telmex, the
former monopoly telecommunications provider, is the primary competitor to both
Avantel and Avantel Local.  Telmex's financial and other resources are
substantially greater than both Avantel and Avantel Local, and it has an
extensive existing customer base.

In November 1999, the Company purchased 30 million shares of Metricom, Inc.
("Metricom") Series A1 preferred stock (the "Metricom Preferred Stock") for $300
million.  The Metricom Preferred Stock bears cumulative dividends at the rate of
6.5% per annum for three years, payable in cash or additional shares of Metricom
Preferred Stock.  In addition, the Company has the right to elect one director
to Metricom's Board of Directors, although voting rights otherwise will be
generally limited to specified matters.  The Metricom Preferred Stock is subject
to mandatory redemption by Metricom at the original issuance price in 2009 and
to redemption at the option of the holder upon the occurrence of specified
changes in control or major acquisitions.  The Metricom Preferred Stock is
convertible into Metricom common stock at the Company's option beginning May
2002.

                                       10
<PAGE>


Metricom is a leading provider of mobile data networking and technology.
Metricom's Ricochet service provides mobile professionals with high-performance,
cost effective untethered access to the Internet, private Intranets, local-area
networks, e-mail and other online services.

Additionally, MCI WorldCom signed a five-year, non-exclusive agreement valued at
$388 million with Metricom to sell subscriptions for Metricom's Ricochet
services.  The agreement is subject to the timely deployment of the Metricom
network, Metricom's ability to meet agreed performance standards and Metricom's
ability to attract a significant number of subscribers through other channel
partners.

In February 1999, MCI WorldCom entered into an alliance with Bell Canada that
becomes effective on April 14, 2000, after the unwind period of the MCI
WorldCom/Stentor alliance.  The MCI WorldCom/Bell Canada alliance will provide
seamless North American and global telecommunications services, leveraging the
Company's extensive international network and reach.  Bell Canada will become
MCI WorldCom's exclusive distributor of the Company's services in Canada,
enhancing a relationship dating back to 1992.   The alliance combines the
benefits of MCI WorldCom's global suite of products on a single, high-capacity,
end-to-end network, with Canada's leading communications provider, serving seven
million residential and business customers, including some of Canada's major
corporations.  Through this alliance, Bell Canada's customers will have access
to MCI WorldCom's network, linking major commercial centers across North America
and the rest of the world.

During 1998, the Company entered into a strategic alliance with Telefonica de
Espana ("Telefonica") to create strategic business ventures in Europe and the
Americas.  To date, Telefonica and the Company have pursued expansion
opportunities largely based on each company's own priorities, with an open
opportunity for the other to participate.  In Latin America, Telefonica is often
the preferred supplier for the Company's global product suite, though in Brazil,
for example, the Company and Telefonica have pursued competing opportunities.
In Spain, agreements have been reached to support each other's data service
offerings.

Transmission Facilities

The Company's operating subsidiaries own domestic long distance, international
and multi-city local service fiber optic networks with access to additional
fiber optic networks through lease agreements with other carriers.
Additionally, the Company's operating subsidiaries own and lease trans-oceanic
cable capacity in the Atlantic and Pacific Oceans.

Deployed in business centers throughout the United States, Western Europe, the
United Kingdom, Australia and Japan, the Company's local networks are
constructed using ring topology. Transmission networks are based on either
conventional asynchronous multiplexing or Synchronous Optical Network ("SONET")
equipment.  European and Pacific Rim networks are based on Synchronous Digital
Hierarchy ("SDH") technology.  Network backbones are installed in conduits owned
by the Company or leased from third parties such as utilities, railroads, long
distance carriers, state highway authorities, local governments and transit
authorities.  Lease arrangements are generally executed under multi-year terms
with renewal options and are non-exclusive.

                                       11
<PAGE>

Buildings are connected to the Company's local networks using fiber extensions
(known as "laterals") which are then connected to a local distribution loop and
ultimately to a high speed fiber backbone which originates and terminates at one
of the Company's central nodes.  Local transmission signals are generally sent
through the network simultaneously on both primary and secondary paths thereby
providing route diversity and disaster protection.  Buildings served via a
Company-owned lateral have a discrete Company presence (referred to as a "remote
hub" or "building point-of-presence") located within the building.  Generally,
Company-owned internal building wiring connects the remote hub to the customer
premises.  Customer terminal equipment is connected to Company-provided
electronic equipment generally located in the remote hub where ongoing customer
transmission signals are digitized, combined and converted into optical signals
for transport to the central node.  Signals are then reconfigured and routed to
their final destination.

The long distance network is protected by SONET/SDH rings and digital cross
connect systems that are capable of restoring backbone traffic in the event of
an outage in milliseconds and minutes, respectively.  In addition, long distance
switched traffic is dynamically rerouted via switch software to any available
capacity to complete calls.

To serve customers in buildings that are not located directly on the fiber
network, the Company utilizes leased T-3s, T-1s or unbundled local loops
obtained from the LECs and CLECs.

Internationally, the Company owns or leases fiber optic capacity on most major
international undersea cable systems in the Pacific and Atlantic Ocean regions.
In the first quarter of 1998, the Company, together with its joint venture
partner Cable & Wireless, placed into service a high capacity digital fiber
optic undersea cable between the United States and the United Kingdom.  The
Company also owns fiber optic capacity for services to the former Soviet Union
Republics, Central America, South America and the Caribbean.  Furthermore, the
Company owns and operates 28 international gateway satellite earth stations,
which enable it to extend public switched and private line voice and data
communications to and from locations throughout the world.

Embratel has the largest long distance telecommunications network in Latin
America providing both national and international telecommunications services.
It is the main provider of high-speed data transmission in Brazil, with the
largest network of broadband fiber optic transmission systems, with a total
installed national transmission capacity of 50Gbps, covering 628,067 fiber
kilometers as of the end of 1999.  In addition, Embratel uses a 100% digital
switching system for voice and data services and uses packet-switched data
communications for data services.  Embratel has more than 500 kilometers of
metropolitan digital fiber optic networks in the five largest cities of Brazil
with more than 380 direct connections to businesses in addition to thousands of
direct connections using wireless technology and is now implementing the concept
of lateral fiber extensions, with almost 200 commercial buildings connected to
metropolitan rings.  Embratel utilizes microwave transmission systems in areas
where installation of fiber cables is less cost effective.  This has been
reduced to 190,000 microwave channel kilometers in 1999.  Embratel also uses
four satellites to provide services to remote locations within the country with
77 telephonic earth stations, 430 customer earth stations for high speed data
transmission and 1,500 VSAT for low speed data transmission.  Embratel is
expanding construction of metropolitan digital fiber optic networks to
additional strategic cities with high concentrations of business customers.

                                       12
<PAGE>

Embratel provides international service primarily through major international
undersea cable systems which link Brazil with key trading partners.  Embratel
has four international digital switches in strategic locations and employs
satellites to provide additional international capacity and to reach regions of
the world where this is the most economical method.  Embratel participates in
both the International Telecommunications Satellite Organization System and
International Maritime Satellite Organization to complement and diversify its
international network and increase the global service footprint in a cost
effective way.  Embratel will add substantial international ocean cable capacity
in early 2000 with the completion of the Atlantis 2 cable system (connecting
directly to Europe and Argentina) and Americas II which will increase capacity
between Brazil and the United States.

The Company's ability to generate profits depends in part upon its ability to
optimize the different types of transmission facilities used to provide
communications services.  These facilities are complemented by a least cost
routing plan which is accomplished through digital switching technology and
network routing software.  Calls can be routed over fixed cost transmission
facilities or variable cost transmission facilities.  Fixed cost facilities,
including the Company's owned networks, are typically most cost effective for
routes that carry high volumes of traffic.  In addition, a variety of lease
agreements for fixed and variable cost (usage sensitive) services ensures
diversity and quality of service in processing calls.

The telecommunications industry is subject to rapid and significant changes in
technology.  While MCI WorldCom does not believe that, for the foreseeable
future, these changes will either materially or adversely affect the continued
use of fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireline and wireless transmission and switching technologies, on the
businesses of MCI WorldCom cannot be predicted.

The market for data communications and Internet access and related products is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions.  There
can be no assurance that the Company will successfully identify new product and
service opportunities and develop and bring new products and services to market
in a timely manner.  The Company is also at risk from fundamental changes in the
way data communications, including Internet access, services are marketed and
delivered.  The Company's Internet service strategy assumes that the
Transmission Control Protocol/Internet Protocol ("TCP/IP"), utilizing fiber
optic or copper-based telecommunications infrastructures, will continue to be
the primary protocol and transport infrastructure for Internet-related services.
Emerging transport alternatives include wireless cable modems and satellite
delivery of Internet information. Alternative open protocol and proprietary
protocol standards have been or are being developed. The Company is
participating in trials of next generation technology.  However, the Company's
pursuit of necessary technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in adapting
its data communications services business to alternate access devices, conduits
and protocols.

                                       13
<PAGE>

Network Switching

The Company owns or leases computerized network switching equipment that routes
its customers' local and long distance calls.  The Company's digital switching
equipment is interconnected with digital transmission lines.  The Company's
switching networks utilize SS7 common channel signaling, which increases
efficiencies by eliminating connect time delays and provides "look ahead"
routing.  In addition to networking, the Company's switching equipment verifies
customers' pre-assigned authorization codes, records billing data and monitors
system quality and performance.

In addition to the switching centers, the Company has a number of other network
facility locations known as points-of-presence ("POPs"). These POPs allow the
Company to concentrate customers' traffic at locations where the Company has not
installed switching equipment. The traffic is carried to switching centers from
POPs over the Company's digital transmission network.

The Company's domestic switches are capable of providing both local and long
distance call functions while the gateway switches have the specific purpose of
transferring domestically originated calls to the rest of the world.

The Company's ATM network utilizes the Company's intracity fiber connections to
customers, Company-owned ATM switches and MCI WorldCom's high-capacity fiber
optic networks.  ATM is a switching and transmission technology based on
encapsulation of information in short (53-byte) fixed-length packets or "cells."
ATM switching was specifically developed to allow switching and transmission of
mixed voice, data and video (sometimes referred to as "multimedia" information).
In addition, certain characteristics of ATM switching allow switching
information to be directly encoded in integrated circuitry rather than in
software.

MCI WorldCom's frame relay network utilizes Company-owned and maintained frame
relay switches and MCI WorldCom's high-capacity fiber optic networks to provide
data networking services to commercial customers.  Networking equipment at
customer sites connects to the Company's frame relay switches which in turn are
connected to each other via the extensive MCI WorldCom fiber optic networks.
Frame relay utilizes variable length frames to transport customer data from one
customer location across MCI WorldCom networks to another customer location.
Customers utilize the frame relay technology to support traditional business
applications such as connecting local networks and financial applications.

Internet Network Infrastructure

The Company's Internet infrastructure is based on its own OC-48, OC-12 and DS-3
network which uses a combination of ATM, frame relay and router technologies at
the transport layer for both metropolitan and inter-regional connectivity.  This
network infrastructure enables customers to access the Internet through
dedicated lines or by placing a local telephone call (dial-up) through a modem
to the nearest equipment location for the Company.  Once connected, the
customer's traffic is routed through the Company's networks to the desired
Internet location, whether on the Company's networks or elsewhere on the
Internet.

                                       14
<PAGE>

Network Statistics

Global network statistics of the Company, excluding Embratel, are as follows:

<TABLE>
<CAPTION>
                                       As of December 31,
                                ---------------------------------
                                      1999             1998
                                ----------------  ---------------
<S>                             <C>               <C>
Domestic long distance route
 miles                                    47,806           47,529
Local domestic and
 international fiber miles               896,998          797,550
Local domestic and
 international route miles                 9,323            8,811
Voice grade equivalents               33,060,614       17,700,822
Buildings connected                       48,961           39,550
Telco collocations                           429              367
Internet modems                        1,655,132          891,746
</TABLE>

Rates and Charges

The Company charges switched customers on the basis of a fixed rate per line
prescribed to the Company plus minutes or partial minutes of usage at rates that
vary with the distance, duration and time of day of the call.  For local
service, customers are billed a fixed charge plus usage or flat rated charges
depending on the plan chosen by the customer.  The rates charged are not
affected by the particular transmission facilities selected by the Company's
switching centers for transmission of the call.  Additional discounts are
available to customers who generate higher volumes of monthly usage.

Domestic and international business services originating in the United States
are primarily billed in six-second increments; others are billed in partial
minutes rounded to the next minute.  Switched voice services originating in
international markets are billed in increments subject to local market
conditions and interconnect agreements.  Switched long distance and local
services are billed in arrears, with monthly billing statements itemizing date,
time, duration and charges; data services are generally billed on a fixed per
line and variable trunk rate.  These rates are based on speed of transmission
purchased from the Company.  Depending on the service type, these charges may be
billed in arrears or in advance.  Private line services are billed monthly in
advance, with the invoice indicating applicable rates by circuit.

The Company's rates are generally designed to be competitive with those charged
by other long distance and local carriers.  The rates offered by the Company may
be adjusted in the future if other IXCs, LECs and CAPs continue to adjust their
rates.  To date, continued improvement in the domestic and international cost
structures have allowed the Company to offer competitive rates while maintaining
acceptable margins.

The Company's Internet access options are sold in the United States and in many
foreign countries for both domestic and global Internet services.  Prices vary,
based on service type.  Due to various factors, such as available
telecommunications technology, foreign government regulation and market demand,
the service options offered outside of the Untied States vary as to speed, price
and suitability for various purposes.

                                       15
<PAGE>

Embratel's rates for most telecommunications services are subject to final
approval of Anatel, to which Embratel submits requests for rate adjustments.
See "Regulation-Embratel" below. Embratel's rates for domestic and international
long distance service are established by Anatel and are uniform throughout
Brazil.  The majority of Embratel's revenues from data communications are
provided by monthly line rental charges for private leased circuits.  The
balance consists mainly of normal charges to customers for access to the only
data transmission network and measured charges based on the amount of data
transmitted.

Marketing and Sales

The Company markets its business voice, data, Internet and international
services primarily through a direct sales force targeted at specific geographic
markets.  The Company's commercial sales force of approximately 6,000 people,
excluding Embratel, also provides advanced data specialization for the domestic
and international marketplaces, including private line services.

In each of its geographic markets, the Company employs full service support
teams that provide its customers with prompt and personal attention.  MCI
WorldCom's localized management, sales and customer support are designed to
engender a high degree of customer loyalty and service quality.

For its consumer services, the Company markets through telemarketing, affinity
relationships and television, radio and print advertising.

Competition

General.  Virtually every aspect of the telecommunications industry is extremely
competitive, and MCI WorldCom expects that competition will intensify in the
future.  MCI WorldCom competes domestically with incumbent providers, which have
historically dominated local telecommunications, with other CLECs, and with
long distance carriers, for the provision of long distance services. Some
incumbent providers offer both local and long distance services.  The ILECs
presently have numerous advantages as a result of their historic monopoly
control over local exchanges.  A continuing trend toward business combinations
and alliances in the telecommunications industry may create significant new
competitors to MCI WorldCom.  Some of the Company's existing and potential
competitors have financial, personnel and other resources significantly greater
than those of MCI WorldCom.  MCI WorldCom also faces competition from one or
more competitors in every area of its business, including competitive access
providers operating local fiber optic networks, in conjunction with, in some
cases, the local cable television operator.  Several competitors have announced
the deployment of nationwide fiber networks using advanced state-of-the-art
technologies.  AT&T Corp. ("AT&T") and a number of facilities-based CLECs have
indicated their intention to offer local telecommunications services in major
United States markets using their own facilities, including in AT&T's case, the
acquisition of the facilities and business of Teleport Communications Group,
Inc. and Tele-Communications, Inc., or through resale of the local exchange
carriers' or other providers' services.  In addition, MCI WorldCom competes with
equipment vendors and installers and telecommunications management companies
with respect to certain portions of its business.

                                       16
<PAGE>

Overseas, MCI WorldCom competes with incumbent providers, some of which still
have special regulatory status and the exclusive rights to provide certain
services, and virtually all of which have historically dominated their local,
domestic long distance and international services business.  These incumbent
providers have numerous advantages including existing facilities, customer
loyalty, and substantial financial resources.  MCI WorldCom may be dependent
upon obtaining facilities from these incumbent providers.  MCI WorldCom also
competes with other service providers, many of which are affiliated with
incumbent providers in other countries.  Typically, MCI WorldCom must devote
extensive resources to obtain regulatory approvals necessary to operate
overseas, and then to obtain access to and interconnection with the incumbent's
network on a non-discriminatory basis.

MCI WorldCom may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity.  For example, even though fiber optic
networks, such as that of MCI WorldCom, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology.  The telecommunications industry is
in a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by MCI WorldCom.
The Company cannot predict which of many possible future product and service
offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and services.
For most of MCI WorldCom's communications services, the factors critical to a
customer's choice of a service provider are cost, ease of use, speed of
installation, quality, reputation and in some cases, geography and network size.

Under the Telecommunications Act of 1996 (the "Telecom Act") and ensuing federal
and state regulatory initiatives, barriers to local exchange competition are
being removed.  The introduction of such competition, however, also establishes,
in part, the predicate for the Bell Operating Companies (the "BOCs") to provide
in-region interexchange long distance services.  Indeed, on December 21, 1999,
the FCC granted the application of Bell Atlantic Corporation ("Bell Atlantic")
to offer long distance service in the State of New York.  Elsewhere, the BOCs
are currently allowed to offer certain "incidental" long distance service in-
region and to offer out-of-region long distance services.  Once the BOCs are
allowed to offer in-region long distance services, they could be in a position
to offer single source local and long distance service similar to that being
offered by MCI WorldCom.  The Company expects that the increased competition
made possible by regulatory reform will result in certain additional pricing and
margin pressures in the domestic telecommunications services business.

The Company also competes in offering data communications services, including
Internet access and related services.  This is also an extremely competitive
business and MCI WorldCom expects that competition will intensify in the future.
The Company believes that the ability to compete successfully in this arena
depends on a number of factors, including: industry presence; the ability to
execute a rapid expansion strategy; the capacity, reliability and security of
its network infrastructure; ease of access to and navigation on the Internet;
the pricing policies of its competitors and suppliers; the timing of the
introduction of new products and services by the Company and its competitors;
the Company's ability to support industry standards; and industry and general
economic trends.  The success of MCI WorldCom will depend heavily upon its
ability to provide high quality data communications services, including Internet
connectivity and value-added Internet services at competitive prices.

                                       17
<PAGE>

Major telecommunications and data communications companies have expanded their
current services to compete fully in offering data communications services,
including Internet access and value-added and other data communications
services; MCI WorldCom expects additional telecommunications companies to
continue to compete in this arena.  The Company believes that new competitors,
including large computer hardware, software, media and other technology and
communications companies will also offer data communications services, resulting
in even greater competition for MCI WorldCom.  Certain companies, including
AT&T, GTE Corporation ("GTE"), Intermedia Communications, Inc., Qwest
Communications International, Inc., Global Crossing Ltd., PSINet, Inc., IXC
Communications, Inc., Williams Communications and Level 3 Communications LLC,
have obtained or expanded their Internet access products and services as a
result of network deployment, acquisitions and strategic investments.  Such
acquisitions may permit MCI WorldCom's competitors to devote greater resources
to the development and marketing of new competitive products and services and to
the marketing of existing competitive products and services.  MCI WorldCom
expects these acquisitions and strategic investments to increase, thus creating
significant new competitors to the Company.  In addition, the Company expects
new companies to enter this arena and to compete with MCI WorldCom's service
offerings.

As the Company continues to expand communications operations outside of the
United States, MCI WorldCom will be forced to compete with and buy services from
incumbent providers, some of which are government-owned and/or still have
special regulatory status and the exclusive rights to provide certain essential
services.  The Company will also encounter competition from companies whose
operating styles are substantially different from those that it encounters in
the United States.  For example, in Europe, MCI WorldCom's subsidiaries compete
directly with: (1) telecommunications companies, such as BT, Deutsche Telekom
AG, France Telecom, and others; (2) global telecommunications alliances such as
Concert, Global One, and others;  (3) global data communications providers, such
as AT&T Global Network Services (acquired from IBM Corp.), InFonet, and others;
and (4) other Internet access providers, such as KPN/Qwest, Oleane, and Demon
Internet Limited.  Foreign competitors may also possess a better understanding
of their local areas and may have better working relationships with, or control
of, local telecommunications companies. Despite the Company's policy of hiring
local employees in each market that it operates, there can be no assurance that
the Company can obtain similar levels of local knowledge.  Failure to obtain
that knowledge could place MCI WorldCom at a competitive disadvantage.

Embratel. Until July 29, 1998, Embratel was the exclusive provider of inter-
state and international long distance services in Brazil, although it was
subject to indirect competition from a number of sources.  The companies
organized under Telecomunicacoes Brasileiras S.A., Telebras ("Telebras") were
the exclusive providers of intrastate and local telephone services.  However,
since 1995, Brazil has been adopting sweeping regulatory changes intended to
open the telecommunications market to competition.

Under the 1996 General Telecommunications Law (the "General Law") and the
General Grant Plan (the "Grant Plan"), the Ministry of Communications was
required to conduct the privatization of the Telebras system.  According to the
privatization model, the Brazilian states were divided among three regions and
the Telebras companies, which provided services in each of these states, were

                                       18
<PAGE>

grouped under three holding companies (each a "Tele") and granted concessions to
provide local and intra-regional long distance services within one of the three
regions. Embratel was granted concessions to provide domestic long distance
(intra-regional and inter-regional) and international services.  The
privatization occurred on July 29, 1998; at which time Embratel became subject
to competition in the intra-regional long distance markets.

The General Law and the General Grant Plan also required the regulator, Anatel,
promptly after the privatization, to auction: (1) the mirror authorizations for
the provision of local and intra-regional long distance telephone services in
each of the three regions, and (2) one mirror authorization for the provision of
intra-regional, inter-regional and international long distance telephone
services.

Embratel has (1) three competitors in the north east region for the provision of
intra-regional long distance services (the north east Tele, the north east
mirror authorization holder (Canbra), and the national long distance mirror
authorization holder (Intelig)), and (2) two competitors in the south region and
in the Sao Paulo State region for the provision of the intra-regional long
distance services (the south and the Sao Paulo State Teles and Intelig), and (3)
one competitor (Intelig) in the inter-regional and international long distance
markets.

Beginning 2002, Anatel may grant an unlimited number of additional
authorizations for the provision of local and intra-regional, inter-regional and
international long distance telephone services.

Regulation

General.   MCI WorldCom is subject to varying degrees of federal, state, local
and international regulation.  In the United States, the Company's subsidiaries
are most heavily regulated by the states, especially for the provision of local
exchange services.  The Company must be certified separately in each state to
offer local exchange and intrastate long distance services.  No state, however,
subjects MCI WorldCom to price cap or rate of return regulation, nor is the
Company currently required to obtain FCC authorization for installation or
operation of its network facilities used for domestic services, other than
licenses for specific terrestrial microwave and satellite earth station
facilities that utilize radio frequency spectrum.  FCC approval is required,
however, for the installation and operation of its international facilities and
services.  MCI WorldCom is subject to varying degrees of regulation in the
foreign jurisdictions in which it conducts business including authorization for
the installation and operation of network facilities.  Although the trend in
federal, state and international regulation appears to favor increased
competition, no assurance can be given that changes in current or future
regulations adopted by the FCC, state or foreign regulators or legislative
initiatives in the United States or abroad would not have a material adverse
effect on MCI WorldCom.

In implementing the Telecom Act, the FCC established nationwide rules designed
to encourage new entrants to participate in the local services markets through
interconnection with the ILECs, resale of ILEC's retail services and use of
individual and combinations of unbundled network elements. Appeals of the FCC
order adopting those rules were consolidated before the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit").  Thereafter, the Eighth
Circuit held that constitutional challenges to various practices implementing
cost provisions of the Telecom Act that were ordered by certain Public Utility
Commissions ("PUCs") were premature; it vacated, however, significant portions
of the FCC's nationwide pricing rules and an FCC rule requiring that unbundled

                                       19
<PAGE>

network elements be provided on a combined basis. The United States Supreme
Court (the "Supreme Court") reviewed the decision of the Eighth Circuit and on
January 25, 1999 reversed the Eighth Circuit in part and reinstated, with one
exception, all of the FCC local competition rules.  The Supreme Court vacated
and remanded to the FCC for reconsideration the rule determining which unbundled
network elements must be provided by ILECs to new entrants.  On November 5,
1999, the FCC promulgated new unbundling rules that require two additional
network elements, as well as most of the previously identified elements, to be
made available to new entrants.  However, the FCC concluded that a new packet-
switching element should not be available for unbundling.  That order has been
appealed by the ILECs to the United States Court of Appeals for the District of
Columbia Circuit.  The Eighth Circuit is now considering the ILECs' challenges
to the substance of pricing rules which it previously had found to be premature.

Access charges, both interstate and intrastate, are a principal component of MCI
WorldCom's telecommunications expense.  Regulators have historically permitted
access charges to be set at levels that are well above ILECs' costs.  As a
result, access charges have been a source of universal service subsidies that
enable local exchange rates to be set at levels that are affordable.  MCI
WorldCom has actively participated in a variety of state and federal regulatory
proceedings with the goal of bringing access charges to cost-based levels and to
fund universal service using explicit subsidies funded in a competitively
neutral manner.

On May 21, 1999, the United States Court of Appeals for the District of Columbia
Circuit reversed and remanded to the FCC its decision to adjust its price-cap
regulation of ILECs to require access charges to fall 6.5% per year adjusted for
inflation.  On June 22, 1999, that court stayed the effect of its decision
pending a further order by the FCC justifying or modifying its decision in
response to the court's opinion.

On November 4, 1999, the FCC's Pricing Flexibility Order, which allowed price-
cap regulated ILECs to offer customer specific pricing in contract tariffs, took
effect.  Price-cap regulated ILECs can now offer access arrangements with
contract-type pricing in competition with long distance carriers and other
competitive access providers, who have previously been able to offer such
pricing for access arrangements.  As ILECs experience increasing competition in
the local services market, the FCC will grant increased pricing flexibility and
relax tariffing requirements for access services. The FCC is also conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services.  The Company has appealed the Pricing Flexibility Order to the
United States Court of Appeals for the District of Columbia Circuit.

On May 27, 1999, the FCC amended its prior universal service decisions in two
significant respects. First, the FCC raised the funding level for universal
service support to schools and libraries to $2.25 billion per year, the current
maximum that FCC rules allow.  Second, the FCC modified its approach to
subsidizing non-rural high cost areas by rejecting its prior approach of sizing
the subsidy based on forward-looking cost models, and instead adopted a more
complex approach that the FCC said it hoped would produce a small high cost
fund.  On November 2, 1999, the FCC released two further universal service
orders, which provide for federal support for non-rural high cost areas.  Both
orders have been appealed to the United States Court of Appeals for the Tenth
Circuit.  On July 30, 1999, the United States Court of Appeals for the Fifth
Circuit issued a decision reversing in part the May 1997 FCC universal service
decision.  Among other things, the court held that the FCC may collect universal
service contributions from interstate carriers based on only interstate
revenues, and that the

                                       20
<PAGE>

FCC could not force the ILECs to recover their universal service contributions
through interstate access charges. On November 1, 1999, the FCC implemented the
court's decision. ILEC interstate access charges decreased by approximately $400
million, and direct universal service assessments on interstate carriers such as
MCI WorldCom increased by $700 million.

In August 1998, in response to petitions filed by several ILECs under the guise
of Section 706 of the Telecom Act, the FCC issued its Advanced Services Order.
This order clarifies that the interconnection, unbundling, and resale
requirements of Section 251(c) of the Telecom Act, and the interLATA
restrictions of Section 271 of the Telecom Act, apply fully to so-called
"advanced telecommunications services," such as DSL technology.  US West
Communications Group appealed this order to the United States Court of Appeals
for the District of Columbia Circuit.  At the request of the FCC, the court
remanded the case for further administrative proceedings, and on December 23,
1999, the FCC issued its Order on Remand.  In that order, the FCC reaffirmed its
earlier decision that ILECs are subject to the obligations of Section 251(c) of
the Telecom Act in connection with the offering of advanced telecommunications
services such as DSL.  The order reserved ruling on whether such obligations
extend to traffic jointly carried by an ILEC and a CLEC to an ISP where the ISP
self-provides the transport component of its Internet access service.  The Order
on Remand also found that DSL-based advanced services that are used to connect
ISPs to their subscribers to facilitate Internet-bound traffic typically
constitute exchange access service.  On January 3, 2000, the Company filed a
petition for review of this aspect of the Order on Remand with the United States
Court of Appeals for the District of Columbia Circuit.

In a companion notice to the original order, the FCC sought comment on how to
implement Section 706 of the Telecom Act, which directs the FCC to (1) encourage
the deployment of advanced telecommunications capability to Americans on a
reasonable and timely basis, and (2) complete an inquiry concerning the
availability of such services no later than February 8, 1999.  The Commission's
rulemaking notice included a proposal that, if adopted, would allow the ILECs
the option of providing advanced services via a separate subsidiary free from
the unbundling and resale obligations of Section 251(c), as well as other
dominant carrier regulatory requirements.  In early February 1999, the FCC
issued its report to Congress, concluding that the deployment of advanced
services is proceeding at a reasonable and timely pace.  The FCC has not yet
issued its Section 706 rulemaking order.

In February 1999, the FCC adopted new rules expanding the rights of CLECs to
collocate equipment within ILEC-owned facilities. The ILECs appealed the
February 1999 collocation order to the United States Court of Appeals for the
District of Columbia Circuit. On March 17, 2000, the court vacated in part and
affirmed in part the rules.  Specifically, the court vacated and remanded to the
FCC the portion of its rules that allowed CLECs to collocate equipment that is
necessary for interconnection but that also performs some other function.

In the same February 1999 order, the FCC sought public comments on its tentative
conclusion that loop spectrum standards should be set in a competitively neutral
process.  In November 1999, the FCC concluded that ILECs should be required to
share primary telephone lines with CLECs, and identified the high frequency
portion of the loop as a network element.

                                       21
<PAGE>

On February 26, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to ISPs.  Prior to the
FCC's order, approximately thirty PUCs issued orders unanimously finding that
carriers, including MCI WorldCom, are entitled to collect reciprocal
compensation for completing calls to ISPs under the terms of their
interconnection agreements with ILECs.  Many of these PUC decisions have been
appealed by the ILECs and, since the FCC's order, many have filed new cases at
the PUCs or in court.  Moreover, MCI WorldCom appealed the FCC's order to the
United States Court of Appeals for the District of Columbia Circuit. On March
24, 2000, the court vacated the FCC's order and remanded the case to the FCC for
further proceedings.  MCI WorldCom cannot predict the outcome of the cases filed
by the ILECs, the FCC's rulemaking proceeding, or the FCC's proceedings on
remand, nor can it predict whether or not the result(s) will have a material
adverse impact upon its consolidated financial position or future results of
operations.

Several bills have been introduced during the 106th Congress that would
exclude the transmission of data services or high-speed Internet access from the
Telecom Act's bar on the transmission of in-region interLATA services by the
BOCs. These bills would also make it more difficult for competitors to resell
the high-speed Internet access services of the ILECs or to lease a portion of
the network components used for the provision of such services.

In 1996 and 1997, the FCC issued decisions that would require non-dominant
telecommunications carriers to eliminate interstate service tariffs, except in
limited circumstances.  MCI WorldCom challenged this decision in the United
States Court of Appeals for the District of Columbia Circuit, and successfully
obtained a stay of the FCC's decision.  MCI WorldCom's appeal has been held in
abeyance pending FCC action with respect to petitions for reconsideration.  The
FCC recently issued an order addressing those petitions for reconsideration,
briefing of the appeal is ongoing, and oral argument was held on March 14, 2000.
MCI WorldCom cannot predict the ultimate outcome of this appeal.  Should the FCC
prevail, MCI WorldCom could no longer rely on its federal tariff to limit
liability or to establish its interstate rates for customers.  Under the FCC's
decision, MCI WorldCom would need to develop a means to contract individually
with its millions of customers in order to establish lawfully enforceable rates.

In 1997 and 1998, the FCC rejected five applications filed by BOCs to provide
in-region long distance service in competition with long distance carriers.
Pursuant to the Telecom Act, BOCs must file, in each state in their service
area, an application conforming to the requirements of Section 271 of the
Telecom Act if they wish to offer in-region long distance in that state.  Among
other things, the applications must demonstrate that the BOC has met a 14-point
competitive checklist to open its local network to competition and demonstrate
that the application is in the public interest.  Bell Atlantic in New York filed
an application with the FCC on October 19, 1999.  Bell Atlantic's was the first
application to have been subjected to rigorous operational testing of readiness
to meet the Section 271 requirements.  On December 21, 1999, the FCC granted
Bell Atlantic's application.  SBC Corporation filed an application for Texas on
January 10, 2000.  A decision is expected on that application by April 7, 2000.

The FCC is currently reviewing a proposal for access charge and universal
service reform that has been filed by the Coalition for Affordable Local and
Long Distance Service ("CALLS"), a group of RBOCs, GTE and two long distance
companies.  The principal aspects of the plan are (1) residential Subscriber
Line Charges would be increased to $4.35 in 2000, $5.00 in 2001, $6.00 in 2002,
and

                                       22
<PAGE>

$6.50 in 2003; (2) residential Presubscribed Interexchange Carrier Charges
("PICCs") would be eliminated in 2000; (3) carrier access charges for the
industry would be reduced by $2.1 billion on July 1, 2000, with minimal
additional reductions in later years; and (4) the RBOCs and GTE would benefit
from a new $650 million universal service fund. In addition, MCI WorldCom
believes the FCC may have made other commitments to the RBOCs concerning the
disposition and/or timing of other regulatory proceedings that may be related to
the RBOCs' decision to offer the CALLS plan. This might include, for example,
restrictions on CLECs' ability to use unbundled network elements to offer
special access services. Finally, interexchange carriers participating in the
CALLS plan are committing to eliminate PICC-pass through charges, eliminate
minimum charges for basic schedule customers, and flow through reductions in
access charges. Public comments are due to the FCC on April 3, 2000, and reply
comments are due on April 17, 2000. MCI WorldCom cannot predict either the
outcome of this proceeding or whether or not the results will have a material
adverse impact upon its consolidated financial position or future results of
operations.

International.  In February 1997, the United States entered into a World Trade
Organization Agreement (the "WTO Agreement") that is designed to have the effect
of liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next several
years.  The WTO Agreement became effective in February 1998.  In light of the
United States' commitments to the WTO Agreement, the FCC implemented new rules
in February 1998 that liberalize existing policies regarding (1) the services
that may be provided by foreign affiliated United States international common
carriers, including carriers controlled or more than 25 percent owned by foreign
carriers that have market power in their home markets, and (2) the provision of
alternative traffic routing. The new rules make it much easier for foreign
affiliated carriers to enter the United States market for the  provision of
international services.

In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks are intended to reduce the rates that United States carriers pay
foreign carriers to terminate traffic in their home countries. The FCC will also
prohibit a United States carrier affiliated with a foreign carrier from
providing facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate at or below the
benchmark. The FCC also adopted new rules that will liberalize the provision of
switched services over private lines to World Trade Organization member
countries. These rules allow such services on routes where 50% or more of United
States billed traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark or where the foreign country's rules
concerning provision of international switched services over private lines are
deemed equivalent to United States rules. On January 12, 1999, the FCC's
benchmark rules were upheld in their entirety by the United States Court of
Appeals for the District of Columbia Circuit. On March 11, 1999, the District of
Columbia Circuit denied petitions for rehearing of the case.

In April 1999, the FCC modified its rules to permit United States international
carriers to exchange international public switched voice traffic on many routes
to and from the United States outside of the traditional settlement rate and
proportionate return regimes.

On June 3, 1999, the FCC enforced the benchmark rates on two non-compliant
routes.  Settlement rates have fallen to the benchmarks or below on many other
routes.

                                       23
<PAGE>

Although the FCC's new policies and implementation of the WTO Agreement may
result in lower settlement payments by MCI WorldCom to terminate international
traffic, there is a risk that the payments that MCI WorldCom will receive from
inbound international traffic may decrease to an even greater degree.  The
implementation of the WTO Agreement may also make it easier for foreign carriers
with market power in their home markets to offer United States and foreign
customers end-to-end services to the disadvantage of MCI WorldCom.  The Company
may continue to face substantial obstacles in obtaining from foreign governments
and foreign carriers the authority and facilities to provide such end-to-end
services.

Embratel.  The General Law provides a framework for telecommunications
regulation for Embratel. Article 8 of the General Law created Anatel to
implement the General Law through development of regulations and to enforce such
regulations.  According to the General Law, companies wishing to offer
telecommunications services to consumers are required to apply to Anatel for a
concession or an authorization.  Concessions are granted for the provision of
services under Public Regime and authorizations are granted for the provision of
services under the private regime ("Private Regime"). Service providers subject
to the Public Regime (concessionaires) are subject to obligations concerning
network expansion and continuity of service provision and are subject to rate
regulation. These obligations and the tariff conditions are provided in the
General Law and in each company's concession contract.  The network expansion
obligations are also provided in the Plano Geral de Universalizacao ("General
Plan on Universal Service").

The only services provided under the Public Regime are the switched fixed
telephone services ("SFTS") - local, national and international long distance -
provided by Embratel and the three holding companies ("Teles").  All other
telecommunications companies, including other companies providing SFTS, operate
in the Private Regime and, although they are not subject to the Public Regime,
individual authorizations may contain certain specific expansion and continuity
obligations.

The main restriction imposed on carriers by the General Plan on Universal
Service is that, until December 31, 2003, the three Teles are prohibited from
offering inter-regional and international long distance service, while Embratel
is prohibited from offering local services.  These companies can start providing
those services two years sooner if they meet their network expansion obligations
by December 31, 2001.

Embratel and the three Teles were granted their concessions at no fee, until
2005.  After 2005, the concessions may be renewed for a period of 20 years, upon
the payment, every two years, of a fee equal to 2% of annual net revenues
calculated based on the provision of SFTS in the prior year, excluding taxes and
social contributions.

Embratel also offers a number of ancillary telecommunications services pursuant
to authorizations granted in the Private Regime.  Such services include the
provision of dedicated analog and digital lines, packet switched network
services, circuit switched network services, mobile marine telecommunications,
telex and telegraph, radio signal satellite retransmission and television signal
satellite retransmission.  Some of these services are subject to some specific
continuity obligations and rate conditions.

                                       24
<PAGE>

All providers of telecommunications services are subject to quality and
modernization obligations provided in the Plan Geral de Qualidade ("General Plan
on Quality").

Other.  The Company is involved in other legal and regulatory proceedings
generally incidental to its business.  In some instances, rulings by federal and
some state regulatory authorities may result in increased operating costs to the
Company.  Except as indicated above or in Note 10 of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference, and while the
results of these various legal and regulatory matters contain an element of
uncertainty, MCI WorldCom believes that the probable outcome of these matters
should not have a material adverse effect on the Company's consolidated results
of operations or financial position.

Employees

As of December 31, 1999, the Company, excluding Embratel, employed approximately
77,000 full-time persons.

ITEM 2.  PROPERTIES

The tangible assets of the Company include a substantial investment in
telecommunications equipment.  The Company's railroad, utility and other rights-
of-way for its fiber optic cable and microwave transmission network are
typically held under leases, easements, municipal franchises, licenses or
governmental permits.  All other major equipment and physical facilities are
owned and operated, constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on or across properties owned by
others.

The Company also operates numerous tower sites, generally in rural areas, to
serve as repeater stations in its domestic microwave transmission system.  Most
of these sites are leased, although the Company does own many of those which are
at an intersection of two or more routes of MCI WorldCom's transmission systems.

The Company's local services network includes a fiber optic transmission network
consisting of lighted (currently used) and dark (not currently used) fibers
which are either owned or leased under long-term leases.  These fibers are
located in conduits which are either owned or leased under long-term leases.

The Company leases space for sales office and/or administrative facilities,
collector node, collocation sites, general storage space, and equipment rooms
for switches and other peripheral equipment. Such leased properties do not lend
themselves to description by character or location.  The Company's fiber optic
networks include aerial and underground cable and conduit which are located on
public streets and highways or on privately owned land or facilities.  The
Company has permission to use these lands or facilities pursuant to governmental
consent or lease, permit, easement, franchise or other agreement.

The Company attempts to structure its leases of space for its network switching
centers and rights-of-way for its fiber optic networks with initial terms and
renewal options so that the risk of relocation

                                       25
<PAGE>

is minimized. The Company anticipates that prior to termination of any of the
leases, it will be able to renew such leases or make other suitable
arrangements.

The principal properties of Embratel consist of its long distance network -
including broadband fiber optic transmission systems, switching systems,
international ocean cables, satellite earth stations, and the related real
estate.  Embratel's properties are located throughout Brazil, providing the
necessary infrastructure to support nationwide long distance telecommunications
and the international telecommunications facilities support network with direct
data connections to thousands of businesses throughout Brazil.  As of December
31, 1999, Embratel owned approximately 669 sites related to its
telecommunications operations.  Embratel conducts a majority of its management
activities from Rio de Janeiro, and owns and leases office space in such other
cities as Sao Paulo, Porto Alegre, Belo Horizonte, Curitiba, Brasilia, Salvador,
and Belem.

The Company believes that all of its offices, facilities and equipment are in
good condition and are suitable for their intended purposes.

ITEM 3.  LEGAL PROCEEDINGS

The Company is involved in legal and regulatory proceedings generally incidental
to its business. In some instances, rulings by federal and some state regulatory
authorities may result in increased operating costs to the Company.  Except as
indicated above or in Note 10 of the Notes to Consolidated Financial Statements,
which is incorporated herein by reference, and while the results of these
various legal and regulatory matters contain an element of uncertainty, MCI
WorldCom believes that the probable outcome of these matters should not have a
material adverse effect on the Company's consolidated results of operations or
financial position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None
                                 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         SHAREHOLDER MATTERS

The shares of MCI WorldCom Common Stock are quoted on The Nasdaq National Market
under the symbol "WCOM."  The following table sets forth the high and low sales
prices per share of MCI WorldCom Common Stock as reported on The Nasdaq National
Market based on published financial sources, for the periods indicated.

<TABLE>
<CAPTION>
                        High        Low
                      ---------  ---------
1998
- ----
<S>                    <C>        <C>
First Quarter          $29.92     $18.67
Second Quarter          32.29      27.75
Third Quarter           38.59      26.67
Fourth Quarter          50.50      26.00
</TABLE>

                                       26
<PAGE>

<TABLE>
<CAPTION>

<S>                    <C>        <C>
1999
- ----
First Quarter          $62.83     $46.00
Second Quarter          64.50      53.54
Third Quarter           60.92      47.92
Fourth Quarter          61.33      44.04
</TABLE>

As of March 6, 2000, there were 2,855,843,069 shares of MCI WorldCom Common
Stock issued and outstanding, net of treasury shares, held by approximately
63,250 shareholders of record.

The Company has never paid cash dividends on its common stock.  The policy of
the Company's Board of Directors has been to retain earnings to provide funds
for the operation and expansion of the Company's business.

Preferred Stock

The MCI WorldCom Series B Preferred Stock is convertible into shares of MCI
WorldCom Common Stock at any time at a conversion rate of 0.1460868 shares of
MCI WorldCom Common Stock for each share of MCI WorldCom Series B Preferred
Stock.  Dividends on the MCI WorldCom Series B Preferred Stock accrue at the
rate of $0.0775 per share, per annum and are payable in cash. Dividends will be
paid only when, as and if declared by the Board of Directors.  The Company has
not declared any dividends on the MCI WorldCom Series B Preferred Stock to date
and anticipates that future dividends will not be declared but will continue to
accrue.  Upon conversion, accrued but unpaid dividends are payable in cash or
shares of MCI WorldCom Common Stock at the Company's election.  To date, the
Company has elected to pay all accrued dividends in cash, upon conversion.

The MCI WorldCom Series B Preferred Stock is also redeemable at the option of
the Company at any time after September 30, 2001 at a redemption price of $1.00
per share, plus accrued and unpaid dividends.  The redemption price will be
payable in cash or shares of the MCI WorldCom Common Stock at the Company's
election.

The MCI WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters.  The MCI WorldCom Series B Preferred Stock has a
liquidation preference of $1.00 per share plus all accrued and unpaid dividends
thereon to the date of liquidation.  As of March 6, 2000, there were 10,955,612
shares of MCI WorldCom Series B Preferred Stock outstanding held by
approximately 660 shareholders of record.  There is no established market for
the MCI WorldCom Series B Preferred Stock.

In January 2000, each outstanding share of MCI WorldCom Series C Preferred Stock
was redeemed by the Company for $50.75 in cash, or approximately $190 million in
the aggregate.

In May 1998, the Company exercised its option to redeem all of the outstanding
MCI WorldCom Series A Preferred Stock and related Depositary Shares.  Prior to
the redemption date, substantially all of the holders of MCI WorldCom Series A
Preferred Stock elected to convert the preferred stock into MCI WorldCom Common
Stock, resulting in the issuance of approximately 49 million shares of MCI
WorldCom Common Stock.

                                       27
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following is a summary of selected financial data of the Company as of and
for the five years ended December 31, 1999.  The historical financial data as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997 have been derived from the historical financial statements of the Company,
which financial statements have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report included elsewhere herein.  The
report of Arthur Andersen LLP on the Consolidated Financial Statements of the
Company as of and for the three years ended December 31, 1999 refers to their
reliance on the report of other auditors in rendering an opinion in those
financial statements.  This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the notes
thereto appearing elsewhere in this document.
<TABLE>
<CAPTION>
                                                                    At or for the Year Ended December 31,
                                                                     (In millions, except per share data)
                                                      ------------------------------------------------------------------
                                                         1999          1998          1997           1996         1995
                                                      -----------  ------------  -------------  ------------  ----------
<S>                                                   <C>          <C>           <C>            <C>           <C>
Operating Results:
Revenues                                                  $37,120      $18,169        $ 7,789       $ 4,799       $3,882
Operating income (loss)                                     7,888         (942)           982        (2,006)         609
Income (loss) before cumulative effect of
 accounting  change and extraordinary items                 4,013       (2,560)           185        (2,354)         205
Cumulative effect of accounting change                          -          (36)             -             -            -
Extraordinary items                                             -         (129)            (3)          (24)           -
Net income (loss) applicable to common shareholders         3,941       (2,767)           143        (2,391)         164
Preferred dividend requirement                                  9           24             39            13           41


Earnings (loss) per common share:
Income (loss) before cumulative effect of
 accounting  change and extraordinary items -
  Basic                                                      1.40        (1.35)          0.10         (3.44)        0.28
  Diluted                                                    1.35        (1.35)          0.10         (3.44)        0.27

Net income (loss) -
  Basic                                                      1.40        (1.43)          0.10         (3.47)        0.28
  Diluted                                                    1.35        (1.43)          0.09         (3.47)        0.27
Weighted average shares -
  Basic                                                     2,821        1,933          1,470           689          595
  Diluted                                                   2,925        1,933          1,516           689          625

Financial position:
Total assets                                              $91,072      $87,092        $24,400       $21,683       $7,642
Long-term debt                                             13,128       16,448          7,811         5,758        2,657
Subsidiary trust and other mandatorily redeemable
   preferred securities                                       798          798              -             -            -
Shareholders' investment                                   51,238       45,241         14,087        13,616        2,718
</TABLE>

Notes to Selected Financial Data:

(1)  On September 14, 1998, the Company completed the MCI Merger.  The MCI
     Merger was accounted for as a purchase; accordingly, the operating results
     of MCI are included from the date of acquisition.

(2)  In 1998, the Company recorded a pre-tax charge of $196 million in
     connection with the BFP Merger, the MCI Merger and certain asset write-
     downs and loss contingencies.  Such charges included $21 million for
     employee severance, $17 million for BFP direct merger costs, $38

                                       28
<PAGE>

     million for conformance of BFP accounting policies, $56 million for exit
     costs under long-term commitments, $31 million for write-down of a
     permanently impaired investment and $33 million related to certain asset
     write-downs and loss contingencies. Additionally, in connection with
     certain business combinations, MCI WorldCom made allocations of the
     purchase price to acquired in-process research and development totaling
     $429 million in the first quarter of 1998, related to the CompuServe Merger
     and AOL Transaction, $3.1 billion in the third quarter of 1998 related to
     the MCI Merger, and $2.14 billion in the fourth quarter of 1996 related to
     the MFS Merger. See Note 3 of Notes to Consolidated Financial Statements.

(3)  Results for 1996 include other after-tax charges of $121 million for
     employee severance, employee compensation charges, alignment charges, and
     costs to exit unfavorable telecommunications contracts and $344 million
     after-tax write-down of operating assets within MCI WorldCom's non-core
     businesses.  On a pre-tax basis, these charges totaled $600 million.

(4)  In connection with certain debt refinancings, MCI WorldCom recognized in
     1998, 1997 and 1996 extraordinary items of $129 million, $3 million and $4
     million, respectively, net of taxes, consisting of unamortized debt
     discount, unamortized issuance cost and prepayment fees.  Additionally, in
     1996 MCI WorldCom recorded an extraordinary item of $20 million, net of
     taxes, related to a write-off of deferred international costs.

(5)  In connection with the conversion of the Company's Series 1 $2.25
     Cumulative Senior Perpetual Convertible Preferred Stock (the "Series 1
     Preferred Stock"), MCI WorldCom made a non-recurring payment of $15 million
     in 1995 to the holder of the stock, representing a discount to the minimum
     nominal dividends that would have been payable on the Series 1 Preferred
     Stock prior to the September 15, 1996 optional call date of approximately
     $27 million (which amount included an annual dividend requirement of
     $25 million plus accrued dividends to such call date).

(6)  In 1998, the American Institute of Certified Public Accountants issued
     Statement of Position 98-5, "Reporting on the Costs of Start-Up
     Activities."  This accounting standard required all companies to expense,
     on or before March 31, 1999, all start-up costs previously capitalized, and
     thereafter to expense all costs of start-up activities as incurred. This
     accounting standard broadly defines start-up activities as one-time
     activities related to the opening of a new facility, the introduction of a
     new product or service, the commencement of business in a new territory,
     the establishment of business with a new class of customer, the initiation
     of a new process in an existing facility or the commencement of a new
     operation. The Company adopted this standard as of January 1, 1998. The
     cumulative effect of this change in accounting principle resulted in a one-
     time, non-cash expense of $36 million, net of taxes. This expense
     represented start-up costs incurred primarily in conjunction with the
     development and construction of SkyTel's Advanced Messaging Network.

                                       29
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations may be deemed to include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risk and
uncertainty, including financial, regulatory environment and trend projections,
estimated costs to complete or possible future revenues from in-process research
and development programs, the likelihood of successful completion of such
programs, and the outcome of Euro conversion efforts, as well as any statements
preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar expressions;
and other statements contained herein regarding matters that are not historical
facts.

Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that its expectations will be achieved.
The important factors that could cause actual results to differ materially from
those in the forward-looking statements herein (the "Cautionary Statements")
include, without limitation: (1) whether the Sprint Merger is completed and the
ability to integrate the operations of the Company and Sprint, including their
respective products and services; (2) the effects of vigorous competition in the
markets in which the Company operates; (3) the impact of technological change on
the Company's business, new entrants and alternative technologies, and
dependence on availability of transmission facilities; (4) uncertainties
associated with the success of other acquisitions and the integration thereof;
(5) risks of international business; (6) regulatory risks, including the impact
of the Telecom Act; (7) contingent liabilities; (8) the impact of competitive
services and pricing; (9) risks associated with Euro conversion efforts; (10)
risks associated with debt service requirements and interest rate fluctuations;
(11) the Company's degree of financial leverage; and (12) other risks referenced
from time to time in the Company's filings with the Securities and Exchange
Commission, including the Company's Form 10-K for the year ended December 31,
1999. All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. The Company does not undertake any
obligation to release publicly any revisions to such forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three years ended December 31,
1999, after giving effect to the SkyTel Merger and the BFP Merger, which were
accounted for as poolings-of-interests.  This information should be read in
conjunction with the "Selected Financial Data" and the Company's Consolidated
Financial Statements appearing elsewhere in this document.

Results of Operations

The following table sets forth for the periods indicated the Company's
consolidated statement of operations as a percentage of its operating revenues.

                                       30
<PAGE>

<TABLE>
<CAPTION>
                                                                             For the Year Ended December 31,
                                                                      ------------------------------------------
                                                                          1999            1998            1997
                                                                      ----------      ----------      ----------
<S>                                                                     <C>             <C>             <C>
Revenues............................................................       100.0%          100.0%          100.0%
Line costs..........................................................        43.0            47.0            49.9
Selling, general and administrative.................................        24.1            25.1            23.8
Depreciation and amortization.......................................        11.7            12.6            13.7
In-process research and development and other charges...............           -            20.5               -
                                                                      ----------      ----------      ----------
Operating income (loss).............................................        21.2            (5.2)           12.6
Other income (expense):
  Interest expense..................................................        (2.6)           (3.8)           (5.8)
  Miscellaneous.....................................................         0.7             0.2             0.6
                                                                      ----------      ----------      ----------
Income (loss) before income taxes, minority interests,
 cumulative effect of accounting change and extraordinary items.....        19.3            (8.8)            7.4
Provision for income taxes..........................................         8.0             4.8             5.0
                                                                      ----------      ----------      ----------
Income (loss) before minority interests, cumulative effect of
 accounting change and extraordinary items..........................        11.3           (13.6)            2.4
Minority interests..................................................        (0.5)           (0.5)              -
Cumulative effect of accounting change..............................           -            (0.2)              -
Extraordinary items.................................................           -            (0.7)              -
                                                                      ----------      ----------      ----------
Net income (loss)...................................................        10.8           (15.0)            2.4
Preferred dividends and distributions on subsidiary trust
 mandatorily redeemable preferred securities........................         0.2             0.2             0.5
                                                                      ----------      ----------      ----------
Net income (loss) applicable to common shareholders.................        10.6           (15.2)            1.8
                                                                      ==========      ==========      ==========
</TABLE>

Year Ended December 31, 1999  vs.
Year Ended December 31, 1998

Revenues for 1999, increased 104% to $37.1 billion as compared to $18.2 billion
for 1998. The increase in total revenues is attributable to the MCI Merger and
Embratel acquisition as well as internal growth. Results include MCI and
Embratel operations from September 14, 1998, and CompuServe Network Services and
ANS from February 1, 1998.

Actual reported revenues by category for the year ended December 31, 1999, and
1998 reflect the following changes by category (dollars in millions):
<TABLE>
<CAPTION>
                                                       Actual       Actual       Percent
                                                        1999         1998         Change
                                                    ------------  -----------  ------------
Revenues
<S>                                                 <C>           <C>          <C>
          Voice                                         $20,603       $ 9,243          123
          Data                                            7,470         3,384          121
          Internet                                        3,535         2,165           63
          International                                   1,733         1,130           53
                                                        -------       -------          ---
Communication services                                   33,341        15,922          109
          Messaging                                         494           491            1
          Other                                             513           574          (11)
                                                        -------       -------          ---
Total revenues before Embratel                          $34,348       $16,987          102
          Embratel                                        2,854         1,182          141
          Elimination of                                    (82)            -          N/A
           intersegment revenues                        -------       -------          ---
Total reported revenues                                 $37,120       $18,169          104
                                                        =======       =======          ===
</TABLE>

                                       31
<PAGE>

The following table provides supplemental pro forma detail for MCI WorldCom
revenues. Since actual results for 1998 only reflect the operations of MCI after
September 14, 1998, and eleven months of CompuServe Network Services and ANS,
the pro forma results are more indicative of internal growth for the combined
company. The pro forma revenues, excluding Embratel, for the years ended
December 31, 1999 and 1998, reflect the following changes by category (dollars
in millions):
<TABLE>
<CAPTION>


                                                       Actual      Pro Forma     Percent
                                                        1999         1998         Change
                                                     -----------  -----------  ------------
<S>                                                  <C>          <C>          <C>
Revenues
 Voice                                                   $20,603      $19,480            6
 Data                                                      7,470        5,827           28
 Internet                                                  3,535        2,246           57
 International                                             1,733        1,130           53
                                                         -------      -------          ---
Communication services                                    33,341       28,683           16
 Messaging                                                   494          443           12
 Other                                                       513        1,733          (70)
                                                         -------      -------          ---
Total revenues                                           $34,348      $30,859           11
                                                         =======      =======          ===
</TABLE>

The following discusses the revenue increases for the year ended December 31,
1999, as compared to pro forma results for the comparable prior year period. The
pro forma revenues assume that the MCI Merger, CompuServe Merger and the AOL
Transaction occurred at the beginning of 1998. These pro forma revenues do not
include Embratel or the iMCI Business that was sold. Changes in actual results
of operations are shown in the Consolidated Statements of Operations and the
foregoing tables and, as noted above, primarily reflect the MCI Merger, Embratel
acquisition and internal growth of the Company. Voice revenues include both long
distance and local domestic switched revenues.

Voice revenues for 1999 experienced a 6% increase over the prior year pro forma
amount, driven by a gain of 10% in traffic as a result of customers purchasing
"all-distance" voice services from the Company.  Aggressive pricing in both
consumer and business markets also contributed to this favorable performance, as
traffic volume gains more than offset pricing declines. These volume and revenue
gains were offset partially by anticipated year-over-year declines in carrier
wholesale traffic as well as federally mandated access charge reductions that
were passed through to the consumer. Voice revenues include both long distance
and local domestic switched revenues.

Data revenues for 1999 increased 28% over the same pro forma period of the prior
year.  Data includes both long distance and local dedicated bandwidth sales.
The revenue growth for data services continued to be driven by significant
commercial end-user demand for high-speed data and by Internet-related growth on
both a local and long-haul basis.  This growth was not only fueled by
connectivity demands, but also by applications that have become more strategic,
far reaching and

                                       32
<PAGE>

complex; additionally, bandwidth consumption drove an acceleration in growth for
higher capacity circuits. As of December 31, 1999, the Company had approximately
33.1 million domestic local voice grade equivalents and over 39,000 buildings in
the United States connected over its high-capacity circuits. Domestic local
route miles of connected fiber exceeded 8,000 and domestic long distance route
miles exceeded 47,000 as of December 31, 1999.

Internet revenues for 1999 increased 57% over the prior year pro forma amount.
Growth was driven by both dial up and dedicated connectivity to the Internet as
more and more business customers migrated their data networks and applications
to Internet-based technologies.  The Company has increased the capacity of its
global Internet network to OC-48 in response to the increasing backbone
transport requirements of both its commercial and wholesale accounts.  The
Company's dial access network has grown over 85% to 1.7 million modems, compared
with the same period in the prior year.  MCI's Internet revenues for 1998 have
been excluded from the above table, due to the divestiture of the iMCI Business.

International revenues - those revenues originating outside of the United
States, excluding Embratel - for 1999 were $1.7 billion, an increase of 53% as
compared with $1.1 billion for the same pro forma period of the prior year.  The
Company has continued to extend the reach of its end-to-end networks which now
provides MCI WorldCom the capability to connect approximately 10,000 buildings
in Europe all over its own high-capacity circuits.

Messaging revenues coming from SkyTel increased 12% to $494 million in 1999
compared with $443 million for the prior year period.

Other revenues, which primarily consist of the operations of SHL, for 1999 were
$513 million, a decrease of 70% versus $1.7 billion for the pro forma period of
the prior year.  In April 1999, the Company completed the sale of SHL to EDS for
$1.6 billion.

The following discusses the actual results of operations for the year ended
December 31, 1999, as compared to the year ended December 31, 1998.

Line costs.  Line costs as a percentage of revenues for 1999 were 43.0% as
compared to 47.0% reported for the same period in the prior year. Overall
decreases are attributable to changes in the product mix and synergies and
economies of scale resulting from network efficiencies achieved from the
continued assimilation of MCI, CompuServe Network Services and ANS into the
Company's operations. Additionally, access charge reductions that occurred in
January 1999 and July 1999 reduced total line cost expense by approximately $363
million for 1999. While access charge reductions were primarily passed through
to customers, line costs as a percentage of revenues were positively affected by
over half a percentage point for 1999.

The principal components of line costs are access charges and transport charges.
Regulators have historically permitted access charges to be set at levels that
are well above ILECs' costs.  As a result, access charges have been a source of
universal service subsidies that enable local exchange rates to be set at levels
that are affordable.  MCI WorldCom has actively participated in a variety of
state and federal regulatory proceedings with the goal of bringing access
charges to cost-based levels and to fund universal service using explicit
subsidies funded in a competitively neutral manner. MCI WorldCom cannot predict
the outcome of these proceedings or whether or not the result(s) will have

                                       33
<PAGE>

a material adverse impact on its consolidated financial position or results of
operations. However, the Company's goal is to manage transport costs through
effective utilization of its network, favorable contracts with carriers and
network efficiencies made possible as a result of expansion of the Company's
customer base by acquisitions and internal growth.

Selling, general and administrative.  Selling, general and administrative
expenses for 1999 were $8.9 billion or 24.1% of revenues as compared to $4.6
billion or 25.1% of revenues for 1998. The decrease in selling, general and
administrative expenses as a percentage of revenues for 1999 reflects the
assimilation of MCI into the Company's strategy of cost control.

Depreciation and amortization.  Depreciation and amortization expense for 1999
increased to $4.4 billion or 11.7% of revenues from $2.3 billion or 12.6% of
revenues for 1998. This increase reflects increased amortization and
depreciation associated with the MCI Merger, CompuServe Merger and AOL
Transaction as well as additional depreciation related to capital expenditures.
As a percentage of revenues, these costs decreased due to the higher revenue
base.

In-process research and development and other charges.  In 1998, the Company
recorded a pre-tax charge of $196 million in connection with the BFP Merger, the
MCI Merger and certain asset write-downs and loss contingencies.  Such charges
included $21 million for employee severance, $17 million for BFP direct merger
costs, $38 million for conformance of BFP accounting policies, $56 million for
exit costs under long-term commitments, $31 million for write-down of a
permanently impaired investment and $33 million related to certain asset write-
downs and loss contingencies. The $56 million related to long-term commitments
includes $33 million of minimum commitments between 1999 and 2008 for leased
facilities that the Company has or will abandon, $19 million related to certain
minimum contractual network lease commitments that expire between 1999 and 2001,
for which the Company will receive no future benefit due to the migration of
traffic to owned facilities, and $4 million of other commitments.  Because of
organizational and operational changes that occurred, management concluded in
1999 that certain leased properties would not be abandoned according to the
original plan that was approved by management.  Therefore, in 1999 a reversal of
a $9 million charge to in-process research and development ("IPR&D") and other
charges was recorded in connection with this plan amendment.  Additionally, the
$33 million related to certain asset write-downs and loss contingencies includes
$9 million for the decommission of certain information systems that have no
alternative future use, $9 million for the write-down to fair value of certain
assets held for sale that were disposed of in 1998 and $15 million related to
legal costs and other items related to BFP.  As of December 31, 1999 and 1998,
the Company's remaining unpaid liability related to the above charges was $27
million and $66 million, respectively.

In connection with certain 1998 business combinations, the Company made
allocations of the purchase price to acquired IPR&D totaling $429 million in the
first quarter of 1998 related to the CompuServe Merger and AOL Transaction and
$3.1 billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects.  At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative future
uses.  Accordingly, these costs were expensed as of the respective acquisition
dates.

                                       34
<PAGE>

The value of the IPR&D projects reflected the R&D's stage of completion as of
the acquisition date, the complexity of the work completed to date, the
difficulty of completing the remaining development, costs already incurred and
the projected cost to complete the projects. The value assigned to purchased in-
process technology was determined by estimating the contribution of the
purchased in-process technology to developing commercially viable products,
estimating the resulting net cash flows from the expected product sales of such
products, and discounting the net cash flows to their present value using a
risk-adjusted discount rate.

A description of the acquired in-process technology and the estimates made by
the Company at the time each business combination was completed is set forth
below.

 .    MCI. The in-process technology acquired in the MCI Merger consisted of
     seventy significant R&D projects grouped into six categories. The aggregate
     value assigned to MCI IPR&D was $3.1 billion. These projects were all
     targeted at: (1) developing and deploying an all optical network, new
     architecture of the telephone system using Internet Protocol ("IP") and
     developing the systems and tools necessary to manage the voice and data
     traffic; (2) creating new products and services; and (3) developing certain
     information systems that may enhance the management of MCI WorldCom's
     products and service offerings.

     As of the allocation date, total MCI stand-alone revenues were projected to
     exceed $34 billion within five years.  This level of revenue implied a
     compound annual growth rate ("CAGR") of approximately 12.3%.  Estimated
     total revenues from the acquired in-process technology peaked in the year
     2001 and steadily declined in 2002 through 2009 as other new product and
     service technologies were expected to be introduced by the combined
     company. As of the MCI Merger date approximately $296 million had been
     spent on developing the IPR&D.  Estimated costs to complete were
     approximately $342 million, as follows: 17% during the last quarter of
     1998, 41% during the four quarters in 1999, 31% during the four quarters in
     2000, and 11% during the four quarters in 2001.

     The allocation of purchase price for the MCI Merger included an allocation
     to developed technology, which is being depreciated over 10 years on a
     straight-line basis.  The remaining purchase price, which includes
     allocations to goodwill and tradename, is being amortized over 40 years on
     a straight-line basis.

 .    CompuServe and ANS. The in-process technology acquired in the CompuServe
     Merger and the AOL Transaction consisted of three main R&D efforts underway
     at CompuServe Network Services and two main R&D efforts underway at ANS.
     The aggregate value assigned to CompuServe and ANS in-process technology
     was $429 million. These projects included next generation network
     technologies and new value-added networking applications, such as
     applications hosting, multimedia technologies and virtual private data
     networks.

     At the time of the allocation, total ANS and CompuServe Network Services
     stand-alone revenues were projected to exceed $3.5 billion within five
     years.  This level of revenues implied a CAGR of approximately 32%.
     Estimated total revenues from the acquired in-process technology related to
     CompuServe Network Services peaked in the year 2002 and steadily declined
     through 2006 as other new product and service technologies were expected

                                       35
<PAGE>

     to be introduced by the Company. Estimated total revenues from the acquired
     in-process technology related to ANS peaked in the year 2004 and steadily
     declined through 2006. Based on the cost incurred at the acquisition dates
     and the milestones achieved by ANS and CompuServe Network Services, in
     aggregate, ANS' projects were estimated to be approximately 80% complete,
     while CompuServe Network Services' projects were estimated to be
     approximately 60% complete. Estimated costs to complete were approximately
     $62 million, as follows: 42% during the last three quarters of 1998, and
     58% during the four quarters in 1999.

     The allocation of purchase price for the CompuServe Merger and the AOL
     Transaction included allocations to developed technologies, assembled work
     force, customer relationships and tradenames which are being amortized on a
     straight-line basis over 10 years.

At December 31, 1999 significant progress had been made on the development of
the IPR&D that was acquired from MCI, ANS, and CompuServe.  In general, the
Company believes that each acquired company's R&D efforts are on track with
management's plans at the time the transactions occurred.  The Company is
continuing to invest in the development of the technologies that were under
development at the consummation of the transactions.  Related to MCI,
approximately $200 million of the planned total cost to complete of $340 million
has been incurred as of December 31, 1999.   Related to ANS and CompuServe, the
R&D projects that were underway at the time of the transaction have been carried
out in accordance with Company plans.  As such, cost incurred to complete the
ANS and CompuServe projects did not differ materially from the original estimate
of $62 million.  Through this date, no significant adjustments have been made to
the economic assumptions or expectations that underlie the Company's acquisition
decisions and related purchase accounting.

The preceding paragraphs include statements that constituted forward-looking
statements, and were not made with a view to public disclosure and were based on
a variety of estimates and judgements. Actual results may vary materially due to
a number of significant risks, including, without limitation, uncertainties
regarding future business, economic, competitive, regulatory and financial
market conditions and future business decisions, all of which are difficult to
predict and many of which are beyond the Company's control. No assurance can be
given that such projections or other statements will be realized.  The Company
does not intend to update or supplement these projections or other statements in
the future.

Interest expense.  Interest expense for 1999 was $966 million or 2.6% of
revenues, as compared to $692 million or 3.8% of revenues reported for 1998. The
increase in interest expense is attributable to higher debt levels as a result
of the MCI Merger, higher capital expenditures and the 1998 fixed rate debt
financings, offset by lower interest rates as a result of certain tender offers
for outstanding debt in the first and fourth quarters of 1999 and slightly lower
rates in effect on the Company's variable rate debt.  Interest expense for 1999
was favorably impacted as a result of the SHL sale proceeds, investment sales
proceeds and proceeds from the increase in the Company's receivables purchase
program being utilized to repay indebtedness under the Company's credit
facilities and commercial paper program. For 1999 and 1998, weighted average
annual interest rates on the Company's long-term debt were 7.23% and 7.33%
respectively, while weighted average annual levels of borrowings were $19.1
billion and $12.7 billion, respectively.

                                       36
<PAGE>

Miscellaneous income and expense. Miscellaneous income for 1999 was $242 million
or 0.7% of revenues as compared to $44 million or 0.2% of revenues reported for
1998. Miscellaneous income includes investment income, interest income, equity
in income and losses of affiliated companies, the effects of fluctuations in
exchange rates for transactions denominated in foreign currencies, gains and
losses on the sale of assets and other nonoperating items. Miscellaneous income
and expense for 1999 includes $374 million of gains on securities sold, offset
by $171 million of foreign currency translation losses related to the impact of
the local currency devaluation in Brazil and its effect on Embratel's holdings
of U.S. dollar and other foreign currency denominated debt. Also included was a
$62 million charge related to the redemption of certain outstanding senior notes
of the Company.

Provision for income taxes. The effective income tax rate for 1999 was 41.4% of
income before taxes. The 1999 rate is greater than the expected federal
statutory rate of 35% primarily due to the fact that amortization of the
goodwill related to the MCI Merger is not deductible for tax purposes. Excluding
the nondeductible amortization of goodwill, the Company's effective income tax
rate would have been 36.2%.

Cumulative effect of accounting change. In 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This accounting standard required all
companies to expense, on or before March 31, 1999, all start-up costs previously
capitalized, and thereafter to expense all costs of start-up activities as
incurred. This accounting standard broadly defines start-up activities as one-
time activities related to the opening of a new facility, the introduction of a
new product or service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the initiation of a new
process in an existing facility or the commencement of a new operation. The
Company adopted this standard as of January 1, 1998. The cumulative effect of
this change in accounting principle resulted in a one-time, non-cash expense of
$36 million, net of income tax benefit of $22 million. This expense represented
start-up costs incurred primarily in conjunction with the development and
construction of SkyTel's Advanced Messaging Network.

Extraordinary items.  In the first quarter of 1998, the Company recorded an
extraordinary item totaling $129 million, net of income tax benefit of $78
million.  The charge was recorded in connection with the tender offers and
certain related refinancings of the Company's outstanding debt from the BFP
Merger.

Net income (loss) applicable to common shareholders.  For 1999, the Company
reported net income applicable to common shareholders of $3.9 billion as
compared to a net loss of $2.8 billion reported for 1998.  Diluted income per
common share was $1.35 compared to a loss per share of $1.43 for the comparable
1998 period.

Year Ended December 31, 1998 vs.
 Year Ended December 31, 1997

Revenues for 1998 increased 133% to $18.2 billion as compared to $7.8 billion
for 1997.   The increase in total revenues is attributable to the MCI Merger,
the CompuServe Merger and the AOL Transaction as well as internal growth.
Results for 1998 include MCI and Embratel operations from

                                       37
<PAGE>

September 14, 1998. Excluding Embratel, the Company's revenues increased 118% to
$17.0 billion in 1998.

Actual reported revenues by category and associated revenue increases for the
year ended December 31, 1998 and 1997 reflect the following changes by category
(dollars in millions):
<TABLE>
<CAPTION>
                                    Actual           Actual         Percent
                                     1998             1997           Change
                                  ---------        ---------       ---------
<S>                               <C>               <C>             <C>

Revenues
   Voice                            $ 9,243          $4,062            128
   Data                               3,384           1,618            109
   Internet                           2,165             566            283
   International                      1,130             726             56
                                    -------          ------            ---
Communications services              15,922           6,972            128
   Messaging                            491             405             21
   Other                                574             412             39
                                    -------          ------            ---
Total revenues before Embratel      $16,987          $7,789            118
   Embratel                           1,182               -            N/A
                                    -------          ------            ---
Total reported revenues             $18,169          $7,789            133
                                    =======          ======            ===
</TABLE>

The following table provides supplemental pro forma detail for MCI WorldCom
revenues.  Since actual results for 1998 only reflect 108 days of operations for
MCI and eleven months of CompuServe Network Services and ANS, the pro forma
results are more indicative of internal growth for the combined company.  The
pro forma revenues, excluding Embratel, for the year ended December 31, 1998 and
1997 reflect the following changes by category (dollars in millions):


<TABLE>
<CAPTION>
                             Pro             Pro
                            Forma           Forma        Percent
                             1998           1997          Change
                          ----------      ---------     ----------
<S>                       <C>             <C>           <C>
Revenues
   Voice                     $19,480        $17,932           9
   Data                        5,827          4,550          28
   Internet                    2,246          1,325          69
   International               1,130            726          56
                             -------        -------         ---
Communications services       28,683         24,533          17
   Messaging                     443            344          29
   Other                       1,733          1,999         (13)
                             -------        -------         ---
Total revenues               $30,859        $26,876          15
                             =======        =======         ===
</TABLE>

Pro forma results for the prior periods reflect a classification change for
inbound international settlements which are now being treated as an offset to
line costs instead of revenues.  Previously, both MCI and WorldCom classified
foreign post telephone and telegraph administration settlements on a gross basis
with the outbound settlement reflected as line cost expense and the inbound
settlement reflected as revenues.  This change better reflects the way in which
the business is operated because the Company actually settles in cash through a
formal net settlement process that is inherent in the operating agreements with
foreign carriers.

The following discusses the pro forma revenue increases for the year ended
December 31, 1998 as compared to pro forma revenues for the comparable prior
year period.  The pro forma revenues

                                       38

<PAGE>

assume that the MCI Merger, CompuServe Merger and the AOL Transaction occurred
at the beginning of 1997. These pro forma revenues do not include Embratel or
the iMCI Business that was sold. Changes in actual results of operations are
shown in the Consolidated Statements of Operations and the foregoing tables and,
as noted above, primarily reflect the MCI Merger, CompuServe Merger, AOL
Transaction and the internal growth of the Company.

Pro forma voice revenues for 1998 experienced a 9% year-over-year increase
driven by a gain of 17% in traffic. Voice revenues include both long distance
and local domestic switched revenues. Strong long distance volume gains in
domestic commercial sales channels, combined with an increasing mix of local
services, were the primary contributors to this increase. Pro forma local voice
revenues grew 87% in 1998 versus the same period of the prior year, but remained
a relatively small component of total Company revenues for 1998.

Pro forma data revenues for 1998 increased 28% year-over-year.  Data includes
both long distance and local dedicated bandwidth sales.  The revenue growth for
data services continues to be driven by significant commercial end-user demand
for high-speed data and by Internet-related growth on both a local and long-haul
basis.  This growth was not only being fueled by connectivity demands, but also
by applications that have become more strategic, far reaching and complex;
additionally, bandwidth consumption drove an acceleration in growth for higher
capacity circuits.  Rapidly growing demand for higher bandwidth services has
contributed to a 43% pro forma year-over-year local data revenue growth for
1998.  As of December 31, 1998, the Company had approximately 17 million
domestic local voice grade equivalents and approximately 34,000 buildings in the
U.S., connected over its high-capacity circuits.  Domestic local route miles of
connected fiber exceeded 7,800 and domestic long distance route miles exceeded
45,000 at December 31, 1998.

Pro forma Internet revenues for 1998 increased 69% over the 1997 pro forma
amount.  Growth was driven by both dial-up and dedicated connectivity to the
Internet as more and more business customers migrated their data networks and
applications to Internet-based technologies.  MCI's Internet revenues have been
excluded from the above table, due to the divestiture of the iMCI Business.

Pro forma international revenues - those revenues originating outside of the
United States, excluding Embratel - for 1998 were $1.1 billion, an increase of
56% as compared with $726 million for the same pro forma period of the prior
year.  Significant percentage gains in international revenues were achieved in
continental Europe in response to the Company's rapidly expanding networks and
sales effort.  In July 1998, the Pan-European network was commissioned for
service and as of December 31, 1998 provided MCI WorldCom the capability to
connect from end-to-end over 5,500 buildings in Europe all over its own high
capacity circuits.  In Europe, the Company had over 900 route miles of local
fiber and over 1,700 long distance route miles at December 31, 1998.

The Pan-European networks and national networks in the U.K., France, Germany and
Belgium drove higher growth of enhanced data sales internationally.  The
resulting revenue mix shift contributed to improved margins in spite of the
competitive pricing environment.

Pro forma messaging revenues for 1998 were $443 million, up 29% compared with
1997.  The increase is primarily attributable to the growth in revenues from
advanced messaging services.

                                       39
<PAGE>

Pro forma other revenues for 1998 were $1.7 billion, down 13% as compared with
1997.  Other revenues, which consists primarily of the operations of SHL,
include equipment deployment, consulting and systems integration and outsourcing
services.  The year-over-year decline reflects the negative impact of
eliminating certain lines of operation and the Canadian currency translation
effects.

The following discusses the actual results of operations for the year ended
December 31, 1998 as compared to the year ended December 31, 1997.

Line costs.  Line costs as a percentage of revenues for 1998 were 47.0% as
compared to 49.9% reported for the same period of the prior year.  Overall
decreases are attributable to changes in the product mix and synergies and
economies of scale resulting from network efficiencies achieved from the
assimilation of MCI, CompuServe Network Services and ANS into the Company's
operations and were offset in part by universal service fund costs recorded for
the 1998 year.  Additionally, access charge reductions beginning in July 1997
reduced total line cost expense by approximately $200 million in 1998.  While
access charge reductions were primarily passed through to the customer, line
costs as a percentage of revenues were positively affected by more than half a
percentage point for 1998.  The Company anticipates that line costs as a
percentage of revenues will continue to decline as a result of further synergies
and economies of scale resulting from network efficiencies achieved from the
assimilation of the former MCI and WorldCom networks. Additionally, local
revenues have increased rapidly and line costs related to local are primarily
fixed in nature - leading to lower line costs as a percentage of revenues.

Selling, general and administrative.  Selling, general and administrative
expenses for 1998 were $4.6 billion or 25.1% of revenues as compared to $1.9
billion or 23.8% of revenues for 1997.  The increase in selling, general and
administrative expenses as a percentage of revenues for the year ended December
31, 1998, which includes MCI for 108 days, reflects the Company's expanding
operations, primarily through the MCI Merger.  The Company's goal is to achieve
additional selling, general and administrative synergies in connection with the
MCI Merger through the assimilation of MCI into the Company's strategy of cost
control.

Depreciation and amortization.  Depreciation and amortization expense for 1998
increased to $2.3 billion or 12.6% of revenues from $1.1 billion or 13.7% of
revenues for 1997.  The increase reflects increased amortization associated with
the MCI Merger, CompuServe Merger and AOL Transaction and additional
depreciation related to capital expenditures.  As a percentage of revenues,
these costs decreased due to the higher revenue base.

In-process research and development and other charges.  In 1998, the Company
recorded a pre-tax charge of $196 million in connection with the BFP Merger, the
MCI Merger, and certain asset write-downs and loss contingencies.  Such charges
included $21 million for employee severance, $17 million for BFP direct merger
costs, $38 million for conformance of BFP accounting policies, $56 million for
exit costs under long-term commitments, $31 million for write-down of a
permanently impaired investment, and $33 million related to certain asset write-
downs and loss contingencies. The $56 million related to long-term commitments
includes $33 million of minimum commitments between 1999 and 2008 for leased
facilities that the Company has or will abandon, $19 million related to certain
minimum contractual network lease commitments that expire between 1999 and 2001,
for which the Company will receive no future benefit due to the migration of
traffic to owned

                                       40
<PAGE>

facilities, and $4 million of other commitments. Additionally, the $33 million
related to certain asset write-downs and loss contingencies includes $9 million
for the decommission of certain information systems that have no alternative
future use, $9 million for the write-down to fair value of certain assets held
for sale that were disposed of in 1998 and $15 million related to legal costs
and other items related to BFP.

In connection with certain 1998 business combinations, the Company made
allocations of the purchase price to acquired IPR&D totaling $429 million in the
first quarter of 1998 related to the CompuServe Merger and AOL Transaction and
$3.1 billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects.  At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative future
uses.  Accordingly, these costs were expensed as of the respective acquisition
dates.

Discounting the net cash flows back to their present value was based on the
weighted average cost of capital ("WACC").  The respective business enterprises
were comprised of various types of assets, each possessing different degrees of
investment risk contributing to the Company's overall WACC. Intangible assets
were assessed higher risk factors due to their lack of liquidity and poor
versatility for redeployment elsewhere in the business.  In the MCI, CompuServe
Network Services and ANS analyses the implied WACC was 14%, 14.5% and 16.5%
respectively, based on the purchase price paid, assumed liabilities, projected
cash flows, and each company's asset mix.  Returns on monetary and fixed assets
were estimated based on then prevailing interest rates.  The process for
quantifying intangible asset investment risk involved consideration of the
uncertainty associated with realizing discernible cash flows over the life of
the asset.  A discount range of 15.5% to 19% was used for valuing the IPR&D.
These discount ranges were higher than the WACC due to the inherent
uncertainties surrounding the successful development of the purchased IPR&D, the
useful life of such technology, the profitability levels of such technology, and
the uncertainty of technological advances that were unknown at that time.

The value of the IPR&D projects was adjusted to reflect the relative value and
contribution of the acquired R&D.  In doing so, consideration was given to the
R&D's stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development, costs already incurred and
the projected cost to complete the projects.

The Company believes that the assumptions used in the forecasts were reasonable
at the time of the respective business combination.  No assurance can be given,
however, that the underlying assumptions used to estimate expected project
sales, development costs or profitability, or the events associated with such
projects, will transpire as estimated.  For these reasons, actual results may
vary from the projected results.

Management expects to continue supporting these R&D efforts and believes the
Company has a reasonable chance of successfully completing the R&D programs.
However, there is risk associated with the completion of the R&D projects and
the Company cannot give any assurance that any will meet with either
technological or commercial success.

                                       41
<PAGE>

If none of these R&D projects are successfully developed, the sales and
profitability of the Company may be adversely affected in future periods.  The
failure of any particular individual project in-process would not materially
impact the Company's consolidated financial condition, results of operations or
the attractiveness of the overall investment of MCI, CompuServe Network Services
or ANS.  Operating results are subject to uncertain market events and risks
which are beyond the Company's control, such as trends in technology, government
regulations, market size and growth, and product introduction or other actions
by competitors.

A description of the acquired in-process technology and the estimates made by
the Company at the time each business combination was completed is set forth
below.

MCI.  The in-process technology acquired in the MCI Merger consisted of seventy
significant R&D projects grouped into six categories.  The aggregate value
assigned to MCI IPR&D was $3.1 billion. These projects were all targeted at: (1)
developing and deploying an all optical network, new architecture of the
telephone system using IP and developing the systems and tools necessary to
manage the voice and data traffic; (2) creating new products and services; and
(3) developing certain information systems that may enhance the management of
MCI WorldCom's products and service offerings.

A brief description of the six categories of IPR&D projects purchased at the
time of the MCI Merger is set forth below:

 .  R&D Related to an All Optical Network. At the MCI Merger date, these projects
   involved R&D related to the development of an all optical network. This
   structure is in contrast to current systems which employed a combination of
   optics and electronics. New technologies that were in development included:
   (a) an optical cross connect system for all optical packet transport and sub-
   second service restoration, (b) a wavelength channel plan for enabling
   multiple simultaneous transmission channels, (c) projects related to
   distortion elimination, and (d) next generation optical networking
   technologies related to the fiber infrastructure. Achievements as of the MCI
   Merger date included demonstration of limited-scope prototypes in the
   laboratory. Remaining efforts included: demonstration of the system on a
   large scale with commercial traffic, physics research in certain areas,
   development of algorithms to enable network management, and addressing
   technology issues related to switching. The amount of R&D costs incurred as
   of the MCI Merger for these projects totaled $7 million. Estimated costs to
   complete were $10 million, as follows: 15% during the last quarter of 1998,
   48% during the four quarters in 1999, 31% during the four quarters in 2000,
   and 6% during the four quarters in 2001. As of the MCI Merger date, the
   completion of these projects was considered difficult, and the risk of these
   technologies not being completed was rated as medium to high. Failure to
   complete the R&D would cause the Company's future revenues and profits
   attributable to the R&D not to materialize.

 .  R&D Related to Data Transmission Service / Other Transmission Efforts. At the
   MCI Merger date, MCI was working on a variety of significant efforts related
   to data management. These new technologies included: (a) new data services to
   satisfy new capacity requirements and Internet needs, (b) a next generation
   intelligent network to enable deployment of specific new telecommunications
   services across multiple networks, (c) a 16 wavelength bi-directional line
   amplifier to amplify optical signals, (d) multiservice and integrated access

                                       42
<PAGE>

   platforms and development of new methods for serving ISPs on the local
   services network, and (e) Andromedia, which is related to specific
   improvements to Internet operations. Achievements as of the MCI Merger date
   included methods for new high speed switching, multicasting, and offering a
   variety of service levels, as well as architectural design for next
   generation intelligent networks. Tasks to complete the new technologies
   included: engineering related to telephone systems to utilize IP; solving
   scalability issues across the infrastructure; and conducting extensive
   testing of the technologies under development. As of the MCI Merger date, $48
   million had been expended to develop these R&D projects. Estimated costs to
   complete the projects were $132 million, as follows: 9% during the last
   quarter of 1998, 33% during the four quarters in 1999, 46% during the four
   quarters in 2000, and 12% during the four quarters in 2001. The completion of
   these projects was considered difficult and the risk of not completing these
   projects was characterized as medium to high. Failure to complete the R&D
   would cause the Company's future revenues and profits attributable to the R&D
   not to materialize.

 .  Next Generation Tools. At the MCI Merger date, MCI's personnel were
   developing a variety of new tools designed to achieve specific reliability
   and quality objectives related to the network. Important new development
   technologies in this category included: (a) reliability and quality
   engineering tools relating to the reliability test and quality control, (b)
   network design development tools to enable end-to-end network design and
   modeling capabilities, (c) the Integrated Management Platform Advanced
   Communications Technology project to provide new network management for the
   networks, (d) the integrated test system to provide a new testing
   architecture for the Company's local, long distance, and international
   networks, and (e) an enhanced traffic system and security. Progress as of the
   MCI Merger date included: definition of architectural components, partial
   development of software algorithms, and limited prototypes for tasks.
   Remaining efforts included completion of algorithms, prototype development,
   validation, testing, and development of support systems. As of the MCI Merger
   date, $84 million had been spent on the R&D projects. Estimated costs to
   complete were $48 million, as follows: 22% during the last quarter of 1998,
   46% during the four quarters in 1999, 23% during the four quarters in 2000,
   and 9% during the four quarters in 2001. At the MCI Merger date, there were
   significant risks of not being able to complete the prototypes and there was
   also uncertainty in the timeliness of completion. The aggregate risk level of
   this category of R&D projects was considered medium to high. Project failure
   would result in the elimination of the Company's future revenues and profits
   attributable to the R&D.

 .  Specific New Customer Care Capabilities. At the MCI Merger date, these
   projects involved a series of efforts designed to provide customers with a
   suite of new services, including development of major technologies such as:
   (a) the virtual data delivery system to engineer new order processing and
   provisioning capabilities for data services, (b) network automation projects
   related to capacity and change management, (c) hyperlink to deploy private
   lines and frame relay circuits utilizing a new methodology, (d) common data
   platform to create a depository of network management information, and (e)
   the Talisman project to develop data products for the networkMCI One Voice.
   Achievements as of the MCI Merger date included design, partial coding, and
   prototyping. Tasks to complete included: addition of significant features and
   functionality; additional design, testing and coding; and addressing
   scalability issues. As of the MCI Merger date, $67 million had been spent on
   developing this R&D.

                                       43
<PAGE>

   Estimated costs to complete were $76 million, as follows: 20% during the last
   quarter in 1998, 50% during the four quarters in 1999, 19% during the four
   quarters in 2000, and 11% during the four quarters in 2001. As of the MCI
   Merger date, there were significant risks in completing the algorithms
   successfully and on time. The aggregate risk level for this category of R&D
   projects was considered medium to high. Project failure would eliminate the
   Company's future revenues and profits attributable to the R&D.

 .  R&D Related to Local Services. At the MCI Merger date, this category involved
   a series of specific projects to create an offering of local services on a
   national basis. Efforts included: (a) electronic bonding for local service
   maintenance organizations, (b) elements of an order automation and tracking
   system, (c) access technology development, and (d) the substantial R&D
   related to the network optimization enhancement system. Achievements as of
   the MCI Merger date included: completion of system definitions, partial
   coding development, and base functionality developed on certain projects.
   Tasks to complete included adding features and functionality, module
   development and testing. As of the MCI Merger date, $53 million had been
   spent on developing the R&D projects. Estimated costs to complete were $38
   million, as follows: 25% during the last quarter of 1998, 43% during the four
   quarters in 1999, 21% during the four quarters in 2000, and 11% during the
   four quarters in 2001. There were significant risks related to developing the
   interfaces and the required technologies and the complex interconnections.
   The aggregate risk level for this category of R&D projects was considered
   medium to high. Failure of the R&D project would eliminate the Company's
   future revenues and profits attributable to the R&D.

 .  New Products and Services. A series of new products and services were being
   developed by MCI as of the MCI Merger date. These included: (a) video
   services to design and implement a new terrestrial video distribution network
   for real-time quality video, (b) distance learning services via an integrated
   multimedia network platform, (c) fractal compression technology for image
   compression and encoding to reduce data transmit time and bit losses, and (d)
   integrated messaging for one number service for telephone, fax, voicemail,
   Internet and paging. Progress as of the MCI Merger date included: definition,
   development and component testing; feasibility and analysis; and development
   of prototypes. Remaining development included: design and deployment;
   resolving issues related to product functionality; and addressing scalability
   issues across the Company's infrastructure. As of the MCI Merger date $37
   million had been spent on developing the R&D in this category. Estimated
   costs to complete were $38 million, as follows: 24% during the last quarter
   of 1998, 43% during the four quarters in 1999, 22% during the four quarters
   in 2000, and 11% during the four quarters in 2001. There were significant
   risks in completing the R&D projects, particularly developing the leading
   edge components, compression technologies, and developing operational support
   systems. The aggregate risk level for this category of R&D projects was
   considered medium to high. Project failure would eliminate the Company's
   future revenues and profits attributable to the R&D.

                                       44
<PAGE>

A summary of allocated values by technology/project is as follows (in millions):

<TABLE>
<CAPTION>
                                     Developed
                                     Technology           IPR&D
                                  ----------------      ----------
<S>                               <C>                   <C>
All Optical Network                    $  200              $  400
Data Transmission Service/Other           200                 300
Next Generation Tools                     100                 400
New Customer Care Capabilities            800               1,100
Local                                     200                 700
New Products and Services                 200                 200
                                       ------              ------
                                       $1,700              $3,100
                                       ======              ======
</TABLE>

The value assigned to purchased in-process technology was determined by
estimating the contribution of the purchased in-process technology to developing
commercially viable products, estimating the resulting net cash flows from the
expected product sales of such products, and discounting the net cash flows to
their present value using a risk-adjusted discount rate.  Royalty rates used in
the valuation of IPR&D ranged from 1% to 3%.  Funding for such projects is
expected to be obtained from internally generated sources.

Developed technology related to the MCI Merger is being depreciated over 10
years on a straight-line basis.  The remaining purchase price, which includes
allocations to goodwill and tradename, is being amortized over 40 years on a
straight-line basis.

As of the allocation date, total MCI stand-alone revenues were projected to
exceed $34 billion within five years.  This level of revenue implied a CAGR of
approximately 12.3%.  Estimated total revenues from the acquired in-process
technology peaked in the year 2001 and steadily declined in 2002 through 2009 as
other new product and service technologies were expected to be introduced by the
combined company.  These projections were based on management's estimates of
market size and growth, expected trends in technology, and the expected timing
of new product introductions.  These projections, as well as the other
statements above regarding estimated costs of completion, the likelihood of
successful completion and other aspects of the IPR&D projects in the future,
which were made as of the time of the MCI Merger, constituted forward-looking
statements, were not made with a view to public disclosure and were based on a
variety of estimates and judgments.  Actual results may vary materially due to a
number of significant risks, including, without limitation, uncertainties
regarding future business, economic, competitive, regulatory and financial
market conditions and future business decisions, all of which are difficult to
predict and many of which are beyond the Company's control.  No assurance can be
given that such projections or other statements will be realized.  The Company
does not intend to update or supplement these projections or other statements in
the future.

CompuServe and ANS.  The in-process technology acquired in the CompuServe Merger
and the AOL Transaction consisted of three main R&D efforts underway at
CompuServe Network Services and two main R&D efforts underway at ANS.  The
aggregate value assigned to CompuServe and ANS in-process technology was $429
million.  These projects included next generation network technologies and new
value-added networking applications, such as applications hosting, multimedia
technologies and virtual private data networks.

                                       45
<PAGE>

A brief description of the IPR&D projects purchased at the time of the
CompuServe Merger and AOL Transaction is set forth below:

 .  Virtual Private Data network ("VPDN"). At the date of the CompuServe Merger,
   these projects provided competitive VPDN products and services, including
   development of a new radius-roaming functionality. This capability was
   intended to allow remote VPDN users to "roam" the country, much like cellular
   phone users, and access their corporate network without regard for how to
   initiate a remote connection. Additionally, development of another VPDN
   adjunct product called the Phone Access Locator, if successful, would be used
   by CompuServe Network Services' remote customers to look up local network
   access point phone numbers. Other VPDN efforts underway at the date of the
   CompuServe Merger related to voluntary tunneling and development of new
   packet network technologies. Achievements leading up to the acquisition
   included completion of certain software specifications and design limited
   concept testing, and performance verification. Remaining efforts included
   large-scale design, performance testing, debugging, and quality assurance.
   Costs to complete this R&D project were projected to be approximately $3
   million in 1998 and $4 million in 1999. The risk of not completing these
   efforts was rated as medium. Project failure would result in the elimination
   of the Company's future revenues and profits attributable to the R&D.

 .  Network Technologies. At the date of the CompuServe Merger, CompuServe
   Network Services had undertaken significant projects to develop new IP-based
   network technologies. These projects involved many separate efforts,
   including: researching the use of switching and multicast technologies;
   investigating and testing proprietary switching and routing technology;
   researching and developing Fast Ethernet and/or Gigabit Ethernet protocols;
   and developing and testing switches with routing functionality. CompuServe
   Network Services' was also working on a significant effort to enhance
   workstation-based open systems technologies that contained new functions
   intended to allow the company to address new market needs. CompuServe Network
   Services' development work included the testing of new products and the
   development of new in-house network management solutions. Achievements
   leading up to the acquisition included completion of certain software and
   hardware specifications and design. Remaining efforts included large-scale
   design, performance testing and debugging. Costs to complete the R&D project
   were projected to be approximately $6 million in 1998 and $8 million in 1999.
   The risk of not completing these efforts was rated as medium. Project failure
   would result in the elimination of the Company's future revenues and profits
   attributable to the R&D.

 .  Application Hosting. At the date of the CompuServe Merger, CompuServe Network
   Services had undertaken an effort to develop proprietary software, and
   identify and test third party Web hosting technology in order to provide
   complex Web and groupware hosting services. As part of this effort,
   CompuServe Network Services was attempting to develop a new capability in
   which it would host complex Web sites, without duplicating any development
   efforts. In addition, CompuServe Network Services was in the process of
   developing leading-edge electronic commerce solutions for its complex Web
   hosting product. CompuServe Network Services was also developing proprietary
   software and testing reporting tools. CompuServe Network Services was also in
   the process of making substantial enhancements that would result in a new e-
   mail gateway. Achievements leading

                                       46
<PAGE>

   up to the acquisition included completion of certain software specifications
   and design, limited concept testing, and performance verification. Remaining
   efforts included large-scale design and engineering, performance testing, and
   debugging. Costs to complete this R&D project were projected to be
   approximately $1 million in 1998 and $2 million in 1999. The risk of not
   completing these efforts was rated as medium. Project failure would result in
   the elimination of the Company's future revenues and profits attributable to
   the R&D.

 .  Supercore. At the date of the AOL Transaction, Supercore was a significant
   project involving R&D related to data transmission and VPDN technologies. The
   Supercore project was intended to provide for the differentiation of
   connectivity service based on the needs of the transmission. At the time of
   the acquisition, ANS had made significant progress on this important R&D
   effort. Achievements leading up to the acquisition included a completed
   design and limited performance evaluation. Remaining efforts involved large-
   scale testing and proof of concept. ANS estimated it would spend
   approximately $12 million in 1998 and $17 million in 1999 to complete R&D
   projects related to Supercore. The risk of not completing these projects was
   considered medium to high risk. Failure to complete the R&D would cause the
   Company's future revenues and profits attributable to the R&D not to
   materialize.

 .  Value Added Applications (Security Systems, Application Hosting, and
   Multimedia Systems). At the date of the AOL Transaction, ANS had a number of
   R&D projects underway related to security systems, application hosting and
   multimedia systems. In connection with a security system product called
   Interlock, ANS was developing next-generation capabilities to render multiple
   Local Area Network ("LAN") connections, Simple Network Management Protocol
   ("SNMP") support, and the selective use of Java and ActiveX protocols. Other
   R&D efforts were related to distributed firewalls, firewall farm technology,
   new encryption technologies, and multiple LAN interface capability. A Windows
   project involved substantially improving aspects of the server software
   intended to make it support a Domain Named System ("DNS") cache, firewall
   functionality, and remote administration. ANS also had several application
   R&D projects underway that were aimed at the development of a set of software
   tools, which would culminate in a new complex Web hosting product. ANS'
   complex Web hosting product was being developed to have near real-time
   database replication across geographic location, which would allow ANS, if
   successful, to maintain a company's Web site on several servers. As of the
   acquisition date, ANS did not offer multimedia services over its network. As
   a result, ANS was conducting R&D related to four multimedia services: fax
   over IP, video over IP, voice over IP, and call centers. R&D activity
   included system and software design, development of prototype systems, and
   systems testing. The most important R&D efforts related to multimedia systems
   were development of priority routing. In addition to ANS' security systems,
   application hosting, and multimedia R&D projects, ANS had undertaken a number
   of additional R&D efforts to develop technologies that would allow customers
   to access the system from any platform and to create a new data warehouse. In
   concert with these efforts, ANS was also addressing the customer's use of
   reporting, query, and On-Line Analytical Processing ("OLAP") tools.
   Achievements on the value added applications R&D leading up to the
   acquisition included the design and development of certain software
   algorithms, unit testing, and limited system testing. Remaining efforts
   included additional design work, large-scale testing, significant performance
   enhancements, and debugging. ANS expected

                                       47
<PAGE>

   to spend approximately $4 million in 1998 and $5 million in 1999 to complete
   the value added applications R&D. The risk of not completing these projects
   was considered to be medium to high risk. Failure to complete the R&D would
   cause the Company's future revenues and profits attributable to the R&D not
   to materialize.

The value assigned to purchased in-process technology was determined by
estimating the contribution of the purchased in-process technology to developing
commercially viable products, estimating the resulting net future cash flows
from the expected sales of such products, and discounting the net future cash
flows to their present value using a risk-adjusted discount rate.  The Company
expected to begin generating the economic benefits from the ANS and CompuServe
Network Services projects in progress as they were completed.  At the time of
valuation, the cost to complete all such projects was approximately $62 million.
Funding for completion of the in-process projects was expected to be obtained
from internally generated sources.  Based on the cost incurred at the
acquisition dates and the milestones achieved by ANS and CompuServe Network
Services, in aggregate, ANS' projects were estimated to be approximately 80%
complete, while CompuServe Network Services' projects were estimated to be
approximately 60% complete.

The allocation of purchase price for the CompuServe Merger and the AOL
Transaction included allocations to developed technologies, assembled work
force, customer relationships and tradenames which are being amortized on a
straight-line basis over 10 years.

At the time of the allocation, total ANS and CompuServe Network Services stand-
alone revenues were projected to exceed $3.5 billion within five years.  This
level of revenues implied a CAGR of approximately 32%.  Estimated total revenues
from the acquired in-process technology related to CompuServe Network Services
peaked in the year 2002 and steadily declined through 2006 as other new product
and service technologies were expected to be introduced by the Company.
Estimated total revenues from the acquired in-process technology related to ANS
peaked in the year 2004 and steadily declined through 2006.  These projections
were based on management's estimates of market size and growth, expected trends
in technology, and the expected timing of new product introductions. These
projections, as well as the statements above regarding estimated costs of
completion, the likelihood of successful completion, and other aspects of the
IPR&D projects in the future which were made as of the time of the acquisitions,
constituted forward-looking statements, and were not made with a view to public
disclosure and were based on a variety of estimates and judgements.  Actual
results may vary materially due to a number of significant risks, including,
without limitation, uncertainties regarding future business, economic,
competitive, regulatory and financial market conditions and future business
decisions, all of which are difficult to predict and many of which are beyond
the Company's control. No assurance can be given that such projections or other
statements will be realized.  The Company does not intend to update or
supplement these projections or other statements in the future.

Interest expense.  Interest expense for 1998 was $692 million or 3.8% of
revenues, as compared to $450 million or 5.8% of revenues reported for 1997.
The increase in interest expense is attributable to higher debt levels as the
result of higher capital expenditures, the 1998 and 1997 fixed rate debt
financings and the MCI Merger. These increases were offset by lower interest
rates as a result of the tender offer for certain outstanding debt in the first
quarter of 1998 and slightly lower rates in effect on the Company's variable
rate long-term debt. For the twelve months ended December 31, 1998 and 1997,
weighted average annual interest rates on the Company's long-term


                                       48
<PAGE>

debt were 7.33% and 8.07% respectively, while weighted average annual levels of
borrowing were $12.7 billion and $6.3 billion, respectively.

Provision for income taxes.  The Company recorded a tax provision of $877
million for the year ended December 31, 1998, on a pretax loss of $1.6 billion.
Although the Company generated a consolidated pretax loss for the year ended
December 31, 1998, permanent non-deductible items aggregating approximately $4.0
billion, resulted in the recognition of taxable income.  Included in the
permanent non-deductible items was the $3.5 billion charge for IPR&D related to
the MCI Merger, CompuServe Merger and AOL Transaction.

Cumulative effect of accounting change. In 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This accounting standard required all
companies to expense, on or before March 31, 1999, all start-up costs previously
capitalized, and thereafter to expense all costs of start-up activities as
incurred. This accounting standard broadly defines start-up activities as one-
time activities related to the opening of a new facility, the introduction of a
new product or service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the initiation of a new
process in an existing facility or the commencement of a new operation.  The
Company adopted this standard as of January 1, 1998. The cumulative effect
of this change in accounting principle resulted in a one-time, non-cash expense
of $36 million, net of income tax benefit of $22 million. This expense
represented start-up costs incurred primarily in conjunction with the
development and construction of SkyTel's Advanced Messaging Network.

Extraordinary items.  In the first quarter of 1998, the Company recorded an
extraordinary item totaling $129 million, net of income tax benefit of $78
million.  The charge was recorded in connection with the tender offers and
certain related refinancings of the Company's outstanding debt. In the second
quarter of 1997 the Company recognized an extraordinary loss of $3 million
related to the early extinguishment of secured indebtedness.

Net income (loss) applicable to common shareholders.  For the year ended
December 31, 1998, the Company reported a net loss of $2.8 billion as compared
to net income of $143 million reported for the year ended December 31, 1997.
Diluted loss per common share was $1.43 compared to diluted earnings per common
share of $0.09 per share for the comparable 1997 period.

Liquidity and Capital Resources

As of December 31, 1999, the Company's total debt was $18.1 billion, a decrease
of $3.1 billion from December 31, 1998.  Additionally, at December 31, 1999, the
Company had available liquidity of $8.7 billion under its Credit Facilities and
commercial paper program (which is described below) and from available cash.

In January 1999, the Company and one of its wholly owned subsidiaries redeemed
all of its outstanding 9.375% Senior Notes due January 15, 2004 (the "Senior
Notes").  Holders of the Senior Notes received 103.52% of the principal amount
plus accrued and unpaid interest to January 15, 1999, of $46.875 per $1,000
aggregate principal amount of such Senior Notes.  The total redemption

                                       49
<PAGE>

cost of $743 million was obtained from available liquidity under the Company's
Credit Facilities and commercial paper program.  The Company recorded a $28
million charge related to the redemption.

In March 1999, $300 million and $200 million of MCI senior notes, with interest
rates of 6.25% and 6.37%, respectively, matured.  The funds utilized to repay
the maturing MCI senior notes were obtained from available liquidity under the
Company's Credit Facilities and commercial paper program.

On August 5, 1999, MCI WorldCom extended its existing $7 billion 364-Day
Revolving Credit and Term Loan Agreement for a successive 364-day term pursuant
to an Amended and Restated 364-Day Revolving Credit and Term Loan Agreement
("Facility C Loans").  The Facility C Loans together with the $3.75 billion
Amended and Restated Facility A Revolving Credit Agreement dated August 6, 1998
("Facility A Loans"), provide MCI WorldCom with aggregate credit facilities of
$10.75 billion (the "Credit Facilities").  The Credit Facilities provide
liquidity support for the Company's commercial paper program and will be used
for other general corporate purposes. The Facility A Loans mature on June 30,
2002. The Facility C Loans have a 364-day term, which may be extended for a
second successive 364-day term thereafter to the extent of the committed amounts
from those lenders consenting thereto, with a requirement that lenders holding
at least 51% of the committed amounts consent. Additionally, effective as of the
end of such 364-day term, the Company may elect to convert up to $4 billion of
the principal debt outstanding under the Facility C Loans from revolving loans
to term loans with a maturity date no later than one year after the conversion.
The Credit Facilities bear interest payable in varying periods, depending on the
interest period, not to exceed six months, or with respect to any Eurodollar
Rate borrowing, 12 months if available to all lenders, at rates selected by the
Company under the terms of the Credit Facilities, including a Base Rate or
Eurodollar Rate, plus the applicable margin. The applicable margin for the
Eurodollar Rate borrowing varies from 0.35% to 0.75% as to Facility A Loans and
from 0.225% to 0.45% as to Facility C Loans, in each case based upon the better
of certain debt ratings. The Credit Facilities are unsecured but include a
negative pledge of the assets of the Company and its subsidiaries (subject to
certain exceptions). The Credit Facilities require compliance with a financial
covenant based on the ratio of total debt to total capitalization, calculated on
a consolidated basis. The Credit Facilities require compliance with certain
operating covenants which limit, among other things, the incurrence of
additional indebtedness by the Company and its subsidiaries, sales of assets and
mergers and dissolutions, and which covenants do not restrict distributions to
shareholders, provided the Company is not in default under the Credit
Facilities. At December 31, 1999, the Company was in compliance with these
covenants.  The Facility A Loans and the Facility C Loans are subject to annual
commitment fees not to exceed 0.25% and 0.15%, respectively, of any unborrowed
portion of the facilities.

Additionally, in August 1999, the Company completed the private placement
offering of $1.0 billion principal amount of Floating Rate Notes due August
2000. Interest on the Floating Rate Notes is payable quarterly, equal to the
London Interbank Offered Rate for the three-month U.S. dollar deposits plus
0.18%. The net proceeds of the offering were used to pay down debt under the
Company's Credit Facilities and commercial paper program, and for general
corporate purposes.

In December 1999, the Company redeemed all of its outstanding 13.5% Senior Notes
due December 15, 2002 (the "SkyTel Notes"), and all of its outstanding 6.75%
Convertible Subordinated
                                       50
<PAGE>

Debentures due May 15, 2002 (the "SkyTel Debentures"). The aggregate outstanding
principal amount of the SkyTel Notes and SkyTel Debentures was approximately
$266 million. In connection with the redemptions, MCI WorldCom recorded a charge
of approximately $34 million in the fourth quarter of 1999. The funds required
to pay all amounts under the redemptions were obtained by MCI WorldCom from
available liquidity under the Company's Credit Facilities and commercial paper
program.

In January 2000, each share of MCI WorldCom Series C Preferred Stock was
redeemed by the Company for $50.75 in cash, or approximately $190 million in the
aggregate.  The funds required to pay all amounts under the redemption were
obtained by MCI WorldCom from available liquidity under the Company's Credit
Facilities and commercial paper program.

As noted below, the Brazilian real has experienced significant devaluation
against the U.S. dollar since MCI invested in Embratel in August 1998.  The
Company previously designated the note payable in local currency installments,
resulting from the Embratel investment, as a hedge of its investment in
Embratel.  As of December 31, 1999, the Company recorded the change in value of
the note as a reduction of the note payable with the offset through foreign
currency translation adjustment in shareholders' investment.

As of December 31, 1999, Embratel had $828 million of long-term debt
outstanding, of which approximately $587 million was denominated in U.S. dollars
and $241 million denominated in other currencies including the French Franc,
Deutsche Mark, Japanese Yen and Brazilian real.  The effective cost to Embratel
of borrowing in foreign currencies, such as the U.S. dollar, depends principally
on the exchange rate between the Brazilian real and the currencies in which its
borrowings are denominated. As of December 31, 1999, the Brazilian real had
devalued over 32% against the U.S. dollar since December 31, 1998.  As a result,
the Company recorded a $171 million foreign currency loss to miscellaneous
expense during the year ended December 31, 1999. After the elimination of
minority interests, this charge totaled approximately $33 million on a pretax
basis. If this devaluation is sustained, or worsens, Embratel would record a
similar charge to its future earnings equal to the increase in the U.S. dollar
liability resulting from such devaluation.  The net effect to the Company's
operations would be approximately 19% of such charge after elimination of
minority interests.

For the year ended December 31, 1999, the Company's cash flow from operations
increased $6.8 billion to $11.0 billion from the comparable period for 1998.
The increase in cash flow from operations was primarily attributable to the MCI
Merger, internal growth and synergies and economies of scale resulting from
network efficiencies and selling, general and administrative cost savings
achieved from the assimilation of recent acquisitions into the Company's
operations.

In 1999, the Company amended its existing $500 million receivables purchase
agreement to $2 billion by including certain additional receivables and in the
process received additional proceeds of $1.4 billion.  The Company used these
proceeds to reduce the outstanding debt under the Company's Credit Facilities
and commercial paper program and provide additional working capital. As of
December 31, 1999, the purchaser owned an undivided interest in a $3.8 billion
pool of receivables, which includes the $1.9 billion sold.

                                       51
<PAGE>

Cash used in investing activities for the year ended December 31, 1999, totaled
$9.6 billion. The sale of certain investments, other assets and the sale of SHL
provided $3.6 billion of proceeds that were used primarily to cover capital
expenditures of $8.7 billion and acquisition and related costs of $1.1 billion.
Primary capital expenditures include purchases of switching, transmission,
communications and other equipment. The Company anticipates that approximately
$8.0 billion will be spent during 2000 for transmission and communications
equipment, construction and other capital expenditures without regard to
Embratel. Acquisitions and related costs includes the costs associated with the
MCI Merger, CompuServe Merger, AOL Transaction and smaller acquisitions
completed during 1999.

Under the Sprint Merger Agreement, each outstanding share of Sprint's FON common
stock will be exchanged for $76.00 of MCI WorldCom Common Stock, subject to a
collar.  In addition, each share of Sprint's PCS common stock will be exchanged
for one share of a new MCI WorldCom PCS tracking stock and 0.116025 shares of
MCI WorldCom Common Stock.  The terms of the MCI WorldCom PCS tracking stock
will be virtually identical to the terms of Sprint's PCS common stock and will
be designed to track the performance of the PCS business of the surviving
company in the Sprint Merger.  Holders of the shares of the other classes or
series of Sprint capital stock will receive one share of a class or series of
the Company's capital stock with virtually identical terms, which will be
established in connection with the Sprint Merger, for each share of Sprint
capital stock that they own.  Sprint will redeem for cash each outstanding share
of the Sprint first and second series preferred stock before completion of the
Sprint Merger.  The Sprint Merger, valued at approximately $129 billion, will be
accounted for as a purchase and will be tax-free to Sprint stockholders.

The actual number of shares of MCI WorldCom Common Stock to be exchanged for
each share of Sprint's FON common stock will be determined based on the average
trading prices of MCI WorldCom Common Stock prior to the closing, but will not
be less than 1.4100 shares (if MCI WorldCom's average stock price equals or
exceeds $53.9007) or more than 1.8342 shares (if MCI WorldCom's average stock
price equals or is less than $41.4350).

Consummation of the Sprint Merger is subject to various conditions set forth in
the Sprint Merger Agreement, including the adoption of the Sprint Merger
Agreement by stockholders of Sprint, the approval of the Sprint Merger by
shareholders of the MCI WorldCom, the approval of the issuance of MCI WorldCom
capital stock in the Sprint Merger by shareholders of MCI WorldCom, certain U.S.
and foreign regulatory approvals and other customary conditions.  Special
meetings of the shareholders of MCI WorldCom and Sprint have been called for
April 28, 2000 to vote on the merger proposals.  It is anticipated that the
Sprint Merger will close in the second half of 2000.  Additionally, if the
Sprint Merger is consummated, the integration and consolidation of Sprint will
require substantive management and financial resources and involve a number of
significant risks, including potential difficulties in assimilating technologies
and services of Sprint and in achieving anticipated synergies and cost
reductions.

Increases in interest rates on MCI WorldCom's variable rate debt would have an
adverse effect upon MCI WorldCom's reported net income and cash flow.  The
Company believes that it will generate sufficient cash flow to service MCI
WorldCom's debt and capital requirements; however, economic downturns, increased
interest rates and other adverse developments, including factors beyond MCI

                                       52
<PAGE>

WorldCom's control, could impair its ability to service its indebtedness.  In
addition, the cash flow required to service MCI WorldCom's debt may reduce its
ability to fund internal growth, additional acquisitions and capital
improvements.

The development of the businesses of MCI WorldCom and the installation and
expansion of its domestic and international networks will continue to require
significant capital expenditures.  Failure to have access to sufficient funds
for capital expenditures on acceptable terms or the failure to achieve capital
expenditure synergies may require MCI WorldCom to delay or abandon some of its
plans, which could have a material adverse effect on the success of MCI
WorldCom.  The Company has historically utilized a combination of cash flow from
operations and debt to finance capital expenditures and a mixture of cash flow,
debt and stock to finance acquisitions.  Additionally, the Company expects to
experience increased capital intensity due to network expansion and merger
related expenses as noted above and believes that funding needs in excess of
internally generated cash flow and the Credit Facilities and commercial paper
program will be met by accessing the debt markets.

The Company believes that, if consummated, the Sprint Merger will create
substantial opportunities for cost savings and operating efficiencies.  These
savings are anticipated to result primarily from economies of scale and
procurement efficiencies.  There can, however, be no assurance that any specific
level of cost savings or other operating efficiencies will be achieved.
Additionally, the Company expects that, after the proposed Sprint Merger, the
MCI WorldCom PCS group will continue to build its network and expand its
customer base, causing it to continue to incur significant operating losses and
to generate significant negative cash flow from operating activities for the
next 12 to 24 months, which could adversely affect the results and financial
condition of the combined company as a whole.  There can be no assurance that
the MCI WorldCom PCS group will achieve or sustain operating profitability or
positive cash flow from operating activities in the future.

Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and available liquidity, including the
Company's Credit Facilities and commercial paper program and available cash will
be sufficient to meet the Company's capital needs for the next twelve months.
However, the Company continues to diversify its funding sources and believes
that funding needs in excess of internally generated cash flow and availability
under the Company's Credit Facilities and commercial paper program could be met
by accessing debt markets.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. This
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
a company to formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. This statement is currently
effective for

                                       53
<PAGE>

fiscal years beginning after June 15, 2000 and cannot be applied retroactively
although earlier adoption is encouraged. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the Company's election, before January 1, 1998). The Company
believes that the adoption of this standard will not have a material effect on
the Company's consolidated results of operations or financial position.

Year 2000 Readiness Disclosure

MCI WorldCom is pleased to report that the Company's network, application
systems, and Internet services made a successful transition into the year 2000
and continue to function normally.  While the initial year 2000 rollover period
is now over, the Company will continue proactive system testing and monitoring
procedures.

During the first quarter of 2000, the Company has focused on closing down the
work teams, storage of data collected over the three year effort and getting
back to business as usual.  The year 2000 costs incurred by MCI and WorldCom
through December 31, 1999, were approximately $605 million. This level of
expenditures is consistent with the planned expenditures for the related
periods.  The Company expects to incur approximately $7 million in costs during
calendar year 2000 to support final completion of its year 2000 compliance
initiatives.

Euro Conversion

On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro").  The transition period for the introduction of
the Euro will be between January 1, 1999 to July 1, 2002. All of the final rules
and regulations have not yet been identified by the European Commission with
regard to the Euro.  The Company is currently evaluating methods to address the
many issues involved with the introduction of the Euro, including the conversion
of information technology systems, recalculating currency risk, recalibrating
derivatives and other financial instruments, strategies concerning continuity of
contracts, and impacts on the processes for preparing taxation and accounting
records.  At this time, the Company has not yet determined the cost related to
addressing this issue and there can be no assurance as to the effect of the Euro
on the consolidated financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
          ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in market values of its investments.

The Company's policy is to manage interest rates through use of a combination of
fixed and variable rate debt.  Currently, the Company does not use derivative
financial instruments to manage its interest rate risk.  The Company has minimal
cash flow exposure due to general interest rate changes for its fixed rate,
long-term debt obligations. The Company does not believe a hypothetical 10%
adverse rate change in the Company's variable rate debt obligations would be
material to the Company's results of operations. The tables below provide
information about the Company's risk exposure associated with changing interest
rates on long-term debt obligations that impact the fair value of these
obligations as of December 31, 1999 and 1998.

                                       54
<PAGE>

<TABLE>
<CAPTION>
                                          Long-term Debt (in millions of dollars) as of December 31, 1999
                  -----------------------------------------------------------------------------------------------------------

                                           Average                          Average               Foreign          Average
                           Fixed          Interest         Variable        Interest              Currency         Interest
Expected Maturity           Rate          Rate (%)           Rate          Rate (%)             Denominated        Rate (%)
- ------------------    --------------   -----------      -------------   -----------       ---------------------   ---------
<S>                   <C>              <C>              <C>             <C>               <C>                     <C>
    2000                 $   363            7.27           $3,876            5.48                $  776            10.92
    2001                   1,642            6.28                -               -                    98             9.72
    2002                      71            7.50                -               -                    96             9.91
    2003                     628            6.29                -               -                    82            10.04
    2004                   1,053            7.52                -               -                    75            11.61
    Thereafter             9,242            7.10                -               -                   141
                       ---------                            ------                               ------
    Total                $12,999                            $3,876                               $1,268
                       =========                            ======                               ======
    Fair Value,
    December 31, 1999    $12,656                            $3,876                               $1,385
                       =========                            ======                               ======
</TABLE>

<TABLE>
<CAPTION>
                                          Long-term Debt (in millions of dollars) as of December 31, 1998
                  -----------------------------------------------------------------------------------------------------------

                                           Average                          Average               Foreign           Average
                           Fixed          Interest         Variable        Interest              Currency          Interest
Expected Maturity           Rate          Rate (%)           Rate          Rate (%)             Denominated         Rate (%)
- ------------------    --------------   -----------      -------------   -----------       ---------------------   ---------
<S>                   <C>              <C>              <C>             <C>               <C>                     <C>
    1999                 $ 1,385             8.26          $2,586           5.70                 $  786              11.44
    2000                     433             8.06              43           7.40                    742              11.61
    2001                   1,598             6.34              50           7.40                     81               8.53
    2002                     333            12.72               -              -                     79               8.54
    2003                     632             6.44           2,000           6.03                     62               8.42
    Thereafter            10,276             7.20               -              -                    119               7.82
                         -------                           ------                                ------
    Total                $14,657                           $4,679                                $1,869
                         =======                           ======                                ======
    Fair Value,
    December 31, 1998    $15,519                           $4,679                                $2,112
                         =======                           ======                                ======
</TABLE>

The Company is exposed to foreign exchange rate risk primarily due to Embratel's
holding of approximately $587 million in U.S. dollar denominated debt, and
approximately $241 million of indebtedness indexed in other foreign currencies
including French Franc, Deutsche Mark,  Japanese Yen and Brazilian real as of
December 31, 1999.  The potential immediate loss to the Company that would
result from a hypothetical 10% change in foreign currency exchange rates based
on this position would be approximately $16 million (after elimination of
minority interests).  In addition, if such change were to be sustained, the
Company's cost of financing would increase in proportion to the change.  During
January 1999, the Brazilian government allowed its currency to trade freely
against other currencies resulting in an immediate devaluation of the Brazilian
real. As of December 31, 1999, the Brazilian real had devalued over 32% against
the U.S. dollar since December 31, 1998. As a result, the Company recorded a
$171 million foreign currency loss to miscellaneous expense during the year
ended December 31, 1999. After the elimination of minority interests, this
charge totaled approximately $33 million on a pretax basis. If this devaluation
is sustained, or worsens, the net impact to the Company's results of operations
could be significant.

The Company is also subject to risk from changes in foreign exchange rates for
its international operations which use a foreign currency as their functional
currency and are translated into U.S. dollars.  Additionally, the Company has
designated the note payable in local currency installments, resulting from the
Embratel investment, as a hedge of its investment in Embratel.  As of December

                                       55
<PAGE>

31, 1999, the Company recorded the change in value of the note as a reduction to
the note payable with the offset through foreign currency translation adjustment
in shareholders' investment.

The Company believes its market risk exposure with regard to its marketable
equity securities is limited to changes in quoted market prices for such
securities. Based upon the composition of the Company's marketable equity
securities at December 31, 1999, the Company does not believe a hypothetical 10%
adverse change in quoted market prices would be material to net income.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements and notes thereto are included
elsewhere in this Annual Report on Form 10-K as follows:
<TABLE>
<CAPTION>

                                                                                                 Page
                                                                                                 -----
<S>                                                                                              <C>
Reports of independent public accountants                                                        F-2

Consolidated balance sheets as of December 31, 1999 and 1998                                     F-4

Consolidated statements of operations for the three years
  ended December 31, 1999                                                                        F-5

Consolidated statements of shareholders' investment for
  the three years ended December 31, 1999                                                        F-6

Consolidated statements of cash flows for the three years
   ended December 31, 1999                                                                       F-7

Notes to consolidated financial statements                                                       F-8

Financial statement schedule                                                                     F-44

</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

None
                                    PART III

The information required by this Part III will be provided in the Company's
definitive proxy statement for the Company's 2000 annual meeting of the
shareholders (involving the election of directors), which definitive proxy
statement will be filed pursuant to Regulation 14A not later than 120 days
following the Company's fiscal year ended December 31, 1999, and is incorporated
herein by this reference to the following extent:


                                       56
<PAGE>

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under the captions "ELECTION OF DIRECTORS - Information about
Nominees and Executive Officers" and "EXECUTIVE COMPENSATION - Section 16 (a)
Beneficial Ownership Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

The information under the captions "INFORMATION CONCERNING BOARD OF DIRECTORS -
Compensation of Directors," "- Employment Agreements" and "EXECUTIVE
COMPENSATION."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the Captions "PRINCIPAL HOLDERS OF VOTING SECURITIES" and
"SECURITY OWNERSHIP OF MANAGEMENT."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "EXECUTIVE COMPENSATION - Certain
Relationships and Related Transactions" and "INFORMATION CONCERNING BOARD OF
DIRECTORS - Employment Agreements."

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 and 2

Financial statements and financial statement schedule
- -----------------------------------------------------

See Index to Consolidated Financial Statements and Financial Statement Schedule.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

(a) 3

Exhibits required by Item 601 of Regulation S-K
- -----------------------------------------------

See Exhibit Index for the exhibits filed as part of or incorporated by reference
into this Annual Report.  There are omitted from the exhibits filed with or
incorporated by reference into this Annual Report on Form 10-K certain
promissory notes and other instruments and agreements with respect to long-term
debt of the Company, none of which authorizes securities in a total amount that
exceeds 10% of the total assets of the Company on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of

                                       57
<PAGE>

Regulation S-K, the Company hereby agrees to furnish to the Securities and
Exchange Commission copies of any such omitted promissory notes or other
instruments or agreements as the Commission requests.

(b) Reports on Form 8-K
    -------------------

(i)    Current Report on Form 8-K dated October 4, 1999 (filed October 6, 1999)
       reporting under Item 5, Other Events, information related to MCI
       WorldCom's announcement that the Company had entered into a merger
       agreement with Sprint.

(ii)   Current Report on Form 8-K dated October 5, 1999 (filed October 15, 1999)
       reporting under Item 5, Other Events, a copy of the presentation to
       analysts, dated October 5, 1999, regarding the Sprint Merger.

(iii)  Current Report on Form 8-K dated November 5, 1999 (filed November 5,
       1999) reporting under Item 5, Other Events, information related to the
       SkyTel Merger and under Item 7, Financial Statements and Exhibits, MCI
       WorldCom's audited financial statements for the years ended December 31,
       1998, 1997 and 1996, to include supplemental financial information
       related to the SkyTel Merger.

                                       58
<PAGE>

                                 SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                              MCI WORLDCOM, Inc.

                              By:   /s/ Scott D. Sullivan
                                  --------------------------------------------
                                  Chief Financial Officer

Date:  March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Name                                                        Title                         Date
- -------------------------------------------  ------------------------------------  -------------------
<S>                                          <C>                                   <C>

/s/ Clifford L. Alexander, Jr.                             Director                March 30, 2000
- -------------------------------------------
Clifford L. Alexander, Jr.


/s/ James C. Allen                                         Director                March 30, 2000
- -------------------------------------------
James C. Allen


/s/ Judith Areen                                           Director                March 30, 2000
- -------------------------------------------
Judith Areen


/s/ Carl J. Aycock                                         Director                March 30, 2000
- -------------------------------------------
Carl J. Aycock


/s/ Max E. Bobbitt                                         Director                March 30, 2000
- -------------------------------------------
Max E. Bobbitt


/s/ Bernard J. Ebbers                           Director, President and Chief      March 30, 2000
- -------------------------------------------     Executive Officer (Principal
Bernard J. Ebbers                                     Executive Officer)


/s/ Francesco Galesi                                       Director                March 30, 2000
- -------------------------------------------
 Francesco Galesi


/s/ Stiles A. Kellett, Jr.                                 Director                March 30, 2000
- -------------------------------------------
Stiles A. Kellett, Jr.


/s/ Gordon S. Macklin                                      Director                March 30, 2000
- -------------------------------------------
 Gordon S. Macklin
</TABLE>


                                       59
<PAGE>

<TABLE>
<CAPTION>
<S>                                          <C>                                   <C>
/s/ John A. Porter                                         Director                March 30, 2000
- -------------------------------------------
John A. Porter



/s/ Bert C. Roberts, Jr.                            Chairman of the Board          March 30, 2000
- -------------------------------------------
Bert C. Roberts, Jr.


/s/ John W. Sidgmore                                       Director                March 30, 2000
- -------------------------------------------
John W. Sidgmore


/s/ Scott D. Sullivan                            Director and Chief Financial      March 30, 2000
- -------------------------------------------      Officer (Principal Financial
Scott D. Sullivan                              Officer and Principal Accounting
                                                            Officer)


/s/ Lawrence C. Tucker                                     Director                March 30, 2000
 -------------------------------------------
Lawrence C. Tucker



 -------------------------------------------               Director                March 30, 2000
Juan Villalonga
</TABLE>

                                       60
<PAGE>

                       INDEX TO FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>

                                                                     Page
                                                                     ----
<S>                                                                  <C>

Reports of independent public accountants                            F-2

Consolidated balance sheets as of December 31, 1999 and 1998         F-4

Consolidated statements of operations for the three years ended
   December 31, 1999                                                 F-5

Consolidated statements of shareholders' investment for the three
   years ended December 31, 1999                                     F-6

Consolidated statements of cash flows for the three years ended
   December 31, 1999                                                 F-7

Notes to consolidated financial statements                           F-8

Financial statement schedule                                         F-44

</TABLE>

                                      F-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of MCI WORLDCOM, Inc.:

We have audited the accompanying consolidated balance sheets of MCI WORLDCOM,
Inc. (a Georgia corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' investment
and cash flows for each of the years in the three-year period ended December 31,
1999.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Brooks Fiber Properties, Inc., a company acquired during 1998 in a transaction
accounted for as a pooling-of-interests, as discussed in Note 2, as of and for
the year ended December 31, 1997.  Such statements are included in the
consolidated financial statements of MCI WORLDCOM, Inc. and reflect total
revenues of two percent of the related consolidated totals in 1997. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for Brooks Fiber
Properties, Inc. is based solely upon the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit and the report of the other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of MCI WORLDCOM, Inc. and subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.


ARTHUR ANDERSEN LLP

Jackson, Mississippi,
March 24, 2000

                                      F-2
<PAGE>

                         INDEPENDENT AUDITORS' REPORT



The Board of Directors
Brooks Fiber Properties, Inc.:

   We have audited the consolidated statements of operations, changes in
shareholders'  equity, and cash flows  of Brooks Fiber Properties, Inc. and
subsidiaries for the year ended December 31, 1997 (not included herein).  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

   We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the changes in shareholders' equity of
Brooks Fiber Properties, Inc. and subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.


                                    KPMG LLP


St. Louis, Missouri
February 18, 1998

                                      F-3
<PAGE>

                      MCI WORLDCOM, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (In Millions, Except Share Data)
<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                                 -----------------
                                                                                                   1999      1998
                                                                                                 -------   -------
<S>                                                                                               <C>       <C>
     ASSETS
     Current assets:
       Cash and cash equivalents                                                                 $   876   $ 1,727
       Marketable securities                                                                           6         -
       Accounts receivable, net of allowance for bad debts of $1,122 in 1999
         and $920 in 1998                                                                          5,746     5,309
       Deferred tax asset                                                                          2,565     2,546
       Other current assets                                                                        1,131     1,187
                                                                                                 -----------------
              Total current assets                                                                10,324    10,769
                                                                                                 -----------------
     Property and equipment:
       Transmission equipment                                                                     14,689    12,271
       Communications equipment                                                                    6,218     5,400
       Furniture, fixtures and other                                                               7,424     6,092
       Construction in progress                                                                    5,397     3,080
                                                                                                 -----------------
                                                                                                  33,728    26,843
       Accumulated depreciation                                                                   (5,110)   (2,275)
                                                                                                 -----------------
                                                                                                  28,618    24,568
                                                                                                 -----------------
     Goodwill and other intangible assets                                                         47,308    47,285
     Other assets                                                                                  4,822     4,470
                                                                                                 -----------------
                                                                                                 $91,072   $87,092
                                                                                                 =================
     LIABILITIES AND SHAREHOLDERS' INVESTMENT
     Current liabilities:
       Short-term debt and current maturities of long-term debt                                  $ 5,015   $ 4,757
       Accounts payable                                                                            2,557     1,771
       Accrued line costs                                                                          3,721     3,903
       Other current liabilities                                                                   5,916     5,749
                                                                                                 -----------------
              Total current liabilities                                                           17,209    16,180
                                                                                                 -----------------
     Long-term liabilities, less current portion:
       Long-term debt                                                                             13,128    16,448
       Deferred tax liability                                                                      4,877     2,870
       Other liabilities                                                                           1,223     1,855
                                                                                                 -----------------
              Total long-term liabilities                                                         19,228    21,173
                                                                                                 -----------------
Commitments and contingencies

Minority interests                                                                               2,599      3,700

Company obligated mandatorily redeemable preferred securities of subsidiary
      trust holding solely junior subordinated deferrable interest debentures of the
      Company and other redeemable preferred securities                                             798       798

Shareholders' investment:
  Series B preferred stock, par value $.01 per share; authorized, issued and
    outstanding: 11,096,887 shares in 1999 and 11,643,002 shares in 1998 (liquidation
    preference of $1.00 per share plus unpaid dividends)                                              -         -
  Series C preferred stock, par value $.01 per share; authorized, issued and
    outstanding: 3,750,000 in 1999 and in 1998 (liquidation preference of $50 per share)              -         -
  Preferred stock, par value $.01 per share; authorized: 31,155,008 shares
    in 1999 and 1998; none issued                                                                     -         -
  Common stock, par value $.01 per share; authorized: 5,000,000,000 shares; issued
    and outstanding: 2,849,743,843 shares in 1999 and 2,776,758,726 shares in 1998                   28        28
  Additional paid-in capital                                                                     52,108    50,173
  Retained earnings (deficit)                                                                      (928)   (4,869)
  Unrealized holding gain on marketable equity securities                                           575       122
  Cumulative foreign currency translation adjustment                                               (360)      (28)
  Treasury stock, at cost, 6,765,316 shares in 1999 and 1998                                       (185)     (185)
                                                                                                -----------------
        Total shareholders' investment                                                           51,238    45,241
                                                                                                -----------------
                                                                                                $91,072   $87,092
                                                                                                =================
The accompanying notes are an integral part of these statements.
</TABLE>
                                      F-4
<PAGE>

                      MCI WORLDCOM. INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In Millions, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                 For the Years Ended December 31,
                                                           -----------------------------------------------------------------------
                                                                 1999                          1998                       1997
                                                           ---------------               ---------------            ---------------
<S>                                                        <C>                           <C>                        <C>

Revenues                                                          $37,120                       $18,169                     $7,789
                                                           --------------                --------------             --------------
Operating expenses:
  Line costs                                                       15,951                         8,534                      3,887
  Selling, general and administrative                               8,935                         4,563                      1,854
  Depreciation and amortization                                     4,354                         2,289                      1,066
  In-process research and development and
   other charges                                                       (8)                        3,725                          -
                                                           --------------                --------------             --------------
        Total                                                      29,232                        19,111                      6,807
                                                           --------------                --------------             --------------
Operating income (loss)                                             7,888                          (942)                       982
Other income (expense):
  Interest expense                                                   (966)                         (692)                      (450)
  Miscellaneous                                                       242                            44                         46
                                                           --------------                --------------             --------------
Income (loss) before income taxes, minority
  interests, cumulative effect of
  accounting change and extraordinary items                         7,164                        (1,590)                       578
Provision for income taxes                                          2,965                           877                        393
                                                           --------------                --------------             --------------
Income (loss) before minority interests,
  cumulative effect of accounting
  change and extraordinary items                                    4,199                        (2,467)                       185
Minority interests                                                   (186)                          (93)                         -
                                                           --------------                --------------             --------------
Income (loss) before cumulative effect of
 accounting change and extraordinary items                          4,013                        (2,560)                       185
Cumulative effect of accounting change (net
 of income taxes of $22 in 1998)                                        -                           (36)                         -

Extraordinary items (net of income taxes of
 $78 in 1998)                                                           -                          (129)                        (3)
                                                           --------------                --------------             --------------
Net income (loss)                                                   4,013                        (2,725)                       182
Distributions on subsidiary trust
 mandatorily redeemable preferred securities                           63                            18                          -
Preferred dividend requirement                                          9                            24                         39
                                                           --------------                --------------             --------------
Net income (loss) applicable to common
 shareholders                                                     $ 3,941                       $(2,767)                    $  143
                                                           ==============                ==============             ==============
Earnings (loss) per common share:
  Net income (loss) applicable to common
   shareholders before cumulative effect of
   accounting change and extraordinary items:
      Basic                                                       $  1.40                       $ (1.35)                    $ 0.10
                                                           ==============                ==============             ==============
      Diluted                                                     $  1.35                       $ (1.35)                    $ 0.10
                                                           ==============                ==============             ==============
  Cumulative effect of accounting change                          $     -                       $ (0.02)                    $    -
                                                           ==============                ==============             ==============
  Extraordinary items                                             $     -                       $ (0.07)                    $    -
                                                           ==============                ==============             ==============
  Net income (loss) applicable to common
   shareholders:
      Basic                                                       $  1.40                       $ (1.43)                    $ 0.10
                                                           ==============                ==============             ==============
      Diluted                                                     $  1.35                       $ (1.43)                    $ 0.09
                                                           ==============                ==============             ==============
</TABLE>
The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>

                      MCI WORLDCOM, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
                  For the Three Years Ended December 31, 1999
                                 (In Millions)
<TABLE>
<CAPTION>
                                                                                     Foreign
                                          Additional    Retained                     Currency                   Total
                                  Common    Paid-in     Earnings     Unrealized     Translation   Treasury   Shareholders'
                                  Stock     Capital     (Deficit)    Holding Gain   Adjustment     Stock      Investment
                                 -------------------------------------------------------------------------------------------------
<S>                              <C>       <C>        <C>            <C>            <C>           <C>           <C>

Balances, December 31, 1996      $    14    $15,820      $(2,245)         $ 29     $  (2)          $   -        $13,616
Exercise of stock options
 (36 million shares)                   1        144            -             -         -               -            145
Tax adjustment resulting
 from exercise
 of stock options                      -         24            -             -         -               -             24
Issuance of common stock
 in connection with
 secondary equity
 offering (3 million
 shares)                               -         23            -             -         -               -             23
Shares issued for
 acquisitions (18 million
 shares)                               -        159            -             -         -               -            159
Other comprehensive income
 (net of taxes and
 reclassifications):
Net income                             -          -          182             -         -               -            182
Cash dividends on
 preferred stock                       -          -          (39)            -         -               -            (39)
Net change in unrealized
 holding gain on
 marketable equity
 securities                            -          -            -             5         -               -              5
Foreign currency adjustment            -          -            -             -       (28)              -            (28)
                                                                                                               --------
    Total comprehensive income                                                                                      120
                                 --------------------------------------------------------------------------------------
Balances, December 31, 1997           15     16,170       (2,102)           34       (30)              -         14,087
Exercise of stock options
 (49 million shares)                   1        471            -             -         -               -            472
Tax adjustment resulting
 from exercise
 of stock options                      -        208            -             -         -               -            208
Shares issued for
 acquisitions (1.182
 billion shares)                      12     33,314            -             -         -            (185)        33,141
Conversion of preferred
 stock into common stock               -          9            -             -         -               -              9
Employee stock purchase
 plan contributions                    -          1            -             -         -               -              1
Other comprehensive income
 (loss) (net of taxes and
  reclassifications):
Net loss                               -          -       (2,725)            -         -               -         (2,725)
Cash dividends on
 preferred stock and
 distributions
 on Trust securities                   -          -          (42)            -         -               -            (42)
Net change in unrealized
 holding gain on
 marketable equity
 securities                            -          -            -            88         -               -             88
Foreign currency adjustment            -          -            -             -         2               -              2
                                                                                                             ----------
    Total comprehensive income                                                                                   (2,677)
                                 -------------------------------------------------------------------------------------
Balances, December 31, 1998           28     50,173       (4,869)          122       (28)           (185)        45,241
Exercise of stock options
 (61 million shares)                   -        886            -             -         -               -            886
Tax adjustment resulting
 from exercise
 of stock options                      -        820            -             -         -               -            820
Shares issued for
 acquisitions (4 million
 shares)                               -        228            -             -         -               -            228
Conversion of convertible
 subordinated debt into
 common stock                          -          1            -             -         -               -              1
Other comprehensive income
 (loss) (net of taxes and
  reclassifications):
Net income                             -          -        4,013             -         -               -          4,013
Cash dividends on
 preferred stock and
 distributions
 on Trust securities                   -          -          (72)            -         -               -            (72)
Net change in unrealized
 holding gain on
 marketable equity
 securities                            -          -            -           453         -               -            453
Foreign currency adjustment            -          -            -             -      (332)              -           (332)
                                                                                                             ----------
    Total comprehensive income                                                                                    4,062
                                 --------------------------------------------------------------------------------------
Balances, December 31, 1999      $    28    $52,108      $  (928)         $575     $(360)          $(185)       $51,238
                                 ======================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-6


<PAGE>

                      MCI WORLDCOM, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Millions)

<TABLE>
<CAPTION>
                                                                                                  For the Years Ended December 31,
                                                                                                ------------------------------------
                                                                                                     1999       1998        1997
                                                                                                ----------   ----------  -----------
<S>                                                                                              <C>         <C>         <C>
Cash flows from operating activities:
Net income (loss)                                                                                  $ 4,013    $(2,725)    $   182
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Cumulative effect of accounting change                                                               -         36           -
    Extraordinary items                                                                                  -        129           3
    Minority interests                                                                                 186         93           -
    In-process research and development and other charges                                               (8)     3,725           -
    Depreciation and amortization                                                                    4,354      2,289       1,066
    Provision for losses on accounts receivable                                                        951        395         132
    Provision for deferred income taxes                                                              2,903        785         340
    Accreted interest on debt                                                                            -         25         122
    Change in assets and liabilities, net of effect of
      business combinations:
        Accounts receivable                                                                         (1,826)      (703)       (457)
        Other current assets                                                                           143       (250)       (167)
        Accrued line costs                                                                            (252)      (330)         97
        Accounts payable and other current liabilities                                                 944        753         (20)
    Other                                                                                             (403)       (40)         (3)
                                                                                                   -------    -------     -------
Net cash provided by operating activities                                                           11,005      4,182       1,295
                                                                                                   -------    -------     -------
Cash flows from investing activities:
  Capital expenditures                                                                              (8,716)    (5,486)     (3,153)
  Sale of short-term investments, net                                                                    4         54         890
  Acquisitions and related costs                                                                    (1,078)    (3,400)     (1,160)
  Increase in intangible assets                                                                       (743)      (351)       (141)
  Proceeds from the sale of SHL                                                                      1,640          -           -
  Proceeds from disposition of marketable securities and other long-term assets                      1,940        148         133
  Increase in other assets                                                                          (1,952)      (319)       (260)
  Decrease in other liabilities                                                                       (650)      (144)        (42)
                                                                                                   -------    -------     -------
Net cash used in investing activities                                                               (9,555)    (9,498)     (3,733)
                                                                                                   -------    -------     -------
Cash flows from financing activities:
  Principal borrowings (repayments) on debt, net                                                    (2,894)     6,390       1,981
  Common stock issuance                                                                                886        472         166
  Distributions on subsidiary trust mandatorily redeemable preferred
   securities                                                                                          (63)       (18)          -
  Dividends paid on preferred stock                                                                     (9)       (24)        (39)
  Other                                                                                                  -         48          (5)
                                                                                                   -------    -------     -------
Net cash provided by (used in) financing activities                                                 (2,080)     6,868       2,103
Effect of exchange rate changes on cash                                                               (221)         -           -
                                                                                                   -------    -------     -------
Net increase (decrease) in cash and cash equivalents                                                  (851)     1,552        (335)
Cash and cash equivalents at beginning of period                                                     1,727        175         510
                                                                                                   -------    -------     -------
Cash and cash equivalents at end of period                                                         $   876    $ 1,727     $   175
                                                                                                   =======    =======     =======
</TABLE>
The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                      MCI WORLDCOM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1999

(1)  The Company and Significant Accounting Policies -
     -----------------------------------------------

Description of Business and Organization:
- ----------------------------------------

Organized in 1983, MCI Worldcom, Inc., a Georgia corporation ("MCI WorldCom" or
the "Company") provides a broad range of communications, outsourcing, and
managed network services to both U.S. and non-U.S. based corporations. MCI
WorldCom is a global communications company utilizing a facilities-based, on-net
strategy throughout the world. The on-net approach allows the Company's
customers to send data streams or voice traffic across town, across the U.S., or
to any of our facilities-based networks in Europe or Asia, without ever leaving
the confines of the MCI WorldCom network. The on-net approach provides the
Company's customers with superior reliability and low operating costs. Prior to
September 15, 1998, the Company was named WorldCom, Inc. ("WorldCom").

MCI WorldCom leverages its facilities-based networks to focus on data and the
Internet. MCI WorldCom provides the building blocks or foundation for the new
e-conomy. Whether it is an emerging e-business or a larger, more established
company who is embracing an e-business approach, MCI WorldCom provides the
communications infrastructure to help make them successful. From private
networking - frame relay and asynchronous transfer mode ("ATM") - to high
capacity Internet and related services, to hosting for complex, high-volume
mega-sites, to turn-key network management and outsourcing, MCI WorldCom
provides the broadest range of Internet and traditional, private networking
services available from any provider.

The Company's core business is communications services, which includes voice,
data, Internet and international services.  During each of the last three years,
more than 90% of operating revenues were derived from communications services.

The Company serves as a holding company for its subsidiaries' operations.
References herein to the Company include the Company and its subsidiaries,
unless the context otherwise requires.

Principles of Consolidation:
- ---------------------------

The consolidated financial statements include the accounts of the Company and
its subsidiaries.  All significant intercompany transactions and balances have
been eliminated in consolidation.  Investments in joint ventures and other
equity investments in which the Company owns a 20% to 50% ownership interest,
except for the Company's interest in Embratel Participacoes S.A. ("Embratel") as
discussed in Note 2, are accounted for by the equity method.  Investments of
less than 20% ownership, where the Company does not exercise control or
significant influence, are accounted for under the cost method.

                                      F-8
<PAGE>

Fair Value of Financial Instruments:
- -----------------------------------

The carrying amounts for cash, marketable securities, accounts receivable, notes
receivable, accounts payable and accrued liabilities approximate their fair
value.  The fair value of long-term debt is determined based on quoted market
rates or the cash flows from such financial instruments discounted at the
Company's estimated current interest rate to enter into similar financial
instruments.  The carrying amounts and fair values of the Company's debt were
$18.1 billion and $17.9 billion, respectively, at December 31, 1999; and $21.2
billion and $22.3 billion, respectively, at December 31, 1998.

Cash and Cash Equivalents and Marketable Securities:
- ---------------------------------------------------

The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents.  The Company
has classified all marketable securities other than cash equivalents as
available-for-sale.   Proceeds from the sale of marketable securities
approximated $4 million, $54 million and $1.0 billion, respectively, for the
years ended December 31, 1999, 1998 and 1997.  Realized gains and losses on
marketable securities for the years ended December 31, 1999, 1998 and 1997 were
not material.

Property and Equipment:
- ----------------------

Property and equipment are stated at cost.  Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:

        Transmission equipment (including conduit)    5 to 45 years
        Communications equipment                      5 to 20 years
        Furniture, fixtures, buildings and other      4 to 40 years

The Company evaluates the recoverability of property and equipment when events
and circumstances indicate that such assets might be impaired.  The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.  In the
event an impairment exists, a loss is recognized based on the amount by which
the carrying value exceeds the fair value of the asset.  If quoted market prices
for an asset are not available, fair market value is determined primarily using
the anticipated cash flows discounted at a rate commensurate with the risk
involved.  Losses in property and equipment to be disposed of are determined in
a similar manner, except that fair market values are reduced for the cost to
dispose.

Maintenance and repairs are expensed as incurred.  Replacements and betterments
are capitalized.  The cost and related reserves of assets sold or retired are
removed from the accounts, and any resulting gain or loss is reflected in
results of operations.

The Company constructs certain of its own transmission systems and related
facilities. Internal costs directly related to the construction of such
facilities, including interest and salaries of certain employees, are
capitalized.  Such internal costs were $625 million ($339 million in interest),
$305 million ($195 million in interest) and $212 million ($82 million in
interest) in 1999, 1998 and 1997, respectively.

                                      F-9
<PAGE>

Goodwill and Other Intangible Assets:
- ------------------------------------

The major classes of intangible assets as of December 31, 1999 and 1998 are
summarized below (in millions):
<TABLE>
<CAPTION>
                                                Amoritization
                                                   Period              1999          1998
                                             -----------------     ----------    ----------
<S>                                            <C>                   <C>           <C>
Goodwill                                       5 to 40 years          $44,767       $44,189
Tradename                                      40 years                 1,100         1,100
Developed technology                           5 to 10 years            2,100         2,100
Other intangibles                              5 to 10 years            2,682         1,502
                                                                   ----------    ----------
                                                                       50,649        48,891
Less:  accumulated                                                      3,341         1,606
                                                                   ----------    ----------
Goodwill and other intangible assets, net                             $47,308       $47,285
                                                                   ==========    ==========
</TABLE>

Intangible assets are amortized using the straight-line method for the periods
noted above.

Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net tangible and
intangible assets acquired. Realization of acquisition-related intangibles,
including goodwill, is periodically assessed by the management of the Company
based on the current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations of MCI
WorldCom.

Also included in other intangibles are costs incurred to develop software for
internal use.  Such costs were $710 million, $561 million and $91 million for
the years ended December 31, 1999, 1998 and 1997, respectively.

Unrealized Holding Gain on Marketable Equity Securities:
- -------------------------------------------------------

The Company's equity investment in certain publicly traded companies is
classified as available-for-sale securities.  Accordingly, these investments are
included in other assets at their fair value of approximately $1.1 billion and
$1.6 billion at December 31, 1999 and 1998, respectively.  The unrealized
holding gain on these marketable equity securities, net of taxes, is included as
a component of shareholders' investment in the accompanying consolidated
financial statements.  As of December 31, 1999 and 1998, the gross unrealized
holding gain on these securities was $918 million and $183 million,
respectively.  Proceeds from the sale of marketable equity securities totaled
$1.7 billion and $14 million, respectively,  for the years ended December 31,
1999 and 1998.  Gross realized gains on marketable equity securities, which
represent reclassification adjustments to other comprehensive income, were $374
million for the year ended December 31, 1999.  Gross realized gains and losses
were $13 million and $31 million, respectively, for the year ended December 31,
1998.  There was no sales activity for the year ended December 31, 1997.

Foreign Currency Translation:
- ----------------------------

Assets and liabilities are translated at the exchange rate as of the balance
sheet date.  All revenue and expense accounts are translated at a weighted-
average of exchange rates in effect during the period.  Translation adjustments
are recorded as a separate component of shareholders' equity.

                                      F-10
<PAGE>

Recognition of Revenues:
- -----------------------

The Company records revenues for telecommunications services at the time of
customer usage.  Service discounts and incentives are accounted for as a
reduction of revenues when granted or, where a service continuation contract
exists, ratably over the contract period.  Revenues from information technology
services is recognized, depending on the service provided, on a percentage of
completion basis or as services and products are furnished or delivered.

Accounting for International Long Distance Traffic:
- --------------------------------------------------

The Company enters into operating agreements with telecommunications carriers in
foreign countries under which international long distance traffic is both
delivered and received.  The terms of most switched voice operating agreements,
as well as established Federal Communications Commission ("FCC") policy, require
that inbound switched voice traffic from the foreign carrier to the United
States be routed to United States international carriers, like MCI WorldCom, in
proportion to the percentage of United States outbound traffic routed by that
United States international carrier to the foreign carrier.  Mutually exchanged
traffic between the Company and foreign carriers is settled in cash through a
formal settlement policy that generally extends over a six-month period at an
agreed upon settlement rate.  International settlements are treated as an offset
to line costs.  This reflects the way in which the business is operated because
MCI WorldCom actually settles in cash through a formal net settlement process
that is inherent in the operating agreements with foreign carriers.

Cumulative Effect of Accounting Change:
- --------------------------------------

In 1998, the American Institute of Certified Public Accountants issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities." This
accounting standard required all companies to expense, on or before March 31,
1999, all start-up costs previously capitalized, and thereafter to expense all
costs of start-up activities as incurred. This accounting standard broadly
defines start-up activities as one-time activities related to the opening of a
new facility, the introduction of a new product or service, the commencement of
business in a new territory, the establishment of business with a new class of
customer, the initiation of a new process in an existing facility or the
commencement of a new operation. The Company adopted this standard as of January
1, 1998. The cumulative effect of this change in accounting principle resulted
in a one-time non-cash expense of $36 million, net of income tax benefit of $22
million. This expense represented start-up costs incurred primarily in
conjunction with the development and construction of the Advanced Messaging
Network of SkyTel Communications, Inc. ("Skytel").

Extraordinary Items:
- -------------------

In the first quarter of 1998, the Company recorded an extraordinary item
totaling $129 million, net of income tax benefit of $78 million.  The charge was
recorded in connection with the tender offers and certain related refinancings
of the Company's outstanding debt.

In 1997, the Company recognized an extraordinary loss of $3 million related to
the early extinguishment of secured indebtedness.

                                      F-11
<PAGE>

Income Taxes:
- ------------

The Company recognizes current and deferred income tax assets and liabilities
based upon all events that have been recognized in the consolidated financial
statements as measured by the provisions of the enacted tax laws.

Earnings Per Share:
- ------------------

The following is a reconciliation of the numerators and the denominators of the
basic and diluted per share computations (in millions, except per share data):
<TABLE>
<CAPTION>
                                                                                          1999            1998             1997
                                                                                      -------------    -----------     -------------
Basic
- -----
<S>                                                                                   <C>              <C>             <C>
Income (loss) before cumulative effect of accounting change and extraordinary items        $4,013        $(2,560)           $  185
Preferred stock dividends and distributions on trust securities                               (72)           (42)              (39)
                                                                                       ----------    -----------     -------------
Net income (loss) applicable to common shareholders before cumulative effect of
     accounting change  and extraordinary items                                            $3,941        $(2,602)           $  146
                                                                                       ==========    ===========     =============
Weighted average shares outstanding                                                         2,821          1,933             1,470
                                                                                       ==========    ===========     =============
Basic earnings (loss) per share before cumulative effect of accounting change
     and extraordinary items                                                               $ 1.40        $ (1.35)            $0.10
                                                                                       ==========    ===========     =============

Diluted
- -------
Net income (loss) applicable to common shareholders before cumulative effect of
     accounting change and extraordinary items                                             $3,941        $(2,602)           $  146
Add back:
     Dilutive preferred stock dividends                                                        -              -                  1
                                                                                       ----------    -----------     -------------
Net income (loss) applicable to common shareholders                                        $3,941        $(2,602)           $  147
                                                                                       ==========    ===========     =============
Weighted average shares outstanding                                                         2,821          1,933             1,470
Common stock equivalents                                                                      102              -                44
Common stock issuable upon conversion of preferred stock                                        2              -                 2
                                                                                       ----------    -----------     -------------
Diluted shares outstanding                                                                  2,925          1,933             1,516
                                                                                       ==========    ===========     =============
Diluted earnings (loss) per share before cumulative effect of accounting change
     and extraordinary items                                                               $ 1.35        $ (1.35)            $0.10
                                                                                       ==========    ===========     =============
</TABLE>

Stock Splits:
- ------------

On November 18, 1999, the Board of Directors authorized a three-for-two stock
split in the form of a 50% stock dividend which was distributed on December 30,
1999 to shareholders of record on December 15, 1999.  All per share data and
numbers of common shares have been retroactively restated to reflect this stock
split.

Concentration of Credit Risk:
- ----------------------------

A portion of the Company's revenues is derived from services provided to others
in the telecommunications industry, mainly resellers of long distance
telecommunications service and Internet online services.  As a result, the
Company has some concentration of credit risk among its customer base.  The
Company performs ongoing credit evaluations of its larger customer's financial
condition and, at times, requires collateral from its customers to support its
receivables, usually in the form of assignment of its customers' receivables to
the Company in the event of nonpayment.

                                      F-12
<PAGE>

Recently Issued Accounting Standards:
- ------------------------------------

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities."  This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.  This
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
a company to formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.  This statement is effective for
fiscal years beginning after June 15, 2000 and cannot be applied retroactively,
although earlier adoption is encouraged. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the Company's election, before January 1, 1998).  The Company
believes that the adoption of this standard will not have a material effect on
the Company's consolidated results of operations or financial position.

Use of Estimates:
- ----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported.  Actual results could differ
from those estimates.  Estimates are used when accounting for long-term
contracts, allowance for doubtful accounts, accrued line costs, depreciation and
amortization, taxes, restructuring accruals and contingencies.

Reclassifications:
- -----------------

Certain consolidated financial statement amounts have been reclassified for
consistent presentation.

(2)  Business Combinations -
     ---------------------

The Company has acquired other telecommunications companies offering similar or
complementary services to those offered by the Company.  Such acquisitions have
been accomplished through the purchase of the outstanding stock or assets of the
acquired entity for cash, notes, shares of the Company's common stock, or a
combination thereof.  The cash portion of acquisition costs has generally been
financed through the Company's bank credit facilities.  In addition to the
business combinations described below, the Company or its predecessors completed
smaller acquisitions during the three years ended December 31, 1999.

On October 1, 1999, MCI WorldCom acquired SkyTel, pursuant to the merger (the
"SkyTel Merger") of SkyTel with and into Empire Merger Inc. ("Empire"), a wholly
owned subsidiary of MCI WorldCom. Upon consummation of the SkyTel

                                      F-13
<PAGE>

Merger, Empire was renamed SkyTel Communications, Inc. SkyTel is a leading
provider of nationwide messaging services in the United States. SkyTel's
principal operations include one-way messaging services in the United States,
advanced messaging services on the narrow band personal communications services
network in the United States and international one-way messaging operations.

As a result of the SkyTel Merger, each outstanding share of SkyTel common stock
was converted into the right to receive 0.3849 shares of MCI WorldCom common
stock, par value $.01 per share (the "MCI WorldCom Common Stock"), or
approximately 23 million MCI WorldCom common shares in the aggregate.  Holders
of SkyTel's $2.25 Cumulative Convertible Exchangeable Preferred Stock (the
"SkyTel Preferred Stock") received one share of MCI WorldCom Series C $2.25
Cumulative Convertible Exchangeable Preferred Stock (the "MCI WorldCom Series C
Preferred Stock") for each share of SkyTel Preferred Stock held.  The SkyTel
Merger was accounted for as a pooling-of-interests; and accordingly, the
Company's financial statements for periods prior to the SkyTel Merger have been
restated to include the results of SkyTel for all periods presented.

SkyTel's net loss for the nine month period ended September 30, 1999 has been
restated due to the anticipated utilization of previously reserved net operating
losses as a result of the SkyTel Merger.  Separate and combined results of
operations for the nine months ended September 30, 1999 are as follows (in
millions, except per share data):

<TABLE>
<CAPTION>
                                                                                 1999
                                                                           --------------
<S>                                                                          <C>
Revenues:
          MCI WorldCom                                                            $27,131
          SkyTel                                                                      422
          Intercompany elimination                                                    (58)
                                                                           --------------
          Combined                                                                $27,495
                                                                           ==============
Net income (loss) before cumulative effect of accounting change
     and extraordinary items:
          MCI WorldCom                                                            $ 2,663
          SkyTel                                                                       (7)
                                                                           --------------
          Combined                                                                $ 2,656
                                                                           ==============
Combined earnings per share before cumulative effect of
     accounting change and extraordinary items:
          Basic                                                                   $  0.94
          Diluted                                                                 $  0.91
</TABLE>

On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI") for approximately $40 billion, pursuant to the merger (the "MCI Merger")
of MCI with and into TC Investments Corp. ("Acquisition Subsidiary"), a wholly
owned subsidiary of the Company. Upon consummation of the MCI Merger, the
Acquisition Subsidiary was renamed MCI Communications Corporation.  Through the
MCI Merger, the Company acquired one of the world's largest and most advanced
digital networks, connecting local markets in the United States to more than 280
countries and locations worldwide.

As a result of the MCI Merger, each outstanding share of MCI common stock was
converted into the right to receive 1.86585 shares of MCI WorldCom Common Stock,
or approximately 1.13 billion MCI WorldCom common shares in the aggregate, and
each share of MCI Class A

                                      F-14
<PAGE>

common stock outstanding (all of which were held by British Telecommunications
plc ("BT")) was converted into the right to receive $51.00 in cash or
approximately $7 billion in the aggregate. The funds paid to BT were obtained by
the Company from (i) available cash as a result of the Company's $6.1 billion
public debt offering in August 1998; (ii) the sale of MCI's Internet backbone
facilities and wholesale and retail Internet business (the "iMCI Business") to
Cable and Wireless plc ("Cable & Wireless") for $1.75 billion in cash on
September 14, 1998; (iii) the sale of MCI's 24.9% equity stake in Concert
Communications Services ("Concert") to BT for $1 billion in cash on September
14, 1998; and (iv) availability under the Company's commercial paper program and
credit facilities.

Upon effectiveness of the MCI Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into options
exercisable for an aggregate of approximately 125 million shares of MCI WorldCom
Common Stock having the same terms and conditions as the MCI options, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.86585.  The MCI Merger was accounted
for as a purchase; accordingly, operating results for MCI have been included
from the date of acquisition.

The purchase price in the MCI Merger was allocated based on estimated fair
values at the date of acquisition.  This resulted in an excess of purchase price
over net assets acquired of which $3.1 billion was allocated to in-process
research and development ("IPR&D") and $1.7 billion to developed technology,
which will be depreciated over 10 years on a straight-line basis.  The remaining
excess of $29.3 billion, as of December 31, 1999,  has been allocated to
goodwill and tradename, which are being amortized over 40 years on a straight-
line basis.

On August 4, 1998, MCI acquired a 51.79% voting interest and a 19.26% economic
interest in Embratel, Brazil's facilities-based national and international
communications provider, for approximately R$2.65 billion (U.S. $2.3 billion).
The purchase price is being paid in local currency installments, of which R$1.06
billion (U.S. $916 million) was paid on August 4, 1998, R$795 million (U.S. $442
million) was paid on August 4, 1999, and the remaining R$795 million (U.S. $440
million at December 31, 1999) will be paid on August 4, 2000.  Embratel provides
domestic long distance and international telecommunications services in Brazil,
as well as over 40 other communications services, including leased high-speed
data, Internet, frame relay, satellite and packet-switched services. Operating
results for Embratel are consolidated in the accompanying consolidated financial
statements and are included from the date of the MCI Merger.

On January 31, 1998, MCI WorldCom acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the merger (the
"CompuServe Merger") of a wholly owned subsidiary of the Company with and into
CompuServe. Upon consummation of the CompuServe Merger, CompuServe became a
wholly owned subsidiary of MCI WorldCom.

As a result of the CompuServe Merger, each share of CompuServe common stock was
converted into the right to receive 0.609375 shares of MCI WorldCom Common
Stock, or approximately 56 million MCI WorldCom common shares in the aggregate.
Prior to the CompuServe Merger, CompuServe operated primarily through two
divisions: Interactive Services and Network Services.  Interactive Services
offered worldwide online and Internet access services for

                                      F-15
<PAGE>

consumers, while Network Services provided worldwide network access, management
and applications, and Internet service to businesses. The CompuServe Merger was
accounted for as a purchase; accordingly, operating results for CompuServe have
been included from the date of acquisition.

On January 31, 1998, the Company also acquired ANS Communications, Inc. ("ANS"),
from America Online, Inc. ("AOL"), for approximately $500 million, and entered
into five year contracts with AOL under which MCI WorldCom and its subsidiaries
provide network services to AOL (collectively, the "AOL Transaction").  As part
of the AOL Transaction, AOL acquired CompuServe's Interactive Services division
and received a $175 million cash payment from MCI WorldCom. MCI WorldCom
retained the CompuServe Network Services division.  ANS provided Internet access
to AOL and AOL's subscribers in the United States, Canada, the United Kingdom,
Sweden and Japan. The AOL Transaction was accounted for as a purchase;
accordingly, operating results for ANS have been included from the date of
acquisition.

The purchase price in the CompuServe Merger and AOL Transaction was allocated
based on estimated fair values at the date of acquisition.  This resulted in an
excess of purchase price over net assets acquired of which $429 million was
allocated to IPR&D.  The remaining excess of $991 million, as of December 31,
1999, has been recorded as goodwill, which is being amortized over 10 years on a
straight-line basis.

On January 29, 1998, MCI WorldCom acquired Brooks Fiber Properties, Inc.
("BFP"), pursuant to the merger (the "BFP Merger") of a wholly owned subsidiary
of MCI WorldCom, with and into BFP.  Upon consummation of the BFP Merger, BFP
became a wholly owned subsidiary of MCI WorldCom.  BFP is a leading facilities-
based provider of competitive local telecommunications services, commonly
referred to as a competitive local exchange carrier ("CLEC"), in selected cities
within the United States.  BFP acquires and constructs its own state-of-the-art
fiber optic networks and facilities and leases network capacity from others to
provide long distance carriers, ISPs, wireless carriers and business, government
and institutional end users with an alternative to the incumbent local exchange
carriers ("ILECs") for a broad array of high quality voice, data, video
transport and other telecommunications services.

As a result of the BFP Merger, each share of BFP common stock was converted into
the right to receive 2.775 shares of MCI WorldCom Common Stock or approximately
109 million MCI WorldCom common shares in the aggregate.  The BFP Merger was
accounted for as a pooling-of-interests; and, accordingly, the Company's
financial statements for periods prior to the BFP Merger have been restated to
include the results of BFP for all periods presented.

During 1999 and 1998, the Company recorded other liabilities of $582 million and
$2.2 billion, respectively, related to estimated costs of unfavorable
commitments of acquired entities, and other non-recurring costs arising from
various acquisitions and mergers.  At December 31, 1999 and 1998, other
liabilities related to these accruals totaled $1.8 billion and $2.0 billion,
respectively.

The following unaudited pro forma combined results of operations for the Company
assumes that the MCI Merger was completed on January 1, 1998 (in millions,
except per share data):

                                      F-16
<PAGE>

<TABLE>
<CAPTION>
                                                                     For the Year Ended
                                                                          December 31,
                                                                             1998
                                                                         ----------
<S>                                                                      <C>

Revenues                                                                    $32,411
Net income (loss) before cumulative effect of accounting
     change and extraordinary items                                          (2,574)
Net income (loss) attributable to common shareholders                        (2,739)
Dilutive income (loss) per common share:
Net income (loss) before cumulative effect of accounting change and
     extraordinary items                                                    $ (0.95)
Net income (loss)                                                             (1.01)
</TABLE>

These pro forma amounts represent the historical operating results of MCI
combined with those of the Company with appropriate preliminary adjustments
which give effect to an IPR&D charge of $3.1 billion in 1998, depreciation,
amortization, interest and the common shares issued. These pro forma amounts do
not include amounts with respect to the CompuServe Merger, AOL Transaction or
Embratel prior to their respective business combination dates because they are
individually, and in the aggregate, not material to MCI WorldCom. These pro
forma amounts are not necessarily indicative of operating results which would
have occurred if MCI had been operated by current management during the periods
presented because these amounts do not reflect cost savings related to full
network optimization and the redundant effect on operating, selling, general and
administrative expenses.

(3)  In-Process Research and Development and Other Charges -
     -----------------------------------------------------

The following table reflects the components of the significant items included in
IPR&D and other charges in 1999 and 1998 (in millions):

<TABLE>
<CAPTION>
                                                                       1999             1998
                                                                 --------------      ---------
<S>                                                                <C>                 <C>
IPR&D                                                                     $   -         $3,529
Provision to reduce the carrying value of certain assets                      -             49
Severance and other employee related costs                                    -             21
Direct merger costs                                                           1             17
Alignment and other exit activities                                          (9)           109
                                                                 --------------      ---------
                                                                          $  (8)        $3,725
                                                                 ==============      =========
</TABLE>

In 1998, the Company recorded a pre-tax charge of $196 million in connection
with the BFP Merger, the MCI Merger and certain asset write-downs and loss
contingencies.  Such charges included $21 million for employee severance, $17
million for BFP direct merger costs, $38 million for conformance of BFP
accounting policies, $56 million for exit costs under long-term commitments, $31
million for write-down of a permanently impaired investment and $33 million
related to certain asset write-downs and loss contingencies.  The $56 million
related to long-term commitments includes $33 million of minimum commitments
between 1999 and 2008 for leased facilities that the Company has or will
abandon, $19 million related to certain minimum contractual network lease
commitments that expire between 1999 and 2001, for which the Company will
receive no future benefit due to the migration of traffic to owned facilities,
and $4 million of other commitments.  Because of organizational and operational
changes that occurred, management concluded in 1999 that certain leased
properties would not be abandoned according to the original plan that was
approved by management.  Therefore, in 1999 a reversal of a $9 million charge to
IPR&D and other charges was recorded in connection with this plan

                                      F-17
<PAGE>

amendment. Additionally, the $33 million related to certain asset write-downs
and loss contingencies includes $9 million for the decommission of certain
information systems that have no alternative future use, $9 million for the
write-down to fair value of certain assets held for sale that were disposed of
in 1998 and $15 million related to legal costs and other items related to BFP.
As of December 31, 1999 and 1998, the Company's remaining unpaid liability
related to the above charges was $27 million and $66 million, respectively.

Charge for In-process Research and Development:
- ----------------------------------------------

In connection with certain business combinations, the Company made allocations
of the purchase price to acquired IPR&D totaling $429 million in the first
quarter of 1998 related to the CompuServe Merger and AOL Transaction and $3.1
billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects.  At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses.  Accordingly, these costs were expensed as of the
respective acquisition dates.

(4)    Investments -
       -----------

In November 1999, the Company purchased a 30 million shares of Metricom, Inc.
("Metricom") Series A1 preferred stock (the "Metricom Preferred Stock") for $300
million.  The Metricom Preferred Stock bears cumulative dividends at the rate of
6.5% per annum for three years, payable in cash or additional shares of Metricom
Preferred Stock.  In addition, the Company has the right to elect one director
to Metricom's Board of Directors, although voting rights otherwise will be
generally limited to specified matters.  The Metricom Preferred Stock is subject
to mandatory redemption by Metricom at the original issuance price in 2009 and
to redemption at the option of the holder upon the occurrence of specified
changes in control or major acquisitions.  The Metricom Preferred Stock is
convertible into Metricom common stock at the Company's option beginning May
2002.

Metricom is a leading provider of mobile data networking and technology.
Metricom's Ricochet service provides mobile professionals with high-performance,
cost effective untethered access to the Internet, private Intranets, local-area
networks, e-mail and other online services.

Additionally, MCI WorldCom signed a five-year, non-exclusive agreement valued at
$388 million with Metricom to sell subscriptions for Metricom's Ricochet
services.  The agreement is subject to the timely deployment of the Metricom
network, Metricom's ability to meet agreed performance standards and Metricom's
ability to attract a significant number of subscribers through other channel
partners.

In connection with the MCI Merger, the Company acquired a 44.5% investment in
Avantel, S.A. ("Avantel") and Avantel Servicios Locales, S.A. ("Avantel
Local"), both business ventures with Grupo Financiero Banamex-Accival, formed to
provide competitive domestic and international telecommunications services in
Mexico.  At December 31, 1999 and 1998, the net investment in Avantel and
Avantel Local was approximately $196 million.  The Company's share of Avantel
and Avantel Local's net loss for the year ended December 31, 1999 was
approximately $39

                                      F-18
<PAGE>

million. The Company's share of Avantel and Avantel Local's net loss recorded
from the MCI Merger date through December 31, 1998, was approximately $25
million. The Company, Avantel and Avantel Local conduct business through the
exchange of domestic and international interconnection services at prevailing
market rates in the ordinary course of business. During 1999 and 1998, the
amounts associated with these transactions were not material.

In connection with the MCI Merger, the Company acquired an investment in The
News Corporation Limited ("News Corp."), valued at $1.38 billion at December 31,
1998, comprised of cumulative convertible preferred securities and warrants.  In
July 1999 the Company received $1.4 billion in cash from the sale of the
Company's interest in News Corp. preferred stock.  The Company recorded a gain
of $130 million on this sale.  Additionally, the Company recorded dividend
income of approximately $32 million and $17 million, respectively, for the years
ended December 31, 1999 and 1998.

With News Corp., the Company anticipated forming a Direct Broadcast Satellite
("DBS") joint venture in which the Company would own at 19.9% interest.  DBS is
a point-to-multipoint broadcast service that uses high-powered Ku band
satellites placed in geosynchronous orbit.  DBS service is capable of delivering
a wide range of services, including subscription television, pay-per-view
services, such as movies, concerts and sporting events, and digitized content,
such as magazines.  Prior to the EchoStar Transaction, as discussed below, the
Company held a DBS license from the FCC which it planned to contribute to the
joint venture.  The DBS license granted the Company the right to use 28 of 32
channels in the satellite slot located at 110 degrees west longitude, which
provides coverage to all fifty states in the U.S. and Puerto Rico.  News Corp.
and the Company planned to contribute to the joint venture the other DBS related
assets they each own.

In November 1998, the Company and News Corp. entered into an agreement with
EchoStar Communications Corporation ("EchoStar") for the sale and transfer of
the Company's and News Corp.'s DBS assets (the "EchoStar Transaction").  The
EchoStar Transaction was consummated in June 1999 and  the Company acquired
preferred shares in a subsidiary of News Corp. for a face amount equal to the
Company's cost of obtaining the DBS license from the FCC; plus interest thereon.
The Company also received from EchoStar approximately 6.8 million shares of
EchoStar Class A Common Stock.  In December 1999, the Company sold 2.7 million
shares of EchoStar Class A Common Stock and received $190 million in net
proceeds.  The Company recorded a gain of $101 million on this sale.

(5)    Long-term Debt -
       --------------

Outstanding debt as of December 31, 1999 and 1998 consists of the following (in
millions):

                                      F-19
<PAGE>

<TABLE>
<CAPTION>
                                                  1999                                          1998
                               ---------------------------------------         -------------------------------------
                                Excluding                                      Excluding
                                Embratel      Embratel    Consolidated          Embratel     Embratel   Consolidated
                                ---------     --------    ------------         ---------     ---------  ------------
<S>                            <C>           <C>          <C>                  <C>          <C>         <C>

Commercial paper and credit
 facilities                      $ 2,875        $    -          $ 2,875         $ 4,679      $    -        $ 4,679
Floating rate notes due 2000
6.13% - 6.95% Notes Due            1,000             -            1,000               -           -              -
 2001-2028                         6,100             -            6,100           6,100           -          6,100
7.55% - 7.75% Notes Due
 2004-2027                         2,000             -            2,000           2,000           -          2,000
8.88% - 13.5% Senior Notes Due
 2002-2006                           689             -              689           1,623           -          1,623
7.13%-8.25% MCI Senior
 Debentures Due 2023-2027          1,438             -            1,438           1,441           -          1,441
6.13%-7.50% MCI Senior Notes
 Due 1999-2012                     2,142             -            2,142           2,653           -          2,653
15% note payable due in annual
 installments through 2000             -           440              440               -       1,317          1,317
Capital lease obligations,
 7.00% - 11.00%
    (maturing through 2002)          483             -              483             639           -            639
Other debt (maturing through
 2008)                               148           828              976             201         552            753
                               ---------      --------        ---------        --------     -------      ---------
                                  16,875         1,268           18,143          19,336       1,869         21,205
Short-term debt and current
 maturities of long-term debt     (4,239)         (776)          (5,015)         (3,971)       (786)        (4,757)
                               ---------      --------        ---------        --------     -------      ---------
                                 $12,636        $  492          $13,128         $15,365      $1,083        $16,448
                               =========      ========        =========        ========     =======      =========
</TABLE>

In January 1999, the Company and one of its wholly owned subsidiaries redeemed
all of its outstanding 9.375% Senior Notes due January 15, 2004 (the "Senior
Notes").  Holders of the Senior Notes received 103.52% of the principal amount
plus accrued and unpaid interest to January 15, 1999, of $46.875 per $1,000
aggregate principal amount of such Senior Notes.  The total redemption cost of
$743 million was obtained from available liquidity under the Company's Credit
Facilities and commercial paper program (which is described below).  The Company
recorded a $28 million charge related to the redemption.

In March 1999, $300 million and $200 million of MCI senior notes, with interest
rates of 6.25% and 6.37%, respectively, matured.  The funds utilized to repay
the maturing MCI senior notes were obtained from available liquidity under the
Company's Credit Facilities and commercial paper program.

On August 5, 1999, MCI WorldCom extended its existing $7 billion 364-Day
Revolving Credit and Term Loan Agreement for a successive 364-day term pursuant
to an Amended and Restated 364-Day Revolving Credit and Term Loan Agreement
("Facility C Loans").  The Facility C Loans together with the $3.75 billion
Amended and Restated Facility A Revolving Credit Agreement dated August 6, 1998
("Facility A Loans"), provide MCI WorldCom with aggregate credit facilities of
$10.75 billion (the "Credit Facilities").  The Credit Facilities provide
liquidity support for the Company's commercial paper program and will be used
for other general corporate purposes. The Facility A Loans mature on June 30,
2002. The Facility C Loans have a 364-day term, which may be extended for a
second successive 364-day term thereafter to the extent of the committed amounts
from those lenders consenting thereto, with a requirement that lenders holding
at least 51% of the committed amounts consent. Additionally, effective as of the
end of such 364-day term, the Company may elect to convert up to $4 billion of
the principal debt outstanding under the Facility C Loans from revolving loans
to term loans with a maturity date no later than one year after the conversion.
The Credit Facilities bear interest payable in varying periods, depending on the
interest period, not to exceed six months, or with respect to any Eurodollar
Rate borrowing, 12 months if available to all lenders, at rates selected by the
Company under the terms of the Credit Facilities, including a Base Rate or
Eurodollar Rate, plus the applicable margin. The applicable margin for the
Eurodollar Rate borrowing varies from 0.35% to 0.75% as to Facility A Loans and
from 0.225% to 0.45% as to Facility C Loans, in each case based upon the better
of certain debt ratings. The Credit Facilities are unsecured but include

                                      F-20
<PAGE>

a negative pledge of the assets of the Company and its subsidiaries (subject to
certain exceptions). The Credit Facilities require compliance with a financial
covenant based on the ratio of total debt to total capitalization, calculated on
a consolidated basis. The Credit Facilities require compliance with certain
operating covenants which limit, among other things, the incurrence of
additional indebtedness by the Company and its subsidiaries, sales of assets and
mergers and dissolutions, and which covenants do not restrict distributions to
shareholders, provided the Company is not in default under the Credit
Facilities. At December 31, 1999, the Company was in compliance with these
covenants. The Facility A Loans and the Facility C Loans are subject to annual
commitment fees not to exceed 0.25% and 0.15%, respectively, of any unborrowed
portion of the facilities.

Additionally, in August 1999, the Company completed the private placement
offering of $1.0 billion principal amount of Floating Rate Notes due August
2000. Interest on the Floating Rate Notes is payable quarterly, equal to the
London Interbank Offered Rate ("LIBOR") for the three-month U.S. dollar deposits
plus 0.18%. The net proceeds of the offering were used to pay down debt under
the Company's Credit Facilities and commercial paper program, and for general
corporate purposes.

In December 1999, the Company redeemed all of its outstanding 13.5% Senior Notes
due December 15, 2002 (the "SkyTel Notes"), and all of its outstanding 6.75%
Convertible Subordinated Debentures due May 15, 2002 (the "SkyTel Debentures").
The aggregate outstanding principal amount of the SkyTel Notes and SkyTel
Debentures was approximately $266 million. In connection with the redemptions,
MCI WorldCom recorded a charge of approximately $34 million in the fourth
quarter of 1999. The funds required to pay all amounts under the redemptions
were obtained by MCI WorldCom from available liquidity under the Company's
Credit Facilities and commercial paper program.

As of December 31, 1999, Embratel had $828 million of long-term debt
outstanding, of which approximately $587 million was denominated in U.S. dollars
and $241 million denominated in other currencies including the French Franc,
Deutsche Mark, Japanese Yen, and Brazilian real.  The Embratel debt bears fixed
interest rates ranging from 5.7% to 10.1% and variable interest rates ranging
from 0.25% to 3.30% per annum over the LIBOR. The LIBOR rate at December 31,
1999 was 6.00125%.

Certain of Embratel's credit agreements contain covenants restricting, among
other things, (i) the ability of Telecomunicacacoes Brasileiras S.A., Telebras
("Telebras"), Embratel's former parent, to dispose of all or a substantial part
of its assets or to cease to control a company that was an operating subsidiary
of Telebras and (ii) the ability of the Brazilian Federal Government to dispose
of its controlling interest in Telebras.  The breakup of Telebras on May 22,
1998 and the privatization of Embratel constituted an event of default under
such credit agreements.  In addition, most of Embratel's other credit agreements
include cross-default provisions and cross-acceleration provisions that would
permit the holders of such indebtedness to declare the indebtedness to be in
default and to accelerate the maturity thereof if a significant portion of the
principal amount of Embratel's debt is in default or accelerated.  As of
December 31, 1999 approximately $340 million of Embratel's outstanding debt is
currently in default or expected to be in default as a result of the
privatization.  Embratel is currently in negotiations with the appropriate
creditors with respect to this indebtedness.

                                      F-21
<PAGE>

The consolidated financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that might be
necessary should Embratel be unable to renegotiate its credit agreements.  The
Company believes that once the privatization is finalized, Embratel's creditors
will renegotiate the terms of these credit agreements and/or provide appropriate
waivers regarding such defaults.

The Company has designated the remaining note payable in local currency
installments, resulting from the Embratel investment, as a hedge of its
investment in Embratel.  Accordingly, as of December 31, 1999 and 1998, the
Company recorded the change in value of $171 million and $25 million,
respectively, resulting from foreign currency fluctuations, as a reduction of
the note payable with the offset through foreign currency translation adjustment
in shareholders' investment.

The aggregate principal repayments and reductions required in each of the years
ending December 31, 2000 through December 31, 2004 and thereafter for the
Company's long-term debt is as follows (in millions):
<TABLE>
     <S>               <C>
     2000                     $ 5,015
     2001                       1,740
     2002                         167
     2003                         710
     2004                       1,128
     Thereafter                 9,383
                              -------
                              $18,143
                              =======
</TABLE>

(6)  Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
     ---------------------------------------------------------------------------
     Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of
     --------------------------------------------------------------------------
     the Company and Other Redeemable Preferred Securities -
     -----------------------------------------------------

In connection with the MCI Merger, the Company acquired $750 million aggregate
principal amount of 8% Cumulative Quarterly Income Preferred Securities, Series
A, representing 30 million shares outstanding ("preferred securities") due June
30, 2026 which were previously issued by MCI Capital I, a wholly owned Delaware
statutory business trust (the "Trust"). The Trust exists for the sole purpose of
issuing the preferred securities and investing the proceeds in the Company's 8%
Junior Subordinated Deferrable Interest Debentures, Series A ("Subordinated Debt
Securities") due June 30, 2026, the only assets of the Trust.

Holders of the preferred securities are entitled to receive preferential
cumulative cash distributions from the Trust on a quarterly basis, provided the
Company has not elected to defer the payment of interest due on the Subordinated
Debt Securities to the Trust.  The Company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The preferred securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debt Securities at maturity or earlier
in an amount equal to the amount of Subordinated Debt Securities maturing or
being repaid.  In addition, in the event the Company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then holders of the
preferred securities of the Trust.

                                      F-22
<PAGE>

The Company and MCI have executed various guarantee agreements and supplemental
indentures which agreements, when taken together with the issuance of the
Subordinated Debt Securities, constitute a full, irrevocable, and unconditional
guarantee by the Company and MCI of all of the Trust's obligations under the
preferred securities (the "Guarantee").  A Guarantee Agreement and Supplement
No. 1 thereto covers payment of the preferred securities' quarterly
distributions and payments on maturity or redemption of the preferred
securities, but only in each case to the extent of funds held by the Trust.  If
the Company does not make interest payments on the Subordinated Debt Securities
held by the Trust, the Trust will have insufficient funds to pay such
distributions.  The obligations of the Company and MCI under the Guarantee and
the Subordinated Debt Securities are subordinate and junior in right of payment
to all senior debt of the Company and MCI, respectively.

Other Redeemable Preferred Securities:
- -------------------------------------

On December 28, 1998, MCI WORLDCOM Synergies Management Company, Inc. ("SMC"), a
wholly owned subsidiary of the Company, issued 475 shares of an authorized 500
shares of 6.375% cumulative preferred stock, Class A ("SMC Class A Preferred
Stock") in a private placement.  Each share of SMC Class A Preferred Stock has a
par value of $0.01 per share and a liquidation preference of $100,000 per share.
The SMC Class A Preferred Stock is mandatorily redeemable by SMC at the
redemption price of $100,000 per share plus accumulated and unpaid dividends on
January 1, 2019.  Dividends on the SMC Class A Preferred Stock are cumulative
from the date of issuance and are payable quarterly at a rate per annum equal to
6.375% of the liquidation preference of $100,000 per share when, as and if
declared by the Board of Directors of SMC.

(7)  Preferred Stock -
     ---------------

The MCI WorldCom Series B Convertible Preferred Stock (the "MCI WorldCom Series
B Preferred Stock") is convertible into shares of MCI WorldCom Common Stock at
any time at a conversion rate of 0.1460868 shares of MCI WorldCom Common Stock
for each share of MCI WorldCom Series B Preferred Stock.  Dividends on the MCI
WorldCom Series B Preferred Stock accrue at the rate of $0.0775 per share, per
annum and are payable in cash.  Dividends will be paid only when, as and if
declared by the Board of Directors.  The Company has not declared any dividends
on the MCI WorldCom Series B Preferred Stock to date and anticipates that future
dividends will not be declared but will continue to accrue.  Upon conversion,
accrued but unpaid dividends are payable in cash or shares of MCI WorldCom
Common Stock at the Company's election.   To date, the Company has elected to
pay all accrued dividends in cash, upon conversion.

The MCI WorldCom Series B Preferred Stock is also redeemable at the option of
the Company at any time after September 30, 2001 at a redemption price of $1.00
per share, plus accrued and unpaid dividends.  The redemption price will be
payable in cash or shares of MCI WorldCom Common Stock at the Company's
election.

                                      F-23
<PAGE>

The MCI WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters.  The MCI WorldCom Series B Preferred Stock has a
liquidation preference of $1.00 per share plus all accrued and unpaid dividends
thereon to the date of liquidation.  There is no established market for the MCI
WorldCom Series B Preferred Stock.

In January 2000, each outstanding share of MCI WorldCom Series C Preferred Stock
was redeemed by the Company for $50.75 in cash, or approximately $190 million in
the aggregate.

In May 1998, the Company exercised its option to redeem all of the outstanding
Series A 8% Cumulative Convertible Preferred Stock (the "MCI WorldCom Series A
Preferred Stock") and related depositary shares.  Prior to the redemption date,
substantially all of the holders of MCI WorldCom Series A Preferred Stock
elected to convert the preferred stock into MCI WorldCom Common Stock, resulting
in the issuance of approximately 49 million shares of MCI WorldCom Common Stock.

(8)  Shareholder Rights Plan -
     -----------------------

On August 25, 1996, the Board of Directors of MCI WorldCom declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
MCI WorldCom Common Stock.  Each Right entitles the registered holder to
purchase from the Company one one thousand-five-hundredth of a share of Series 3
Junior Participating Preferred Stock, par value $.01 per share (the "Junior
Preferred Stock"), of the Company at an initial price of $160.00 per one one-
thousandth of a share of Junior Preferred Stock (the "Purchase Price"), subject
to adjustment.

The Rights generally will be exercisable only after the close of business on the
tenth business day following the date of public announcement or the date on
which the Company first has notice or determines that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or has
obtained the right to acquire, 15% or more of the outstanding shares of voting
stock of the Company without the prior express written consent of the Company,
or after the close of business on the tenth business day (or such later day as
the Board of Directors shall determine, but in no event later than the tenth
business day after a person becomes an Acquiring Person) after the commencement
of a tender offer or exchange offer, by a person which, upon consummation, would
result in such party's control of 15% or more of the Company's voting stock.
The Rights will expire, if not previously exercised, exchanged or redeemed, on
September 6, 2001.

If any person or group acquires 15% or more of the Company's outstanding voting
stock without prior written consent of the Board of Directors, each Right,
except those held by such persons, would entitle each holder of a Right to
acquire such number of shares of MCI WorldCom's Common Stock as shall equal the
result obtained by multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Junior Preferred Stock for which a Right is
then exercisable and dividing that product by 50% of the then current per-share
market price of MCI WorldCom Common Stock.

                                      F-24
<PAGE>

If any person or group acquires 15% or more, but less than 50%, of the
outstanding MCI WorldCom Common Stock without prior written consent of the Board
of Directors, each Right, except those held by such persons, may be exchanged by
the Board of Directors for one share of MCI WorldCom Common Stock.

If the Company were acquired in a merger or other business combination
transaction where the Company is not the surviving corporation or where the
Company is the surviving corporation, but MCI WorldCom Common Stock is exchanged
or changed for stock or other securities of any other person or for cash or
other property, or where 50% or more of the Company's assets or earnings power
is sold in one or several transactions without the prior written consent of the
Board of Directors, each Right would entitle the holders thereof (except for the
Acquiring Person) to receive such number of shares of the acquiring company's
common stock as shall be equal to the result obtained by multiplying the then
current Purchase Price by the number of one one-thousandths of a share of Junior
Preferred Stock for which a Right is then exercisable and dividing that product
by 50% of the then current market price per share of the common stock of the
acquiring company on the date of such merger or other business combination
transaction.

At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.0067 per Right (the "Redemption Price").  The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of the Rights will be to
receive the Redemption Price.

The terms of the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, including an amendment to
lower certain thresholds described above to not less than the greater of (i) any
percentage greater than the largest percentage of the voting power of all
securities of the Company then known to the Company to be beneficially owned by
any person or group of affiliated or associated persons (other than an excepted
person) and (ii) 10%, except that from and after such time as any person or
group of affiliated or associated persons becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the Rights.

(9)  Leases and Other Commitments -
     ----------------------------

The Company leases office facilities and certain equipment under noncancellable
operating leases having initial or remaining terms of more than one year.  In
addition, the Company leases a right-of-way from a railroad company under a
fifteen-year lease with three fifteen-year renewal options.  The Company is also
obligated under rights-of-way and franchise agreements with various entities for
the use of their rights-of-way for the installation of the Company's
telecommunications systems.  Rental expense under these operating leases was
$323 million, $184 million and $140 million in 1999, 1998, and 1997,
respectively.

At December 31, 1999, minimum lease payments under noncancellable operating
leases and commitments, other contractual commitments and capital leases were as
follows (in millions):

                                      F-25
<PAGE>

<TABLE>
<CAPTION>

                                                             Operating and Capital Leases
                           ----------------------------------------------------------------------------------------------

                               Office Facilities
                                 and Equipment
                                   and other                   Telecommunications
                                  Contractual                      Facilities                                   Capital
         Year                     Commitments                  and Rights of Way                Total            Leases
- -----------------------    ------------------------    --------------------------------    -------------    -------------
<S>                          <C>                         <C>                                 <C>              <C>
2000                                         $  580                              $1,613          $ 2,193            $ 109
2001                                            534                               1,395            1,929               89
2002                                            641                               1,254            1,895               55
2003                                            599                               1,032            1,631               31
2004                                            520                                 793            1,313               38
Thereafter                                    2,440                               1,449            3,889              383
                           ------------------------    --------------------------------    -------------    -------------
Total                                        $5,314                              $7,536          $12,850            $ 705
                           ========================    ================================    =============
Less: imputed interest                                                                                               (222)
                                                                                                            -------------
                                                                                                                    $ 483
                                                                                                            =============
</TABLE>
Certain of the Company's facility leases include renewal options, and most
leases include provisions for rent escalation to reflect increased operating
costs and/or require the Company to pay certain maintenance and utility costs.

In October 1999, the Company and Electronic Data Systems Corporation ("EDS")
finalized dual outsourcing agreements that are expected to capitalize on the
individual strengths of each company.  Under these agreements, MCI WorldCom has
outsourced portions of its information technology ("IT") operations to EDS.  EDS
has assumed responsibility for IT system operations at more than a dozen MCI
WorldCom processing centers worldwide. The IT outsourcing agreement is
represented by a 10-year contractual commitment with contractually specified
minimums over the term of the contract. The contractual minimums aggregate $3.3
billion and have been included in the operating and capital lease commitment
table above.

In 1999, the Company amended its existing $500 million receivables purchase
agreement to $2 billion including certain additional receivables and in the
process received additional proceeds of $1.4 billion.  The Company used these
proceeds to reduce the outstanding debt under the Company's Credit Facilities
and commercial paper program and provide additional working capital.  As of
December 31, 1999, the purchaser owned an undivided interest in a $3.8 billion
pool of receivables, which includes the $1.9 billion sold.

(10) Contingencies -
     -------------

The Company is involved in legal and regulatory proceedings generally incidental
to its business and has included loss contingencies in other current liabilities
and other liabilities for certain of these matters. In some instances, rulings
by federal and some state regulatory authorities may result in increased
operating costs to the Company. Except as described herein, and while the
results of these various legal and regulatory matters contain an element of
uncertainty, MCI WorldCom believes that the probable outcome of these matters
should not have a material adverse effect on the Company's consolidated results
of operations or financial position.

                                      F-26
<PAGE>

General.   MCI WorldCom is subject to varying degrees of federal, state, local
and international regulation.  In the United States, the Company's subsidiaries
are most heavily regulated by the states, especially for the provision of local
exchange services.  The Company must be certified separately in each state to
offer local exchange and intrastate long distance services.  No state, however,
subjects MCI WorldCom to price cap or rate of return regulation, nor is the
Company currently required to obtain FCC authorization for installation or
operation of its network facilities used for domestic services, other than
licenses for specific terrestrial microwave and satellite earth station
facilities that utilize radio frequency spectrum.  FCC approval is required,
however, for the installation and operation of its international facilities and
services.  MCI WorldCom is subject to varying degrees of regulation in the
foreign jurisdictions in which it conducts business including authorization for
the installation and operation of network facilities.  Although the trend in
federal, state and international regulation appears to favor increased
competition, no assurance can be given that changes in current or future
regulations adopted by the FCC, state or foreign regulators or legislative
initiatives in the United States or abroad would not have a material adverse
effect on MCI WorldCom.

In implementing the Telecom Act,  the FCC established nationwide rules designed
to encourage new entrants to participate in the local services markets through
interconnection with the ILECs, resale of ILECs' retail services and use of
individual and combinations of unbundled network elements.  Appeals of the FCC
order adopting those rules were consolidated before the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit").  Thereafter, the Eighth
Circuit held that constitutional challenges to various practices implementing
cost provisions of the Telecom Act that were ordered by certain Public Utility
Commissions ("PUCs") were premature; it vacated, however, significant portions
of the FCC's nationwide pricing rules and an FCC rule requiring that unbundled
network elements be provided on a combined basis.  The United States Supreme
Court (the "Supreme Court") reviewed the decision of the Eighth Circuit and on
January 25, 1999, reversed the Eighth Circuit in part and reinstated, with one
exception, all of the FCC local competition rules.  The Supreme Court vacated
and remanded to the FCC for reconsideration the rule determining which unbundled
network elements must be provided by ILECs to new entrants.  On November 5,
1999, the FCC promulgated new unbundling rules that require two additional
network elements, as well as most of the previously identified elements, to be
made available to new entrants.  However, the FCC concluded that a new packet-
switching element should not be available for unbundling.  That order has been
appealed by the ILECs to the United States Court of Appeals for the District of
Columbia Circuit.  The Eighth Circuit is now considering the ILECs' challenges
to the substance of pricing rules which it previously had found to be premature.

Access charges, both interstate and intrastate, are a principal component of MCI
WorldCom's telecommunications expense. Regulators have historically permitted
access charges to be set at levels that are well above ILECs' costs.  As a
result, access charges have been a source of universal service subsidies that
enable local exchange rates to be set at levels that are affordable.  MCI
WorldCom has actively participated in a variety of state and federal regulatory
proceedings with the goal of bringing access charges to cost-based levels and to
fund universal service using explicit subsidies funded in a competitively
neutral manner.

On May 21, 1999, the United States Court of Appeals for the District of Columbia
Circuit reversed and remanded to the FCC its decision to adjust its price cap
regulation of ILECs to

                                      F-27
<PAGE>

require access charges to fall 6.5% per year adjusted for inflation. On June 22,
1999, that court stayed the effect of its decision pending a further order by
the FCC justifying or modifying its decision in response to the court's opinion.

On November 4, 1999, the FCC's Pricing Flexibility Order, which allowed price-
cap regulated ILECs to offer customer specific pricing in contract tariffs, took
effect.  Price-cap regulated ILECs can now offer access arrangements with
contract-type pricing in competition with long distance carriers and other
competitive access providers, who have previously been able to offer such
pricing for access arrangements.  As ILECs experience increasing competition in
the local services market, the FCC will grant increased pricing flexibility and
relax tariffing requirements for access services.  The FCC is also conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services.  The Company has appealed the Pricing Flexibility Order to the
United States Court of Appeals for the District of Columbia Circuit.

On May 27, 1999, the FCC amended its prior universal service decisions in two
significant respects.  First, the FCC raised the funding level for universal
service support to schools and libraries to $2.25 billion per year, the current
maximum that FCC rules allow.  Second, the FCC modified its approach to
subsidizing non-rural high cost areas by rejecting its prior approach of sizing
the subsidy based on forward-looking cost models, and instead adopted a more
complex approach that the FCC said it hoped would produce a small high cost
fund.  On November 2, 1999, the FCC released two further universal service
orders, which provide for federal support for non-rural high cost areas.  Both
orders have been appealed to the United States Court of Appeals for the Tenth
Circuit.  On July 30, 1999, the United States Court of Appeals for the Fifth
Circuit issued a decision reversing in part the May 1997 FCC universal service
decision.  Among other things, the court held that the FCC may collect universal
service contributions from interstate carriers based on only interstate
revenues, and that the FCC could not force the ILECs to recover their universal
service contributions through interstate access charges.  On November 1, 1999,
the FCC implemented the court's decision.  ILEC interstate access charges
decreased by approximately $400 million, and direct universal service
assessments on interstate carriers such as MCI WorldCom increased by $700
million.

In August 1998, in response to petitions filed by several ILECs under the guise
of Section 706 of the Telecom Act, the FCC issued its Advanced Services Order.
This order clarifies that the interconnection, unbundling, and resale
requirements of Section 251(c) of the Telecom Act, and the interLATA
restrictions of Section 271 of the Telecom Act, apply fully to so-called
"advanced telecommunications services," such as Digital Subscriber Line ("DSL")
technology. US West Communications Group appealed this order to the United
States Court of Appeals for the District of Columbia Circuit.  At the request of
the FCC, the court remanded the case for further administrative proceedings, and
on December 23, 1999, the FCC issued its Order on Remand.  In that order, the
FCC reaffirmed its earlier decision that ILECs are subject to the obligations of
Section 251(c) of the Telecom Act in connection with the offering of advanced
telecommunications services such as DSL.  The order reserved ruling on whether
such obligations extend to traffic jointly carried by an ILEC and a CLEC to an
ISP where the ISP self-provides the transport component of its Internet access
service.  The Order on Remand also found that DSL-based advanced services that
are used to connect ISPs to their subscribers to facilitate Internet-bound
traffic typically constitute exchange access service.  On January 3,

                                      F-28
<PAGE>

2000, the Company filed a petition for review of this aspect of the Order on
Remand with the United States Court of Appeals for the District of Columbia
Circuit.

In a companion notice to the original order, the FCC sought comment on how to
implement Section 706 of the Telecom Act, which directs the FCC to (1) encourage
the deployment of advanced telecommunications capability to Americans on a
reasonable and timely basis, and (2) complete an inquiry concerning the
availability of such services no later than February 8, 1999.  The Commission's
rulemaking notice included a proposal that, if adopted, would allow the ILECs
the option of providing advanced services via a separate subsidiary free from
the unbundling and resale obligations of Section 251(c), as well as other
dominant carrier regulatory requirements.  In early February 1999, the FCC
issued its report to Congress, concluding that the deployment of advanced
services is proceeding at a reasonable and timely pace.  The FCC has not yet
issued its Section 706 rulemaking order.

In February 1999, the FCC adopted new rules expanding the rights of CLECs to
collocate equipment within ILEC-owned facilities. The ILECs appealed the
February 1999 collocation order to the United States Court of Appeals for the
District of Columbia Circuit. On March 17, 2000, the court vacated in part and
affirmed in part the rules.  Specifically, the court vacated and remanded to the
FCC the portion of its rules that allowed CLECs to collocate equipment that is
necessary for interconnection but that also performs some other function.

In the same February 1999 order, the FCC sought public comments on its tentative
conclusion that loop spectrum standards should be set in a competitively neutral
process.  In November 1999, the FCC concluded that ILECs should be required to
share primary telephone lines with CLECs, and identified the high frequency
portion of the loop as a network element.

On February 26, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to ISPs.  Prior to the
FCC's order, approximately thirty PUCs issued orders unanimously finding that
carriers, including MCI WorldCom, are entitled to collect reciprocal
compensation for completing calls to ISPs under the terms of their
interconnection agreements with ILECs.  Many of these PUC decisions have been
appealed by the ILECs and, since the FCC's order, many have filed new cases at
the PUCs or in court.  Moreover, MCI WorldCom appealed the FCC's order to the
United States Court of Appeals for the District of Columbia Circuit. On March
24, 2000, the court vacated the FCC's order and remanded the case to the FCC for
further proceedings.  MCI WorldCom cannot predict the outcome of the cases filed
by the ILECs, the FCC's rulemaking proceeding, or the FCC's proceedings on
remand, nor can it predict whether or not the result(s) will have a material
adverse impact upon its consolidated financial position or results of future
operations.

Several bills have been introduced during the 106th Congress that would exclude
the transmission of data services or high-speed Internet access from the Telecom
Act's bar on the transmission of in-region interLATA services by the BOCs.
These bills would also make it more difficult for competitors to resell the
high-speed Internet access services of the ILECs or to lease a portion of the
network components used for the provision of such services.

                                      F-29
<PAGE>

In 1996 and 1997, the FCC issued decisions that would require non-dominant
telecommunica-tions carriers to eliminate interstate service tariffs, except in
limited circumstances.  MCI WorldCom challenged this decision in the United
States Court of Appeals for the District of Columbia Circuit, and successfully
obtained a stay of the FCC's decision.  MCI WorldCom's appeal has been held in
abeyance pending FCC action with respect to petitions for reconsideration.  The
FCC recently issued an order addressing those petitions for reconsideration,
briefing of the appeal is ongoing, and oral argument was held on March 14, 2000.
MCI WorldCom cannot predict the ultimate outcome of this appeal.  Should the FCC
prevail, MCI WorldCom could no longer rely on its federal tariff to limit
liability or to establish its interstate rates for customers.  Under the FCC's
decision, MCI WorldCom would need to develop a means to contract individually
with its millions of customers in order to establish lawfully enforceable rates.

In 1997 and 1998, the FCC rejected five applications filed by BOCs to provide
in-region long distance service in competition with long distance carriers.
Pursuant to the Telecom Act, BOCs must file, in each state in their service
area, an application conforming to the requirements of Section 271 of the
Telecom Act if they wish to offer in-region long distance in that state.  Among
other things, the applications must demonstrate that the BOC has met a 14-point
competitive checklist to open its local network to competition and demonstrate
that the application is in the public interest.  Bell Atlantic Corporation
("Bell Atlantic") in New York filed an application with the FCC on October 19,
1999.  Bell Atlantic's was the first application to have been subjected to
rigorous operational testing of readiness to meet the Section 271 requirements.
On December 21, 1999, the FCC granted Bell Atlantic's application.  SBC
Corporation filed an application for Texas on January 10, 2000.  A decision is
expected on that application by April 7, 2000.

The FCC is currently reviewing a proposal for access charge and universal
service reform that has been filed by the Coalition for Affordable Local and
Long Distance Service ("CALLS"), a group of RBOCs, GTE Corporation ("GTE") and
two long distance companies. The principal aspects of the plan are (1)
residential Subscriber Line Charges would be increased to $4.35 in 2000, $5.00
in 2001, $6.00 in 2002, and $6.50 in 2003; (2) residential Presubscribed
Interexchange Carrier Charges ("PICCs") would be eliminated in 2000; (3) carrier
access charges would be reduced for the industry by $2.1 billion on July 1,
2000, with minimal additional reductions in later years; and (4) the RBOCs and
GTE would benefit from a new $650 million universal service fund. In addition,
MCI WorldCom believes the FCC may have made other commitments to the RBOCs
concerning the disposition and/or timing of other regulatory proceedings that
may be related to the RBOCs' decision to offer the CALLS plan. This might
include, for example, restrictions on CLECs' ability to use unbundled network
elements to offer special access services. Finally, interexchange carriers
participating in the CALLS plan are committing to eliminate PICC-pass through
charges, eliminate minimum charges for basic schedule customers, and flow
through reductions in access charges. Public comments are due to the FCC on
April 3, 2000, and reply comments are due on April 17, 2000. MCI WorldCom cannot
predict either the outcome of this proceeding or whether or not the results will
have a material adverse impact upon its consolidated financial position or
results of future operations.

                                      F-30
<PAGE>

International.  In February 1997, the United States entered into a World Trade
Organization Agreement (the "WTO Agreement") that is designed to have the effect
of liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next several
years.  The WTO Agreement became effective in February 1998.  In light of the
United States commitments to the WTO Agreement, the FCC implemented new rules in
February 1998 that liberalize existing policies regarding (1) the services that
may be provided by foreign affiliated United States international common
carriers, including carriers controlled or more than 25 percent owned by foreign
carriers that have market power in their home markets, and (2) the provision of
alternative traffic routing.  The new rules make it much easier for foreign
affiliated carriers to enter the United States market for the  provision of
international services.

In August 1997, the FCC adopted mandatory settlement rate benchmarks.  These
benchmarks are intended to reduce the rates that United States carriers pay
foreign carriers to terminate traffic in their home countries.  The FCC will
also prohibit a United States carrier affiliated with a foreign carrier from
providing facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate at or below the
benchmark.  The FCC also adopted new rules that will liberalize the provision of
switched services over private lines to World Trade Organization member
countries.  These rules allow such services on routes where 50% or more of
United States billed traffic is being terminated in the foreign country at or
below the applicable settlement rate benchmark or where the foreign country's
rules concerning provision of international switched services over private lines
are deemed equivalent to United States rules.  On January 12, 1999, the FCC's
benchmark rules were upheld in their entirety by the United States Court of
Appeals for the District of Columbia Circuit. On March 11, 1999 the District of
Columbia Circuit denied petitions for rehearing of the case.

In April 1999, the FCC modified its rules to permit United States international
carriers to exchange international public switched voice traffic on many routes
to and from the United States outside of the traditional settlement rate and
proportionate return regimes.

On June 3, 1999, the FCC enforced the benchmark rates on two non-compliant
routes.  Settlement rates have fallen to the benchmarks or below on many other
routes.

Although the FCC's new policies and implementation of the WTO Agreement may
result in lower settlement payments by MCI WorldCom to terminate international
traffic, there is a risk that the payments that MCI WorldCom will receive from
inbound international traffic may decrease to an even greater degree.  The
implementation of the WTO Agreement may also make it easier for foreign carriers
with market power in their home markets to offer United States and foreign
customers end-to-end services to the disadvantage of MCI WorldCom.  The Company
may continue to face substantial obstacles in obtaining from foreign governments
and foreign carriers the authority and facilities to provide such end-to-end
services.

Embratel.  The 1996 General Telecommunications Law (the "General Law") provides
a framework for telecommunications regulation for Embratel.  Article 8 of the
General Law created Agencia Nacional de Telecomunicacoes ("Anatel") to implement
the General Law through development of regulations and to enforce such
regulations.  According to the General Law, companies wishing to offer
telecommunications services to consumers are required to

                                      F-31
<PAGE>

apply to Anatel for a concession or an authorization. Concessions are granted
for the provision of services under the public regime (the "Public Regime") and
authorizations are granted for the provision of services under the private
regime (the "Private Regime"). Service providers subject to the Public Regime
(concessionaires) are subject to obligations concerning network expansion and
continuity of service provision and are subject to rate regulation. These
obligations and the tariff conditions are provided in the General Law and in
each company's concession contract. The network expansion obligations are also
provided in the Plano Geral de Universalizacao ("General Plan on Universal
Service").

The only services provided under the Public Regime are the switched fixed
telephone services ("SFTS") -local and national and international long distance
- - provided by Embratel and the three regional Telebras holding companies
("Teles").  All other telecommunications companies, including other companies
providing SFTS, operate in the Private Regime and, although they are not subject
to the Public Regime, individual authorizations may contain certain specific
expansion and continuity obligations.

The main restriction imposed on carriers by the General Plan on Universal
Service is that, until December 31, 2003, the three Teles are prohibited from
offering inter-regional and international long distance service, while Embratel
is prohibited from offering local services.  These companies can start providing
those services two years sooner if they meet their network expansion obligations
by December 31, 2001.

Embratel and the three Teles were granted their concessions at no fee, until
2005.  After 2005, the concessions may be renewed for a period of 20 years, upon
the payment, every two years, of a fee equal to 2% of annual net revenues
calculated based on the provision of SFTS in the prior year, excluding taxes and
social contributions.

Embratel also offers a number of ancillary telecommunications services pursuant
to authorizations granted in the Private Regime.  Such services include the
provision of dedicated analog and digital lines, packet switched network
services, circuit switched network services, mobile marine telecommunications,
telex and telegraph, radio signal satellite retransmission and television signal
satellite retransmission.  Some of these services are subject to some specific
continuity obligations and rate conditions.

All providers of telecommunications services are subject to quality and
modernization obligations provided in the Plan Geral de Qualidade ("General Plan
on Quality").

Litigation.  On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI and all of its directors were named as defendants in a total of
15 complaints filed in the Court of Chancery in the State of Delaware.  BT was
named as a defendant in 13 of the complaints.  The complaints were brought by
alleged stockholders of MCI, individually and purportedly as class actions on
behalf of all other stockholders of MCI.  In general, the complaints allege that
MCI's directors breached their fiduciary duty in connection with the MCI BT
Merger Agreement, dated November 3, 1996 (the "MCI BT Merger Agreement"), that
BT aided and abetted those breaches of duty, that BT owes fiduciary duties to
the other stockholders of MCI and that BT breached those duties in connection
with the MCI BT Merger Agreement.  The complaints seek damages and injunctive
and other relief.

                                      F-32
<PAGE>

One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended, one of the purported class actions has been dismissed
with prejudice, and plaintiffs in four of the other purported stockholder class
actions have moved to amend their complaints to name MCI WorldCom and
Acquisition Subsidiary as additional defendants.  These plaintiffs generally
allege that the defendants breached their fiduciary duties to stockholders in
connection with the MCI Merger and the agreement to pay a termination fee to
WorldCom.  They further allege discrimination in favor of BT in connection with
the MCI Merger.  The plaintiffs seek, inter alia, damages and injunctive relief
prohibiting the consummation of the MCI Merger and the payment of the inducement
fee to BT.

Three complaints were filed in the U.S. District Court for the District of
Columbia, as class actions on behalf of purchasers of MCI shares.  The three
cases were consolidated on April 1, 1998.  On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of MCI's shares between July 11, 1997 and August 21,
1997, inclusive, that MCI and certain of its officers and directors failed to
disclose material information about MCI, including that MCI was renegotiating
the terms of the MCI BT Merger Agreement. The consolidated amended complaint
seeks damages and other relief.  The Company and the other defendants have moved
to dismiss the consolidated amended complaint.

At least nine class action complaints have been filed that arise out of the
FCC's decision in  Halprin, Temple, Goodman and Sugrue v. MCI Telecommunications
                   -------------------------------------------------------------
Corp., and allege that MCI WorldCom has improperly charged "Pre-Subscribed"
- -----
customers "Non-Subscriber" or so-called "casual" rates for certain direct-dialed
calls.  Plantiffs further challenge MCI WorldCom's credit policies for this
"non-subscriber" traffic.  Plaintiffs assert that MCI WorldCom's conduct
violates the Communications Act and various state laws; they seek rebates to all
affected customers and punitive damages and other relief.  In response to a
motion filed by MCI WorldCom, the Judicial Panel on Multi-District Litigation
has consolidated these matters in the United States District Court for the
Southern District of Illinois.  That Court denied the Company's motion to
dismiss the state law claims, and the parties are now engaged in discovery.  On
February 4, 2000, the Company filed a petition for review of the FCC's Halprin
                                                                       -------
decision with the United States Court of Appeals for the District of Columbia
Circuit.

On September 3, 1998, WorldCom and MCI entered into a Stock Purchase Agreement
("SPA") with Cable & Wireless plc and Cable & Wireless Internet Holdings, Inc.
(collectively, "C&W"), pursuant to which MCI sold the iMCI Business to C&W.
That transaction closed on September 14, 1998, prior to the closing of the MCI
Merger.

On February 18, 1999, pursuant to the indemnity provisions of the SPA, C&W
notified MCI WorldCom that it was claiming that MCI WorldCom had breached
representations and warranties in, and had failed to comply with other
provisions of, the SPA.  C&W alleged that it had suffered damages of
approximately $1.16 billion.  MCI WorldCom advised C&W on March 19, 1999, that
the Company denied these allegations.

On March 31, 1999, C&W filed a complaint against MCI WorldCom in the United
States District Court for the District of Delaware, alleging that MCI WorldCom
had breached the SPA.  In the lawsuit, C&W sought unspecified damages and
specific performance.  On May 11, 1999,

                                      F-33
<PAGE>

MCI WorldCom filed a motion to stay the litigation and to compel compliance with
the dispute resolution/arbitration provisions in the SPA and affiliated
agreements. On July 12, 1999, the district court entered an order compelling C&W
to comply with the dispute resolution/arbitration provisions of the SPA and
affiliated agreements with respect to five of the 11 claims in its complaint and
denying a stay of the action. On July 29, 1999, the district court set a trial
date of September 12, 2000. On July 30, 1999, MCI WorldCom filed an answer
denying C&W's claims and asserting four counterclaims that alleged that C&W
breached the SPA and its duty of good faith and fair dealing.

On September 10, 1999, C&W commenced an arbitration against MCI WorldCom before
the arbitration firm J.A.M.S./Endispute.  In its Notice of Claims filed on
September 20, 1999, C&W asserted the claims dismissed from the Delaware action
as well as certain other disputes between the companies.  On October 4, 1999,
MCI WorldCom responded to the Notice of Claims by denying all of C&W's claims
and asserting six counterclaims that alleged contractual breaches by C&W.  The
hearing commenced on December 8, 1999.

On February 29, 2000, C&W and MCI WorldCom executed a Settlement Agreement
resolving all claims arising out of the sale of the iMCI Business.  MCI WorldCom
agreed to pay C&W $200 million and C&W agreed to pay MCI WorldCom approximately
$125 million for previously issued but unpaid invoices for services rendered
pursuant to various contracts executed in September 1998.  Pursuant to the
Settlement Agreement, the parties have dismissed all claims asserted in the
Delaware litigation and the arbitration, and C&W will withdraw any related
complaints or allegations lodged before any governmental agencies.

(11)  Employee Benefit Plans -
      ----------------------

Stock Option Plans:
- ------------------

The Company has several stock option plans under which options to acquire up to
733 million shares may be granted to directors, officers and certain employees
of the Company including the stock option plans acquired through various
acquisitions.  The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost is recognized.  Terms and conditions of the
Company's options, including exercise price and the period in which options are
exercisable, generally are at the discretion of the Compensation and Stock
Option Committee of the Board of Directors; however, no options are exercisable
for more than 10 years after date of grant.  As of December 31, 1999, 503
million options had been granted under these plans.

Prior to the MCI Merger, certain executives of MCI were granted incentive stock
units ("ISUs") that vested over a three-year period and entitled the holder to
receive shares of common stock.  At December 31, 1999, there were approximately
1.7 million ISUs outstanding.

Additionally, there are outstanding warrants to acquire shares of MCI WorldCom
Common Stock at prices ranging from $4.1667 to $44.41 per share which were
granted by acquired entities prior to their merger with MCI WorldCom.

Additional information regarding options and warrants granted and outstanding is
summarized below (in millions, except per share data):

                                      F-34
<PAGE>

                                          Number        Weighted-
                                        of Options       Average
                                       and Warrants   Exercise Price
                                       ------------   --------------

Balance, December 31, 1996                      126           $ 7.04
Granted to employees/directors                   48            16.76
Exercised                                       (36)            3.85
Expired or canceled                              (9)           10.25
                                                ---           ------

Balance, December 31, 1997                      129            11.27
Granted to employees/directors                   48            20.38
Assumed in connection with acquisitions         127            18.68
Exercised                                       (49)            9.87
Expired or canceled                              (9)           16.63
                                                ---           ------
Balance, December 31, 1998                      246            16.93

Granted to employees/directors                  152            46.61
Exercised                                       (61)           15.32
Expired or canceled                             (18)           30.87
                                                ---           ------
Balance, December 31, 1999                      319           $30.58
                                                ===           ======

The following table summarizes information about the shares outstanding at
December 31, 1999:

<TABLE>
<CAPTION>

                        Options and Warrants Outstanding               Options and Warrants Exercisable
                  ----------------------------------------------       --------------------------------
     Range of         Number       Remaining         Weighted-            Number           Weighted-
     Exercise      Outstanding    Contractual         Average           Outstanding         Average
      Prices      (In Millions)   Life (Years)    Exercise Price       (In Millions)     Exercise Price
     --------     -------------   ------------    --------------       -------------     --------------
 <S>              <C>             <C>             <C>                  <C>               <C>
 $ 0.01 - 17.34         93            5.1              $12.29                74              $11.59
  17.35 - 34.68         79            7.4               22.55                22               80.25
  34.69 - 52.03        146            8.6               46.57                 1               43.77
  52.04 - 86.71          1            7.6               58.18                 1               59.28
                       ---                                                   --
                       319                                                   98
                       ---                                                   --
</TABLE>

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation."  SFAS No. 123 requires disclosure of the compensation cost for
stock-based incentives granted after January 1, 1995 based on the fair value at
grant date for awards.  Applying SFAS No. 123 would result in pro forma net
income (loss) and earnings (loss) per share ("EPS") amounts as follows (in
millions, except share data):

<TABLE>
<CAPTION>
                                                                         1999        1998        1997
                                                                       -------     -------     -------
<S>                                                  <C>               <C>         <C>         <C>
Net income (loss) before cumulative effect of        As reported       $ 3,941     $(2,602)      $ 146
  accounting change and extraordinary items            Pro forma         3,442      (2,712)         90

Basic EPS                                            As reported          1.40       (1.35)       0.10
                                                       Pro forma          1.22       (1.40)       0.06

Diluted EPS                                          As reported          1.35       (1.35)       0.10
                                                       Pro forma          1.18       (1.40)       0.06
</TABLE>

                                      F-35
<PAGE>

The fair value of each option or restricted stock grant is estimated on the date
of grant using an option-pricing model with the following weighted-average
assumptions used for grant:

                                Risk-free       Weighted-
                   Expected      Interest     Average Grant-
  Date Granted    Volatility       Rate       Date Fair Value
  ------------    ----------    ---------     ---------------
     1997            22.8%         6.4%           $ 5.32
     1998            23.7%         6.4%           $ 6.68
     1999            26.8%         5.2%           $14.91

Additionally, for all options, a 15% forfeiture rate was assumed with an
expected life of 5 years and no dividend yield.

Because the SFAS No. 123 method of accounting has been applied only to grants
after December 31, 1994, the resulting pro forma compensation cost may not be
representative of that to be expected in future periods.

401(k) Plans:
- ------------

The Company and its subsidiaries offer its qualified employees the opportunity
to participate in one of its defined contribution retirement plans qualifying
under the provisions of Section 401(k) of the Internal Revenue Code.  Each
employee may contribute on a tax deferred basis a portion of annual earnings not
to exceed $10,000.  The Company matches individual employee contributions in
certain plans, up to a maximum level which in no case exceeds 6% of the
employee's compensation.  Expenses recorded by the Company relating to its
401(k) plans were $108 million, $26 million and $7 million for the years ended
December 31, 1999, 1998 and 1997, respectively.

(12) Pension and Other Post-retirement Benefit Plans -
     -----------------------------------------------

MCI WorldCom maintains a noncontributory defined benefit pension plan (the "MCI
Plan") and a supplemental pension plan (the "Supplemental Plan") and WorldCom
International Data Services, Inc., a subsidiary of MCI, has a defined benefit
pension plan.  Collectively, these plans cover substantially all MCI employees
who became MCI WorldCom employees as a result of the MCI Merger and who work
1,000 hours or more in a year.  Effective January 1, 1999, no future
compensation credits are earned by participants of the MCI Plan.

Annual service cost is determined using the Projected Unit Credit actuarial
method, and prior service cost is amortized on a straight-line basis over the
average remaining service period of employees.  As of December 31, 1999 and
1998, the MCI Plan accumulated benefit obligation exceeds the fair value of MCI
Plan assets by $51 million and $27 million, respectively.  There is no
additional minimum pension liability required to be recognized.

Additionally, Embratel sponsors a contributory defined benefit pension plan and
a post-retirement benefit plan.  Approximately 97% of Embratel's employees are
covered by these plans.  The defined benefit pension plan has an accumulated
benefit obligation in excess of fair value of assets of $13 million at December
31, 1999 and $300 million at December 31, 1998. There is no additional minimum
pension liability to be recognized.

                                      F-36
<PAGE>

Embratel health care cost trend rates were projected at annual rates excluding
inflation ranging from 5.96 % in 2000 to 2.70% in 2048. The effect of a one
percentage point increase in the assumed health care cost trend rates would
increase the Embratel accumulated post-retirement benefit obligation at December
31, 1999 by $14 million and the aggregate service and interest cost components
by $1 million on an annual basis. The effect of a one percentage point decrease
in the assumed health care cost trend rate would reduce the accumulated post-
retirement benefit obligation by $11 million and reduce the total service and
interest cost component by $1 million.

In April 1999, the Company completed the sale of MCI Systemhouse Corp. and SHL
Systemhouse Co. (collectively "SHL") to EDS for $1.6 billion resulting in a
settlement gain of $24 million and benefit payments of $80 million.

The following table sets forth information for the MCI pension plans and
Embratel defined benefit pension and post-retirement plans' assets and
obligations (in millions):

<TABLE>
<CAPTION>
                                                                         Embratel Plans
                                                  MCI              --------------------------
                                                Pension            Pension            Other
                                                 Plans             Benefits          Benefits
                                                -------            --------          --------
<S>                                         <C>                <C>               <C>
Change in Benefit Obligation
Benefit obligation at January 1, 1998             $ 563             $1,231             $ 265
Service cost                                         54                 47                10
Interest cost                                        39                 67                16
Actuarial (gain) loss                                39                (80)               11
Benefits paid                                       (39)               (39)               (3)
Foreign currency exchange                             -                (24)               (5)
Assumption change                                   (74)              (178)                -
Curtailment/settlement                                -               (567)             (162)
                                                  -----             ------             -----

Benefit obligation at December 31, 1998             582                457               132
Service cost                                          1                  1                 -
Interest cost                                        36                 17                 5
Actuarial (gain) loss                               (49)                46                17
Benefits paid                                       (89)               (25)               (3)
Foreign currency exchange                             -               (147)              (42)
Assumption change                                    (5)                 -                 -
                                                  -----             ------             -----
Benefit obligation at December 31, 1999           $ 476             $  349             $ 109
                                                  =====             ======             =====

Change in Plan Assets
Fair value at January 1, 1998                     $ 494             $  550             $  29
Actual return on plan assets                         63                (14)                7
Employer contributions                               63                 40                71
Employee contributions                                -                 30                 -
Foreign currency exchange                             -                (12)                -
Benefits paid                                       (39)               (39)               (3)
Effect of settlement                                  -               (403)              (65)
                                                  -----             ------             -----
Fair value of assets at December 31, 1998         $ 581             $  152             $  39
                                                  -----             ------             -----
Actual return on plan assets                         71                 79                 5
Employer contributions                                -                  1                 -
Employee contributions                                -                  1                 -
Foreign currency exchange                             -                (42)              (12)
Benefits paid                                       (87)               (25)               (3)
Effect of settlement/transfers                        -                195                 -
                                                  -----             ------             -----
Fair value of assets at December 31, 1999         $ 565             $  361             $  29
                                                  =====             ======             =====
</TABLE>

                                      F-37
<PAGE>

<TABLE>
<CAPTION>
                                                                         Embratel Plans
                                                  MCI              --------------------------
                                                Pension            Pension            Other
                                                 Plans             Benefits          Benefits
                                                -------            --------          --------
<S>                                             <C>                <C>               <C>
As of December 31, 1999:
Funded status                                     $  89             $   12             $ (80)
Unrecognized net actuarial (gain) loss             (136)               (89)               42
Unrecognized prior service cost                       4                  -                 -
Unrecognized transition liability                     -                  3                 -
                                                  -----             ------             -----
Accrued benefit cost                              $ (43)            $  (74)            $ (38)
                                                  =====             ======             =====

Weighted average actuarial assumptions:
Discount rate                                      8.00%              6.00%             6.00%
Expected return on plan assets                     8.75%              9.00%              N/A
Rate of compensation increase                       N/A               2.00%              N/A

As of December 31, 1998:
Funded status                                     $  (1)            $ (305)            $ (93)
Unrecognized net actuarial gain                     (83)              (123)               44
Unrecognized prior service cost                       1                  -                 -
Unrecognized transition liability                     -                  5                 -
                                                  -----             ------             -----
Accrued benefit cost                              $ (83)            $ (423)            $ (49)
                                                  =====             ======             =====

Weighted average actuarial assumptions:
Discount rate                                      6.50%              6.00%             6.00%
Expected return on plan assets                     9.00%              9.00%             9.00%
Rate of compensation increase                      5.75%              3.25%              N/A
</TABLE>

The components of the net post-retirement benefit and pension costs for the
years ended December 31, 1999 and 1998 as follows (in millions):

<TABLE>
<CAPTION>
                                                           1999                          1998
                                              -----------------------------      --------------------
                                                              Embratel                 Embratel
                                                MCI     -------------------      --------------------
                                              Pension   Pension     Other        Pension      Other
                                               Plans    Benefits   Benefits      Benefits    Benefits
                                              -------   --------   --------      --------    --------
<S>                                           <C>       <C>        <C>           <C>         <C>
Service cost                                     $  1       $  1        $ -          $  4         $ 2
Interest cost on accumulated postretirement
     benefit  obligation                           36         17          5            17           4
Expected return on plan assets                    (50)       (25)        (2)          (13)         (1)
Amortization of transition obligation               -         (2)         -             7           -
Amortization of net loss (gain)                    (4)         -          1            (1)          1
                                                 ----       ----        ---          ----         ---
Net periodic post-retirement benefit cost        $(17)      $ (9)       $ 4          $ 14         $ 6
                                                 ====       ====        ===          ====         ===
</TABLE>

During 1998 Embratel created a new defined contribution plan (the "New Plan")
which was approved by the Brazilian government.  Effective November 19, 1998,
all newly hired employees of Embratel automatically enter the New Plan and entry
into the existing Embratel pension and post-retirement plans was frozen.
Existing Embratel employees were given the option to migrate from the existing
defined benefit pension and post-retirement benefit plans to the New Plan.  The
option expired on December 31, 1998 and the New Plan was effective on January 1,
1999. The New Plan provides an employer match on employee contributions based on
certain limits, transfer of the defined benefit account balance, employee
directed investment, and a lump sum payment from the post-retirement plan, which
can be used to assist with medical coverage in the future. Any employees not
electing to migrate to the New Plan will remain in the existing plans and will
not have a future opportunity to move to the New Plan.

                                      F-38
<PAGE>

(13)  Income Taxes -
      -------------

The provision for income taxes is composed of the following (in millions):

                                        1999           1998           1997
                                       ------          -----          -----
Current                                $   62          $  92          $  53
Deferred                                2,903            785            340
                                       ------          -----          -----
Total provision for income taxes       $2,965          $ 877          $ 393
                                       ======          =====          =====

The following is a reconciliation of the provision for income taxes to the
expected amounts using the statutory rate:

                                                    1999   1998      1997
                                                   -----   -----     -----
Expected statutory amount                           35.0%  (35.0)%   35.0%
Nondeductible amortization of excess of cost
     over net tangible assets acquired               5.2    11.2     17.0
State income taxes                                   2.5    (2.6)     2.7
Charge for in-process research and development         -    83.5        -
Valuation allowance                                 (1.5)      -     15.8
Other                                                0.2    (1.9)    (2.6)
                                                    ----    ----     ----
Actual tax provision                                41.4%   55.2 %   67.9%
                                                    ====    ====     ====

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes and the impact of available
net operating loss ("NOL") carryforwards.

At December 31, 1999, the Company had unused NOL carryforwards for federal
income tax purposes of approximately $2.3 billion which expire in various
amounts during the years 2011 through 2018.  These NOL carryforwards together
with state and other NOL carryforwards within the United States result in a
deferred tax asset of approximately $875 million at December 31, 1999.  A
valuation allowance of $109 million was reversed during 1999 as a result of a
change in tax regulations and recorded as a reduction in goodwill.

In addition, at December 31, 1999 the Company has unused NOL carryforwards of
$127 million outside the United States which generally do not expire.  These
carryforwards result in a $51 million deferred tax asset for which a valuation
allowance has been established.

Approximately $279 million of the Company's deferred tax assets are related to
preacquisition NOL carryforwards attributable to entities acquired in
transactions accounted for as purchases.  Accordingly, any future reductions in
the valuation allowance related to such deferred tax assets will result in a
corresponding reduction in goodwill.  If, however, subsequent events or
conditions dictate an increase in the need for a valuation allowance
attributable to such deferred tax assets, the income tax expense for that period
will be increased accordingly.

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1999 and 1998 (in
millions):

                                      F-39
<PAGE>

<TABLE>
<CAPTION>
                                               1999                      1998
                                        --------------------    ----------------------
                                        Assets   Liabilities    Assets     Liabilities
                                        ------   -----------    ------     -----------
<S>                                     <C>      <C>            <C>        <C>

Allowance for bad debts                 $    -     $     -      $   98      $     -
Fixed assets                                 -      (3,167)          -       (2,585)
Goodwill and other intangibles               -         (68)          -         (103)
Investments                                 90           -          91            -
Line installation costs                      -        (400)          -         (277)
Accrued liabilities                        273           -         924            -
NOL carryforwards                          926           -       1,499            -
Tax credits                                220           -         142            -
Other                                        -        (135)         74          (27)
                                       -------    --------     -------     --------
                                         1,509      (3,770)      2,828       (2,992)
Valuation allowance                        (51)          -        (160)           -
                                       -------    --------     -------     --------
                                        $1,458     $(3,770)     $2,668      $(2,992)
                                       =======    ========     =======     ========
</TABLE>

(14)  Supplemental Disclosure of Cash Flow Information -
      ------------------------------------------------

Interest paid by the Company during the years ended December 31, 1999, 1998 and
1997 amounted to $1.3 billion, $543 million and $317 million, respectively.
Income taxes paid, net of refunds, during the years ended December 31, 1999,
1998 and 1997 were $106 million, $38 million and $14 million, respectively.

In conjunction with business combinations during the years ended December 31,
1999, 1998 and 1997, assets acquired, liabilities assumed and common stock
issued were as follows (in millions):

<TABLE>
<CAPTION>
                                        1999       1998       1997
                                      -------    --------    ------
<S>                                   <C>        <C>         <C>
Fair value of assets acquired         $    62    $ 21,913    $  341
Goodwill and other intangible assets    2,231      37,104       998
Liabilities assumed                      (987)    (22,476)      (20)
Common stock issued                      (228)    (33,141)     (159)
                                      -------    --------    ------
Net cash paid                         $ 1,078    $  3,400    $1,160
                                      =======    ========    ======
</TABLE>

(15) Segment and Geographic Information -
     ----------------------------------

The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," as of December 31, 1998.  SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segment and
related disclosures about its products, services, geographic areas and major
customers.

Based on its organizational structure, the Company operates in six reportable
segments: voice and data, Internet, International Operations, Embratel,
Operations and technology and Other.  The Company's reportable segments
represent business units that primarily offer similar products and services;
however, the business units are managed separately due to the geographic
dispersion of their operations.  The voice and data segment includes voice, data
and other types of domestic communications services.  The Internet segment
provides Internet services.  MCI WorldCom International Operations provides
voice, data, Internet and other similar types of

                                      F-40
<PAGE>

communications services to customers primarily in Europe. Embratel provides
communications services in Brazil. Operations and technology includes network
operations, information services, engineering and technology, and customer
service. Other includes primarily the operations of SHL and other non-
communications services.

The Company's chief operating decision maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations.  Communications services are generally provided utilizing the
Company's fiber optic networks, which do not make a distinction between the
types of services.  As a result, the Company does not allocate line costs or
assets by segment.  Profit and loss information is reported only on a
consolidated basis to the chief operating decision maker and the Company's Board
of Directors.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.  Information about the Company's
segments is as follows:

<TABLE>
<CAPTION>
                                                       Revenues               Selling, General and
                                                 From External Customers    Administrative Expenses    Capital Expenditures
                                                -------------------------  -------------------------  ----------------------
                                                  1999     1998     1997    1999      1998     1997    1999    1998    1997
                                                -------   -------  ------  ------    ------   ------  ------  ------  ------
<S>                                             <C>       <C>      <C>     <C>       <C>      <C>     <C>     <C>     <C>
Voice and data                                  $28,567   $13,118  $6,085  $4,501    $2,084   $  741  $    -  $    -  $    -
Internet                                          3,535     2,165     566     725       539      180       -       -       -
International Operations                          1,733     1,130     726     416       306      218       -       -       -
Operations and technology                             -         -       -   2,353     1,059      502   7,071   4,773   3,082
Other                                               513       574     412     170       163       22      12      28      34
Corporate                                             -         -       -     174       154      191     740     316      37
                                                -------   -------  ------  ------    ------   ------  ------  ------  ------
     Total before Embratel                       34,348    16,987   7,789   8,339     4,305    1,854   7,823   5,117   3,153
Embratel                                          2,854     1,182       -     610       258        -     893     369       -
Elimination of intersegment revenues                (82)        -       -     (14)        -        -       -       -       -
                                                -------   -------  ------  ------    ------   ------  ------  ------  ------
     Total                                      $37,120   $18,169  $7,789  $8,935    $4,563   $1,854  $8,716  $5,486  $3,153
                                                =======   =======  ======= ======    ======   ======  ======  ======  ======
</TABLE>

The following is a reconciliation of the segment information to income (loss)
before income taxes, minority interests and extraordinary items:
<TABLE>
<CAPTION>
                                                           1999           1998           1997
                                                       ----------     ----------     ----------
<S>                                                      <C>            <C>            <C>
Revenues                                                  $37,120        $18,169         $7,789
Operating expenses                                         29,232         19,111          6,807
                                                          -------        -------         ------
Operating income (loss)                                     7,888           (942)           982
Other income (expense):
     Interest expense                                        (966)          (692)          (450)
     Miscellaneous                                            242             44             46
                                                          -------        -------         ------
Income (loss) before income taxes, minority
     interests, cumulative effect of accounting
     change and extraordinary items                       $ 7,164        $(1,590)        $  578
                                                          =======        =======         ======
</TABLE>

Information about the Company's operations by geographic areas are as follows
(in millions):

<TABLE>
<CAPTION>
                                  1999                        1998                       1997
                          ----------------------      ---------------------      --------------------
                                      Long-lived                 Long-lived                Long-lived
                           Revenues      Assets       Revenues      Assets       Revenues     Assets
                          ----------  ----------      --------    ---------      --------  ----------
<S>                       <C>         <C>             <C>         <C>            <C>       <C>
United States                $31,718     $21,965       $15,225      $17,954        $6,908      $6,624
Brazil                         2,854       4,017         1,182        5,049             -           -
All other international        2,548       2,636         1,762        1,565           881         753
                             -------     -------       -------      -------        ------      ------
Total                        $37,120     $28,618       $18,169      $24,568        $7,789      $7,377
                             =======     =======       =======      =======        ======      ======
</TABLE>

                                      F-41
<PAGE>

(16) Unaudited Quarterly Financial Data -
     ----------------------------------

<TABLE>
<CAPTION>
                                                                                Quarter Ended
                                          --------------------------------------------------------------------------------------
                                                March 31,              June 30,            September 30,          December 31,
                                          --------------------------------------------------------------------------------------
                                             1999       1998       1999       1998       1999        1998       1999       1998
                                          --------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>         <C>        <C>
                                                                    (in millions, except per share data)
Revenues:
        MCI WorldCom                        $9,001     $2,322     $8,944     $2,581     $9,186     $ 3,758     $9,495     $9,017
        SkyTel                                 140        122        141        126        141         133        152        138
        Intercompany elimination               (19)        (1)       (20)        (1)       (19)         (8)       (22)       (18)
        Combined                             9,122      2,443      9,065      2,706      9,308       3,883      9,625      9,137

Operating income (loss):
        MCI WorldCom                         1,495        (71)     1,764        495      2,202      (2,632)     2,421      1,233
        SkyTel                                  15          2         18          6         (3)         11        (24)        14
        Combined                             1,510        (69)     1,782        501      2,199      (2,621)     2,397      1,247

Income (loss) before cumulative effect of
    accounting change and extraordinary
    items:
        MCI WorldCom                           725       (281)       879        228      1,107      (2,944)     1,358        457
        SkyTel                                   4         (9)         5         (9)       (10)         (5)       (55)         3
        Combined                               729       (290)       884        219      1,097      (2,949)     1,303        460

Net income (loss):
        MCI WorldCom                           725       (410)       879        228      1,107      (2,944)     1,358        457
        SkyTel                                   4        (45)         5         (9)       (10)         (5)       (55)         3
        Combined                               729       (455)       884        219      1,097      (2,949)     1,303        460

Preferred dividend requirement:
        MCI WorldCom                            16          7         16          7         16           3         16         15
        SkyTel                                   2          3          2          3          2           2          2          2
        Combined                                18         10         18         10         18           5         18         17

Income (loss) per share before cumulative
    effect of accounting change and
    extraordinary items:
        Basic -
        MCI WorldCom                           .26       (.18)       .31        .14        .39       (1.63)       .48        .16
        SkyTel                                 .10       (.24)       .08       (.22)      (.25)       (.11)      (.95)       .02
        Combined                               .25       (.32)       .31        .13        .38       (1.61)       .45        .16
        Diluted -
        MCI WorldCom                           .25       (.18)       .30        .14        .37       (1.63)       .46        .15
        SkyTel                                 .10       (.24)       .07       (.22)      (.25)       (.11)      (.95)       .02
        Combined                               .24       (.32)       .30        .13        .37       (1.61)       .44        .15
</TABLE>

In 1998, the American Institute of Certified Public Accountants issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities." This
accounting standard required all companies to expense, on or before March 31,
1999, all start-up costs previously capitalized, and thereafter to expense all
costs of start-up activities as incurred. This accounting standard broadly
defines start-up activities as one-time activities related to the opening of a
new facility, the
                                      F-42
<PAGE>

introduction of a new product or service, the commencement of business in a new
territory, the establishment of business with a new class of customer, the
initiation of a new process in an existing facility or the commencement of a new
operation. The Company adopted this standard as of January 1, 1998. The
cumulative effect of this change in accounting principle resulted in a one-time
non-cash expense of $36 million, net of income tax benefit of $22 million. This
expense represented start-up costs incurred primarily in conjunction with the
development and construction of SkyTel's Advanced Messaging Network.

In the first quarter of 1998, the Company recorded a pre-tax charge of $38
million for employee severance, alignment charges, loss contingencies and direct
merger costs associated with the BFP Merger and $31 million for write-down of a
permanently impaired asset.  Additionally, in the third quarter of 1998, the
Company recorded a pre-tax charge of $127 million primarily in connection with
the MCI Merger.  The third quarter charge included severance costs associated
with the termination of certain employees which was completed in the first
quarter of 1999.  Also included are other exit activities which include exit
costs under long-term commitments and certain asset write-downs.  In connection
with certain 1998 business combinations, the Company made allocations of the
purchase price to acquired IPR&D totaling $429 million in the first quarter of
1998 related to the CompuServe Merger and AOL Transaction and $3.1 billion in
the third quarter of 1998 related to the MCI Merger.  See Note 3.

In connection with certain debt refinancings, the Company recognized in the
first quarter of 1998, extraordinary items of approximately $129 million, net of
taxes, consisting of unamortized debt discount, unamortized issuance cost and
prepayment fees.

                                      F-43
<PAGE>

                               MCI WORLDCOM, INC.
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                          Balance at         Charged to            From             Deductions
                         Beginning of        Costs and           Purchase          and Accounts         Balance at
Descriptions                Period            Expenses         Transactions         Written Off       End of Period
<S>                    <C>                <C>               <C>                 <C>                  <C>
Allowance for doubtful accounts (in millions):

Accounts Receivable
1999                           $920              $951                $ 19                 $768              $1,122
1998                            223               395                 581                  279                 920
1997                            150               132                  16                   75                 223
</TABLE>

                                      F-44
<PAGE>

                                 EXHIBIT INDEX

Exhibit No.                       Description
- -----------                       -----------

2.1       Amended and Restated Agreement and Plan of Merger dated as of March 8,
          2000, between MCI WORLDCOM, Inc. and Sprint Corporation (filed as
          Annex 1 to the Proxy Statement/Prospectus dated March 9, 2000 included
          in MCI WorldCom's Registration Statement on form S-4, Registration No.
          333-90421 and incorporated herein by reference)*

2.2       Agreement and Plan of Merger by and among MCI WORLDCOM, Inc., Empire
          Merger Inc. and SkyTel Communications, Inc. dated as of May 28, 1999
          (filed as Annex A to the Proxy Statement/Prospectus dated August 26,
          1999 included in MCI WorldCom's Registration Statement on Form S-4,
          Registration No. 333-85919 and incorporated herein by reference)*

4.1       Second Amended and Restated Articles of Incorporation of MCI WORLDCOM,
          Inc. (including preferred stock designations), as amended as of
          October 1, 1999 (incorporated herein by reference to Exhibit 4.1 of
          MCI WorldCom's Post-Effective Amendment No. 1 on Form S-8 to
          Registration Statement on Form S-4 (filed October 1, 1999)
          (Registration No. 333-85919)

4.2       Restated Bylaws of MCI WORLDCOM, Inc. (incorporated by reference to
          Exhibit 3.2 to the Company's Current Report on Form 8-K dated
          September 14, 1998) (filed September 29, 1998)) (File No. 0-11258)

4.3       Rights Agreement dated as of August 25, 1996, between the Company and
          the Bank of New York, which includes the form of Certificate of
          Designations, setting forth the terms of the Series 3 Junior
          Participating Preferred Stock, par value $.01 per share, as Exhibit A,
          the form of Rights Certificate as Exhibit B and the Summary of
          Preferred Stock Purchase Rights as Exhibit C (incorporated herein by
          reference to Exhibit 4 to the Current Report on Form 8-K dated August
          26, 1996 filed by the Company with the Securities and Exchange
          Commission on August 26, 1996 (as amended on Form 8-K/A filed on
          August 31, 1996) (File No. 0-11258))

4.4       Amendment No. 1 to Rights Agreement dated as of May 22, 1997, by and
          between MCI WORLDCOM, Inc. and The Bank of New York, as Rights Agent
          (incorporated herein by reference to Exhibit 4.2 of the Company's
          Current Report on Form 8-K dated May 22, 1997 (filed June 5, 1997)
          (File No. 0-11258))

4.5       Senior Indenture dated March 1, 1997 by and between WorldCom and The
          Chase Manhattan Bank, as successor trustee to Mellon Bank N.A.
          (incorporated herein by

                                      E-1
<PAGE>

          reference to Exhibit 4.6 to the Company's Quarterly Report on Form 10-
          Q for the period ended March 31, 1997 (File No. 0-11258))

4.6       Supplemental Indenture No. 3 to the Junior Subordinated Indenture
          dated as of November 12, 1998, among MCI WORLDCOM, Inc., MCI
          Communications Corporation and Wilmington Trust Company (incorporated
          herein by reference to Exhibit 4.8 to the Company's Quarterly Report
          on Form 10-Q for the period ended September 30, 1998 (File No. 0-
          11258))

4.7       Supplement No. 1 to the Guarantee Agreement dated as of November 12,
          1998 among MCI WORLDCOM, Inc., MCI Communications Corporation and
          Wilmington Trust Company (incorporated herein by reference to Exhibit
          4.9 to the Company's Quarterly Report on Form 10-Q for the period
          ended September 30, 1998 (File No. 0-11258))

4.8       Trust Agreement Guarantee dated as of November 12, 1998, among
          Wilmington Trust Company, the administrative trustee thereto, MCI
          Communications Corporation and MCI WORLDCOM, Inc. (incorporated herein
          by reference to Exhibit 4.10 to the Company's Quarterly Report on Form
          10-Q for the period ended September 30, 1998 (File No. 0-11258))

4.9       Expense Agreement Guarantee dated as of November 12, 1998, between MCI
          WORLDCOM, Inc. and MCI Capital I, a Delaware business trust
          (incorporated herein by reference to Exhibit 4.11 to the Company's
          Quarterly Report on Form 10-Q for the period ended September 30, 1998
          (File No. 0-11258))

4.10      Junior Subordinated Indenture between MCI Communications Corporation
          and Wilmington Trust Company, as Debenture Trustee, (incorporated by
          reference to Exhibit 4.01 of MCI's Registration Statement on Form S-3,
          Registration No. 333-02693)

4.11      Form of Amended and Restated Trust Agreement among MCI Communications
          Corporation, Wilmington Trust Company and the Administrative Trustees
          named therein (incorporated by reference to Exhibit 4.10 of MCI's
          Registration Statement on Form S-3, Registration No. 333-02593)

4.12      Form of Guarantee Agreement between MCI Communications Corporation and
          Wilmington Trust Company, (incorporated by reference to Exhibit 4.12
          of MCI's Registration Statement on Form S-3, Registration No. 333-
          02593)

4.13      Form of Supplemental Indenture between MCI Communications Corporation
          and Wilmington Trust Company, (incorporated by reference to Exhibit
          4.13 of MCI's Registration Statement on Form S-3, Registration No.
          333-02593)

                                      E-2
<PAGE>

 **
10.1      Amended and Restated 364-Day Revolving Credit and Term Loan Agreement
          among the Company and Bank of America, N.A., Administrative Agent;
          Bank of America Securities, LLC, Sole Lead Arranger and Book Manager;
          Barclays Bank PLC, The Chase Manhattan Bank, Citibank, N.A., Morgan
          Guaranty Trust Company of New York, and Royal Bank of Canada, Co-
          Syndication Agents; and the lenders named herein dated as of August 5,
          1999 (incorporated herein by reference to Exhibit 10.1 of the
          Company's Quarterly Report on Form 10-Q for the quarterly period ended
          June 30, 1999) (File No. 0-11258))*

10.2      MCI WORLDCOM, Inc. 1999 Stock Option Plan (incorporated herein by
          reference to Exhibit A to the Company's Proxy Statement dated April
          23, 1999 (File No. 0-11258)) (compensatory plan)

10.3      WorldCom, Inc. Third Amended and Restated 1990 Stock Option Plan
          (incorporated herein by reference to Exhibit A to the Company's Proxy
          Statement dated April 22, 1996 (File No. 0-11258)) (compensatory plan)

10.4      LDDS Communications, Inc. 1988 Nonqualified Stock Option Plan
          (incorporated herein by reference to the exhibits to LDDS-TN's
          Registration Statement on Form S-4 (File No. 33-29051) (compensatory
          plan)

10.5      LDDS Annual Performance Bonus Plan (incorporated by reference to the
          Company's Proxy Statement used in connection with the Company's 1994
          Annual Meeting of Shareholders (File No. 1-10415)) (compensatory plan)

10.6      WorldCom, Inc. Special Performance Bonus Plan (incorporated herein by
          reference to Exhibit B to the Company's Proxy Statement dated April
          22, 1996 used in connection with the Company's 1996 Annual Meeting of
          the Shareholders (File No. 0-11258)) (compensatory plan)

10.7      WorldCom, Inc. Performance Bonus Plan (incorporated herein by
          reference to Exhibit A to the Company's Proxy Statement dated April
          21, 1997 (File No. 0-11258)) (compensatory plan)

10.8      WorldCom/MFS/UUNET 1995 Performance Option Plan (incorporated herein
          by reference to Exhibit 10.17 to the Company's Annual Report on Form
          10-K for the period ended December 31, 1996 (File No. 0-11258))
          (compensatory plan)

                                      E-3
<PAGE>

10.9      WorldCom/MFS/UUNET Equity Incentive Plan (incorporated herein by
          reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K
          for the period ended December 31, 1996 (File No. 0-11258))
          (compensatory plan)

10.10     WorldCom/MFS/UUNET Incentive Stock Plan (incorporated herein by
          reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
          for the period ended December 31, 1996 (File No. 0-11258))
          (compensatory plan)

10.11     MCI 1979 Stock Option Plan as amended and restated (incorporated by
          reference to Exhibit 10(a) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1988 (File No. 0-6457)) (compensatory
          plan)***

10.12     Supplemental Retirement Plan for Employees of MCI Communications
          Corporation and Subsidiaries, as amended (incorporated by reference to
          Exhibit 10(b) to MCI's Annual Report on Form 10-K for the fiscal year
          ended December 31, 1993 (File No. 0-6457)) (compensatory plan) ***

10.13     Description of Executive Life Insurance Plan for MCI Communications
          Corporation and Subsidiaries (incorporated by reference to
          "Renumeration of Officers" in MCI's Proxy Statement for its 1992
          Annual Meeting of Stockholders (File No. 0-6457)) (compensatory
          plan)***

10.14     MCI Communications Corporation Executive Incentive Compensation Plan
          (incorporated by reference to Exhibit 10(e) to MCI's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1995 (File No. 0-
          6457)) (compensatory plan)***

10.15     Amendment No. 1 to MCI Communications Corporation Executive Incentive
          Compensation Plan (incorporated by reference to Exhibit 10(e) to MCI's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1996
          (File No. 0-6457)) (compensatory plan)***

10.16     1988 Directors' Stock Option Plan of MCI (incorporated by reference to
          Exhibit D to MCI's Proxy Statement for its 1989 Annual Meeting of
          Stockholders (File No. 0-6457)) (compensatory plan)***

10.17     Amendment No. 1 to the 1988 Directors' Stock Option Plan of MCI
          (incorporated by reference to Appendix D to MCI's Proxy Statement for
          its 1996 Annual Meeting of Stockholders (File No. 0-6457))
          (compensatory plan)***

10.18     Amendment No. 2 to 1988 Directors' Stock Option Plan of MCI
          (incorporated by reference to Exhibit 10(i) to MCI's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1996) (File No. 0-
          6457)) (compensatory plan)***

                                      E-4
<PAGE>

10.19     Amendment No. 3 to 1988 Directors' Stock Option Plan of MCI
          (incorporated by reference to Exhibit 10(j) to MCI's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1996 (File No.
          0-6457)) (compensatory plan)***

10.20     Stock Option Plan of MCI (incorporated by reference to Exhibit C to
          MCI's Proxy Statement for its 1989 Annual Meeting of Stockholders
          (File No. 0-6457)) (compensatory plan)***

10.21     Amendment No. 1 to the Stock Option Plan of MCI (incorporated by
          reference to Exhibit 10(l) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1996 (File No. 0-6457)) (compensatory
          plan)***

10.22     Amendment No. 2 to the Stock Option Plan of MCI (incorporated by
          reference to Appendix B to MCI's Proxy Statement for its 1996 Annual
          Meeting of Stockholders (File No. 0-6457)) (compensatory plan)***

10.23     Amendment No. 3 to the Stock Option Plan of MCI (incorporated by
          reference to Exhibit 10(n) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1996 (File No. 0-6457)) (compensatory
          plan)***

10.24     Amendment No. 4 to the Stock Option Plan of MCI (incorporated by
          reference to Exhibit 10(o) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1996 (File No. 0-6457)) (compensatory
          plan)***

10.25     Amendment No. 5 to the Stock Option Plan of MCI (incorporated by
          reference to Exhibit 10(p) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1996 (File No. 0-6457)) (compensatory
          plan)***

10.26     Board of Directors Deferred Compensation Plan of MCI (incorporated by
          reference to Exhibit 10(i) to MCI's Annual Report on Form 10-K for the
          fiscal year ended December 31, 1994 (File No. 0-6457)) (compensatory
          plan)

10.27     The Senior Executive Incentive Compensation Plan of MCI (incorporated
          by reference to Appendix A to MCI's Proxy Statement for its 1996
          Annual Meeting of Stockholders (File No. 0-6457)) (compensatory plan)

10.28     Amendment No. 1 to the Senior Executive Incentive Compensation Plan of
          MCI (incorporated by reference to Exhibit 10(s) to MCI's Annual Report
          on Form 10-K for the fiscal year ended December 31, 1996 (File No.
          0-6457)) (compensatory plan)

                                      E-5
<PAGE>

10.29     Executive Severance Policy (incorporated by reference to Exhibit 10(a)
          to MCI's Quarterly Report on Form 10-Q for the quarter ended September
          30, 1996 (File No. 0-6457)) (compensatory plan)

10.30     Form of employment agreement, effective as of November 2, 1996,
          between MCI and Messrs. Bert C. Roberts and Timothy F. Price
          (incorporated by reference to Exhibit 10(u) to MCI's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1996 (File No.
          0-6457)) (compensatory plan)

10.31     Employment Agreement between UUNET and John W. Sidgmore dated May 13,
          1994 (incorporated herein by reference to UUNET's Registration on Form
          S-1 (Registration No. 33-91028)) (compensatory plan)

10.32     Amendment to employment agreement dated February 29, 2000 between MCI
          WorldCom and Timothy F. Price

10.33     Change of Control Severance Agreement effective April 8, 1997 between
          Brooks Fiber Properties, Inc. ("BFP") and James C. Allen (incorporated
          herein by reference from Exhibit 10.1 to BFP's Quarterly Report on
          Form 10-Q for the quarterly period ended June 30, 1997 (File No.
          0-28036)) (compensatory plan)

21.1      Subsidiaries of the Company

23.1      Consent of Arthur Andersen LLP

23.2      Consent of KPMG LLP

27.1      Financial Data Schedule - for the year ended December 31, 1999

27.2      Financial Data Schedule - for the year ended December 31, 1998

27.3      Financial Data Schedule - for the year ended December 31, 1997
- ----------------------------------------------------------------------

*    The registrant hereby agrees to furnish supplementally a copy of any
     omitted schedules to this Agreement to the Securities and Exchange
     Commission upon request.
**   No other long-term debt instruments are filed since the total amount of
     securities authorized under any such instrument does not exceed ten percent
     of the total assets of the Company and its subsidiaries on a consolidated
     basis. The Company agrees to furnish a copy of such instruments to the
     Securities and Exchange Commission upon request.
***  Pursuant to this plan, the common stock of the Company was substituted for
     common stock of MCI.

                                      E-6

<PAGE>

                                                                   EXHIBIT 10.32

February 29, 2000



Mr. Dennis Sickle
MCI WorldCom
1515 South Federal Highway, #400
Boca Raton, FL 33432

Dear Dennis:

This will confirm our agreement regarding my continued employment and the
termination thereof as follows:

1.    Term of Employment
      ------------------

      Effective December 31, 1999, I ceased to be an executive officer or a
      director of MCI WORLDCOM, Inc. or any of its subsidiaries but remained an
      employee of the company until February 29, 2000.

2.    Severance Benefits
      ------------------

      From March 1, 2000 until August 31, 2000, I will receive severance
      payments aggregating $300,000 (less applicable withholdings and
      deductions), to be paid in accordance with the company's customary payroll
      practice. In addition, on or promptly after August 31, 2000, I will
      receive a lump-sum severance payment in the amount of $300,000 (less
      applicable withholdings and deductions). The foregoing severance payments
      are subject to forfeiture for cause, as defined below.

      I will be entitled to any other rights, compensation (excluding severance
      payments), and/or benefits as may be due to me in accordance with the
      provisions of any benefit plans or programs of the company.

      For purposes of this agreement, "cause" shall mean a breach of a material
      provision of this agreement (including the appendices hereto) by me, which
      is not cured within 30 days after receipt of notice from the company,
      which specifies the manner in which the company believes I have breached
      this agreement.
<PAGE>

3.    Stock Options, Incentive Compensation, and Other Awards
      -------------------------------------------------------

      On February 29, 2000, all unvested stock options held by me as of such
      date and identified in Schedule A attached hereto, shall automatically
      vest and become fully exercisable. Such stock options and any additional
      stock options held by me that are vested as of the date hereof shall
      remain exercisable until February 28, 2001. In addition, all unvested
      stock units held by me as of the date of this letter and identified in
      Schedule B shall automatically vest and be paid on or promptly after
      February 29, 2000. The amount of deferred compensation to which I am
      entitled shall be determined as of February 29, 2000 and be paid promptly
      thereafter. Except as otherwise provided herein, the terms and conditions
      of such options and awards shall continue to be governed by the underlying
      agreements and plans. The company shall take all corporate action
      necessary to effectuate the foregoing.

4.    Certain Benefits
      ----------------

      I will continue to receive medical, dental, and life insurance coverage
      for me and my eligible dependents on the same basis as is in effect on the
      date of this agreement, subject to changes of general applicability for
      senior executive officers, until the earlier of (a) December 31, 2000, or
      (b) the commencement of coverage with a subsequent employer. At the
      termination of my employment with the company, my dependents and I will be
      eligible for continued coverage under COBRA, if applicable.

      During the term of my continued employment by the company, the company
      shall reimburse me for any reasonable business expenses incurred by me in
      accordance with the company's policies for senior executive officers.

5.    Release and Covenant Not To Sue
      -------------------------------

      As part of this agreement, the company and I have executed the mutual
      release and covenant not to sue attached as Appendix A. At the company's
      option, upon satisfaction of the company's obligations hereunder, we will
      execute another release and covenant not to sue, in a mutually
      satisfactory form.

6.    Directors and Officers Insurance
      --------------------------------

      For six (6) years following the date of my termination as an officer
      and/or director of the company, the company will cover me by such officers
      and directors insurance coverage on substantially the same terms and
      levels that it provides to its senior executive officers, at the company's
      sole cost. In addition, the company shall indemnify and hold me harmless
      to the fullest extent provided by its Articles of Incorporation and Bylaws
      as they exist on the date hereof with regards to actions or inactions in
      relation to my duties performed at the company on or before the date of
      this agreement.

7.    Non-Competition
      ---------------

      As part of this agreement, I have executed the covenant not to compete
      attached as Appendix B.

                                       2
<PAGE>

8.    Confidentiality
      ---------------

      I agree that I will continue to be bound by the terms of Paragraph 14(a)
      of the Employment Agreement, dated November 9, 1997, between me and MCI
      Communications Corporation and that the terms of this agreement will
      constitute Confidential Information for purposes of said Employment
      Agreement, except that I shall be permitted to discuss its contents with
      my accountant(s), my lawyer(s), and members of my immediate family on a
      need-to-know basis, whom I shall ask to keep the terms confidential.

9.    Cooperation after Termination
      -----------------------------

      I will cooperate with the company as reasonably necessary and upon
      receiving reasonable notice, provided that such cooperation shall not
      unreasonably interfere with, or be prohibited by my other activities or
      pursuits. After February 29, 2000, the company will pay me reasonable
      compensation and reimbursement for expenses, such as travel, incurred in
      connection with such assistance.

10.   Return and Protection of Information and Property
      -------------------------------------------------

      At or prior to the time of my termination, I will return any company
      property in my possession, including business, financial, customer, or
      similar materials.

11.   Assignment
      ----------

      This agreement inures to the benefit of and is binding upon, me, including
      my executors, descendants, ancestors, dependents, administrators,
      successors, heirs, and assigns, and upon MCI WorldCom, including its
      affiliates, assigns, predecessors, successors, agents, officers,
      directors, shareholders, and employees.

12.   Entire Agreement
      ----------------

      Other than Section 14(a) of the Employment Agreement and the various stock
      option agreements between me and the employer, this agreement constitutes
      the entire agreement, arrangement and understanding between me and the
      company with respect to its subject matter; it may not be modified or
      canceled in any manner except by a writing signed by both me and the
      company.  Except as otherwise provided in, or modified by, this agreement
      including, without limitation, Section 3 (relating to stock options and
      stock units), this agreement supersedes any prior or contemporaneous
      agreement, arrangement or understanding on this subject matter.

13.   Disputes
      --------

      Any contest or dispute that may arise between the parties with respect to
      this agreement shall be submitted to final and binding arbitration in
      accordance with the rules and procedures of the Employment Dispute
      Resolution Rules of the American Arbitration Association. This agreement
      shall be governed and enforced in accordance with the laws of the state of
      New York.

                                       3
<PAGE>

As always, I appreciate your constructive and professional approach to working
through this.

Best regards,


/s/ Timothy F. Price
- --------------------
Timothy F. Price

Attachments



                             Understood and Agreed,



                             /s/ Dennis Sickle
                             -----------------
                             Dennis Sickle


                                       4
<PAGE>

Appendix A         Release and Covenant Not to Sue
                   -------------------------------


MCI WORLDCOM, Inc., including its affiliates, assigns, predecessors and
successors (the "Company") and I, including my executors, descendants,
ancestors, dependents, administrators, successors, heirs, and assigns, hereby
release any and all claims they may have against one another, (including, but
not limited to, claims by me for discrimination under Title VII of the Civil
Rights Act (as amended), the Age Discrimination in Employment Act, or other
state, federal or local law), arising out of or relating to my employment by the
Company or termination of such employment except for any claims for
indemnification that I may have as a former officer and/or director of the
Company and except for any claims of the Company related to or arising out of
(i) material acts or omissions of deliberate or intentional malfeasance
involving self-dealing on my part, or (ii) claims made by third parties.  I have
had at least 21 days to consider this agreement, have been advised that I have
had an opportunity to consult with an attorney, and have been advised of my
right to revoke this agreement, which would also revoke the letter agreement to
which this agreement is appended, prior to the eighth calendar day following the
execution of this agreement.



/s/ Timothy F. Price            3/06/00
- --------------------            -------
Timothy F. Price                 Date



/s/ Dennis Sickle               3/07/00
- -----------------               -------
For the Company                  Date


                                       5
<PAGE>

Appendix B      Covenant Not to Compete
                -----------------------


For the period ending August 31, 2000, I agree that I will not do any of the
following anywhere in the world:  (a)  accept employment from, carry on, or be
engaged in, any business which is in direct competition with the business of the
company or its affiliates, (b) solicit for employment, or employ, without the
written permission of the company, any person who is an employee or contractor
for the company or its affiliates, or who has been an employee or contractor for
the company or its affiliates within one year of the date of this agreement; (c)
solicit, influence, or attempt to influence, any actual or prospective customer
or provider, with regard to the actual or prospective customer's or provider's
relationship with the company or its affiliates (nb. for the purpose of this
section, "prospective" means under negotiation with the company or its
affiliates).  Under no circumstances shall my membership or service on the board
of directors of a company as approved by the President and CEO of MCI WorldCom
be precluded by this covenant nor shall actions in which I am not involved by
such company be attributed to me for purposes hereof.

It is agreed that any breach or threatened breach of any of the provisions of
this covenant will result in immediate and irreparable injury to the company
and/or its affiliates and will entitle them to obtain an injunction, restraining
order, and/or specific performance as well as to seek other legal or equitable
remedies to which they may be entitled including, but not limited to, money
damages.

It is the intention of the parties that the provisions of this covenant shall be
enforced by the courts of each state and jurisdiction in which enforcement is
sought to the fullest extent permissible under the law and public policy.
Accordingly, if any part of this covenant shall be adjudicated to be invalid or
unenforceable by a court of competent jurisdiction, whether in its entirety or
as modified as to duration, territory or otherwise, then such part shall be
deemed deleted or amended, as the case may be, with respect to the state or
jurisdiction involved in order to render the remainder hereof valid and
enforceable.  The invalidity or unenforceability of any particular provision of
this covenant  shall not affect the other provisions hereof.



/s/ Timothy F. Price          03/06/00
- --------------------          --------
Timothy F. Price                Date



/s/ Dennis Sickle             03/07/00
- -----------------             --------
For the Company                 Date


                                       6
<PAGE>

                                                                      Schedule A
                                                                      ----------

                              VESTED STOCK OPTIONS
                              --------------------


  Any previously unvested options included in the following table shall vest as
of February 29, 2000, with the total number of vested option shares being as
indicated in the table:

                                                   Total Number
               Grant Date                            of Shares
               ----------                          ------------
                12/7/94                                 12,688
                1/31/95                                 72,955
                1/30/96                                143,764
                 2/5/97                                107,287
                 2/4/98                                107,287
                8/31/98                                252,000


  There will be no further vesting of options under the August 31, 1998 grant.
<PAGE>

                                                                      Schedule B
                                                                      ----------

                          ADDITIONAL ISU AWARD VESTING
                          ----------------------------


  The following additional ISUs shall vest as of February 29, 2000 under the
specified ISU awards:

                     Award Date               ISUs to Vest
                     ----------               ------------
                       2/4/98                    6,011
                      8/31/98                   13,727
                                                ------
                                        Total:  19,738*

* Subject to reduction for tax withholding, estimated to be 7,294 ISUs,
resulting in an estimated 12,444 net shares to be issued.

<PAGE>

                                                                    EXHIBIT 21.1

                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

MCI WORLDCOM, Inc. (Parent)                               Georgia

Com Systems, Inc.                                       California

Healan Communications, Inc.                               Georgia

Military Communications Center, Inc.                     Delaware

Touch 1 Long Distance, Inc.                               Alabama

TransCall America, Inc.                                   Georgia

WorldCom Federal Systems, Inc.                           Delaware

IDB London Gateway Limited (50%)                      United Kingdom

WorldCom Caribbean, Inc.                                 New York

WorldCom Network Services Asia, Inc.                      Korea

WorldCom International, Inc.                             Delaware

MCI WorldCom Deutschland GmbH                            Germany

MCI WorldCom S.A.                                         France

MCI WorldCom (Ireland) Limited                           Ireland

IDB Communications Group Limited                      United Kingdom

WorldCom Wireless, Inc.                                  Arizona

TTI National, Inc.                                      Delaware

BLT Technologies, Inc.                                 Washington

CS Network Services, Inc.                              California

TMC Communications, Inc.                               California

Western Business Network, Inc.                         California

MCI WorldCom Management Company, Inc.                   Delaware

WorldCom Purchasing, LLC                                Delaware

Centex Telemanagement, Inc.                             Delaware

Centex Telemanagement of California, Inc.               Delaware

MFS Foreign Personnel, Inc.                            California

MFS Telecom, Inc.                                       Delaware

Chicago Fiber Optic Corporation                         Illinois

Fibernet, Inc.                                          Delaware

FiberNet Rochester, Inc.                                Delaware

Institutional Communications Company                    Virginia

Northeast Networks, Inc.                                Delaware

MFS Telephone, Inc.                                     Delaware

MFS Telephone of Missouri, Inc.                         Missouri


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       1
<PAGE>

                                                                    EXHIBIT 21.1

                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------
MFS Telephone of New Hampshire, Inc.                 New Hampshire

MFS Telephone of Virginia, Inc.                        Virginia

MFSA Holding, Inc.                                     Delaware

Metrex Corporation                                     Georgia

Metropolitan Fiber Systems/McCourt, Inc.               Delaware

Metropolitan Fiber Systems of Alabama, Inc.            Delaware

Metropolitan Fiber Systems of Arizona, Inc.            Delaware

Metropolitan Fiber Systems of Baltimore, Inc.          Delaware

Metropolitan Fiber Systems of California, Inc.         Delaware

Metropolitan Fiber Systems of Columbus, Inc.           Delaware

Metropolitan Fiber Systems of Connecticut, Inc.        Delaware

Metropolitan Fiber Systems of Dallas, Inc.             Delaware

Metropolitan Fiber Systems of Delaware, Inc.           Delaware

Metropolitan Fiber Systems of Denver, Inc.             Delaware

Jones Lightwave of Denver, Inc.                        Colorado

Metropolitan Fiber Systems of Detroit, Inc.            Delaware

Metropolitan Fiber Systems of Florida, Inc.            Delaware

Metropolitan Fiber Systems of Hawaii, Inc.             Delaware

Metropolitan Fiber Systems of Houston, Inc.            Delaware

Metropolitan Fiber Systems of Indianapolis, Inc.       Delaware

Metropolitan Fiber Systems of Iowa, Inc.               Delaware

Metropolitan Fiber Systems of Kansas, Inc.             Delaware

Metropolitan Fiber Systems of Kentucky, Inc.           Delaware

Metropolitan Fiber Systems of Massachusetts, Inc.      Delaware

Metropolitan Fiber Systems of
   Minneapolis/St. Paul, Inc.                          Delaware

Metropolitan Fiber Systems of Kansas City,
   Missouri, Inc.                                      Missouri

Metropolitan Fiber Systems of Nebraska, Inc.           Delaware

Metropolitan Fiber Systems of Nevada, Inc.             Delaware

Metropolitan Fiber Systems of New Hampshire, Inc.    New Hampshire

Metropolitan Fiber Systems of New Jersey, Inc.         Delaware

Metropolitan Fiber Systems of New Orleans, Inc.        Delaware

Metropolitan Fiber Systems of New York, Inc.           Delaware

Metropolitan Fiber Systems of North Carolina, Inc.     Delaware

Metropolitan Fiber Systems of Ohio, Inc.               Delaware

Metropolitan Fiber Systems of Oklahoma, Inc.           Delaware

Metropolitan Fiber Systems of Oregon, Inc.             Delaware


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       2
<PAGE>

                                                                    EXHIBIT 21.1

                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Metropolitan Fiber Systems of Philadelphia, Inc.       Delaware

Metropolitan Fiber Systems of Pittsburgh, Inc.         Delaware

Metropolitan Fiber Systems of Rhode Island, Inc.       Delaware

Metropolitan Fiber Systems of Seattle, Inc.            Delaware

Metropolitan Fiber Systems of St. Louis, Inc.          Missouri

Metropolitan Fiber Systems of Tennessee, Inc.          Delaware

Metropolitan Fiber Systems of Virginia, Inc.           Delaware

Virginia Metrotel, Inc.                                Virginia

Metropolitan Fiber Systems of Wisconsin, Inc.          Delaware

MFS/C-TEC                                              Delaware

WorldCom ICC, Inc.                                     Delaware

MCI WORLDCOM Communications, Inc.                      Delaware

MCI WORLDCOM Communications of Virginia, Inc.          Virginia

MFS Datanet, Inc.                                      Delaware

MFS International Holdings, L.L.C.                     Delaware

MFS Globenet, Inc.                                     Delaware

WorldCom Overseas Holdings, Inc.                       Delaware

MFS CableCo U.S., Inc.                                 Delaware

MCI WorldCom Global Networks Limited                   Bermuda

MCI WORLDCOM Global Networks U.S., Inc.                Delaware

MCI Telecommunications Ltd                          United Kingdom

MCI WorldPhone Limited                              United Kingdom

Gemini Submarine Cable System Limited (50%)            Bermuda

Gemini Submarine Cable System (UK) Limited (50%)    United Kingdom

Gemini Submarine Cable System, Inc. (50%)              Delaware

MCI WorldCom Limited                                United Kingdom

MK International Ltd                                United Kingdom

McCourt Cable and Communications Ltd                United Kingdom

WorldCom Holding (Hong Kong) Limited                   Hong Kong

MCI WorldCom Asia Pacific Limited                   Cayman Islands

WorldCom Development S.A.                               Belgium

N.V. WorldCom S.A. (50%)                                Belgium

MFS Communications of Canada, Inc.                       Canada

MCI WorldCom A/S                                        Denmark

MFS Communications SA                                   France

MFS Communications GmbH                                 Germany

   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       3
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

MKI GmbH                                                          Germany

MEDUSA Beteiligungsverwaltungs-Gesellschaft Nr. 32 mbH            Germany

MCI WorldCom B.V.                                               Netherlands

MCI WorldCom S.p.A.                                                Italy

MCI WorldCom Japan Limited                                         Japan

WorldCom East, Inc.                                               Delaware

MCI WorldCom Aktiebolag                                            Sweden

MCI WorldCom A.G.                                               Switzerland

MK International Project Management S.L.                           Spain

MCI WorldCom (Spain), S.A.                                         Spain

MCI WorldCom Telecommunication Services Austria
Gesellschaft m.b.H.                                               Austria

MCI WorldCom Asia Pte. Limited                                   Singapore

MCI WorldCom Australia Pty Limited                               Australia

MCI WorldCom Communications Japan Ltd.                             Japan

MCI WorldCom Korea Limited                                         Korea

MCI WorldCom Finland Oy                                           Finland

MCI WorldCom New Zealand Limited                                New Zealand

MCI WorldCom AS                                                   Norway

WorldCom Northern Limited                                      United Kingdom

MFS Network Technology Ltd                                     United Kingdom

MKI Cellular Limited                                           United Kingdom

MK International Project Management Pty Limited                  Australia

MK International Project Management Pte Limited                  Singapore

MK International S.r.l.                                            Italy

M.K. International SA                                              France

MCI WorldCom Malaysia SDN.BHD                                    Malaysia

MCI WorldCom Holding B.V.                                       Netherlands

MCI Finance Limited                                           United Kingdom

UUNET Technologies, Inc.                                         Delaware

Compuplex Incorporated                                              Ohio

UUNET Australia Ltd.                                             Delaware

UUNET Holdings Corp.                                             Delaware

UUNET International Ltd.                                         Delaware

UUNET Japan Ltd.                                                 Delaware

WorldCom Advanced Networks Services Integration Group
  Southwest, Inc.                                                 Texas

UUNET Caribbean, Inc.                                            Delaware

   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       4
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------
UUNET Argentina S.R.L.                                           Argentina

Big Networks Australia P/L                                       Australia

CMIST Pty Limited                                                Australia

Cyber Publications P/L                                           Australia

NET TV Australia P/L                                             Australia

OzEmail Fax Investments Pty Limited                              Australia

OzEmail Interline P/L                                            Australia

OzEmail Pty Limited                                              Australia

OzEmail Technologies P/L (80%)                                   Australia

Power Up Pty Limited (55%)                                       Australia

SE Network Access Pty Limited (60%)                              Australia

UUNET Holdings Australia Pty Ltd.                                Australia

Web Wide Media Pty Limited P/L                                   Australia

WorldCom Advanced Network International Pty Ltd.                 Australia

UUNET GmbH                                                        Austria

UUNET Caribbean, Inc.                                            Barbados

INnet Belgie N.V.                                                 Belgium

INnet International N.V.                                          Belgium

UUNET Pipex Belgium, N.V.                                         Belgium

UUNET Brasil L.T.D.A.                                             Brazil

UUNET Canada, Inc.                                                Canada

UUNET International (Chile) Limitada                              Chile

UUNET ApS                                                        Denmark

ANS France S.A.R.L.                                               France

UUNET France S.A.                                                 France

UUNET Deutschland GmbH                                           Germany

UUNET Holdings GmbH                                              Germany

UUNET Hong Kong Limited                                         Hong Kong

WorldCom Advanced Networks Hong Kong, Ltd.                      Hong Kong

UUNET Hungary Kft                                                Hungary

UUNET Ireland Limited                                            Ireland

UUNET Italia S.R.L.                                               Italy

UUNET Japan K.K.                                                  Japan

UUNET Korea Chusik Hosea                                          Korea

INnet Luxembourg S.A.                                          Luxembourg

UUNET Mexico, S. de R. L. de C.V.                                Mexico

   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       5
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

INnet Netherlands                                       Netherlands

Internet Connect Centre B.V.                            Netherlands

InterNLnet B.V.                                         Netherlands

UUNET Development B.V.                                  Netherlands

UUNET European Operations Center B.V.                   Netherlands

UUNET Holdings B.V.                                     Netherlands

UUNET Pipex B.V.                                        Netherlands

UUNET Services Amsterdam B.V.                           Netherlands

UUNET Services B.V.                                     Netherlands

Debrant Limited                                         New Zealand

Voyager NZ Limited                                      New Zealand

UUNET Norway AS                                            Norway

CNS Information (S) Pte. Ltd.                            Singapore

UUNET Equipment Singapore Pte. Ltd.                      Singapore

UUNET Singapore Pte. Ltd.                                Singapore

UUSociedad Espanola de Servicios de Internet,
  UUNET, S.L.                                              Spain

UUNET Sweden AB                                            Sweden

UUNET Schweiz GmbH                                       Switzerland

WorldCom Advanced Networks AG                            Switzerland

UUNET Taiwan Ltd.                                          Taiwan

ANS Communications Europe Ltd.                               UK

Interline Limited                                            UK

The Public IP Exchange Limited                               UK

Unipalm Limited                                              UK

Unipalm Group plc                                            UK

WorldCom Advanced Networks Consulting Limited                UK

WorldCom Advanced Networks Limited                           UK

ALD Communications, Inc.                                 California

Bittel Telecommunications Corporation                    California

Brooks Fiber Properties, Inc.                             Delaware

BFC Communications, Inc.                                   Nevada

Brooks Fiber Communications-LD, Inc.                       Nevada

Brooks Fiber Communications of Arkansas, Inc.             Delaware

Brooks Fiber Communications of Bakersfield, Inc.          Delaware

Brooks Fiber Communications of Connecticut, Inc.          Delaware

Brooks Fiber Communications of Fresno, Inc.               Delaware


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       6
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Brooks Fiber Communications of Idaho, Inc.                Delaware

Brooks Fiber Communications of Massachusetts, Inc.        Delaware

Brooks Fiber Communications of Michigan, Inc.             Michigan

Brooks Fiber Communications of Minnesota, Inc.            Delaware

Brooks Fiber Communications of Mississippi, Inc.          Delaware

Brooks Fiber Communications of Missouri, Inc.             Delaware

Brooks Fiber Communications of Nevada, Inc.               Delaware

Brooks Fiber Communications of New England, Inc.          Delaware

Brooks Fiber Communications of New Mexico, Inc.           Delaware

Brooks Fiber Communications of New York, Inc.             Delaware

Brooks Fiber Communications of Ohio, Inc.                 Delaware

Brooks Fiber Communications of Oklahoma, Inc.             Delaware

Brooks Fiber Communications of Rhode Island, Inc.         Delaware

Brooks Fiber Communications of Sacramento, Inc.            Nevada

Brooks Fiber Communications of San Jose, Inc.              Nevada

Brooks Fiber Communications of Stockton, Inc.             Delaware

Brooks Fiber Communications of Tennessee, Inc.            Delaware

Brooks Fiber Communications of Texas, Inc.                Delaware

Brooks Fiber Communications of Tucson, Inc.               Delaware

Brooks Fiber Communications of Tulsa, Inc.                Delaware

Brooks Fiber Communications of Utah, Inc.                 Delaware

Brooks Fiber Communications of Virginia, Inc.             Virginia

B.T.C. Real Estate Investments, Inc.                      Missouri

BTC Transportation Corporation                            Delaware

Fibercom of Missouri, Inc.                                Missouri

J.B. Telecom, Inc.                                        Missouri

Tenant Network Services, Inc.                            California

BTC Finance Corp.                                         Delaware

New England Fiber Communications L.L.C.                   Delaware

WorldCom Funding Corporation                              Delaware

MCI WORLDCOM Venture Fund, Inc.                           Delaware

MCI WORLDCOM Synergies Management Company, Inc.
  (89.5%)                                                 Delaware

MCI WORLDCOM Brands, L.L.C.                               Delaware

MCI WORLDCOM Capital Management Corporation               Delaware

MCI WORLDCOM Receivables Corporation                      Delaware

MCI WORLDCOM Capital Management Partners                  Delaware


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       7
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

MCI WorldCom Holding France                                France

WorldCom International Mobile Services, Inc.              Delaware

WorldCom Wireless (UK) Limited                         United Kingdom

MCI WorldCom Philippines, Inc.                          Philippines

WorldCom Wireless Solutions, Inc.                         Delaware

1-800-Collect, Inc.                                       Delaware

Advantage Company Limited                                 Bermuda

Darome Teleconferencing L.L.C.                            Delaware

Marconi Telegraph Cable Company, Inc.                     New York

MCI Canada, Inc.                                          Delaware

MCI Communications Corporation                            Delaware

MCI Equipment Acquisition Corporation                     Delaware

MCI WORLDCOM Financial Management Corporation             Delaware

MCI Galaxy III Transponder Leasing, Inc.                  Delaware

MCI Global Access Corporation                             New York

MCI WORLDCOM International, Inc.                          Delaware

MCI Global Support Corporation                            Delaware

MCI International Services, L.L.C.                        Delaware

MCI International Telecommunications Corporation          Delaware

MCI International, Inc.                                   Delaware

MCI Investments Holdings, Inc.                            Delaware

MCI Network Technologies, Inc.                            Delaware

MCI Omega Properties, Inc.                                Delaware

MCI Research, Inc.                                        Delaware

MCI Systemhouse L.L.C.                                    Delaware

MCI WORLDCOM Network Services, Inc.                       Delaware

MCI WORLDCOM Network Services of Virginia, Inc.           Virginia

MCI WorldCom Telecommunications
  (Czech Republic), s.r.o.                             Czech Republic

MCI Transcon Corporation                                  Delaware

MCI Transponder Leasing, Inc.                             Delaware

MCI Videocom, Inc.                                        Delaware

MCI Wireless, Inc.                                        Delaware

MCI/OTI Corporation                                       Delaware

MCImetro Access Transmission Services LLC                 Delaware

MCImetro Access Transmission Services of Virginia, Inc.   Virginia

MCI WORLDCOM Brooks Telecom, LLC                          Delaware

   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       8
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

MCI WORLDCOM MFS Telecom, LLC                             Delaware

ESAG Holdings Participacoes S.A.                           Brazil

Guimar Holdings S.A.                                       Brazil

Proceda Tecnologia e Informatica, S.A.                     Brazil

N.C.S. Equipment Corporation                              New York

networkMCI, Inc.                                          Delaware

Nova Cellular Co.                                         Illinois

Overseas Telecommunications, Inc.                         Delaware

Southernnet of South Carolina, Inc.                    South Carolina

Southernnet Systems, Inc.                                 Virginia

Southernnet, Inc.                                          Georgia

Telecom*USA, Inc.                                         Delaware

Teleconnect Company                                         Iowa

Teleconnect Long Distance Services & Systems Co.            Iowa

3568695 Canada, Inc.                                       Canada

WorldCom International Data Services, Inc.                Delaware

MCI WORLDCOM Brazil LLC                                   Delaware

MCI International (Argentina) S.A.                        Argentina

MCI International (Belize) Ltd.                             Belize

MCI Bolivian Investments Company S.A.                      Bolivia

Corporacion ABC Internacional,S. de R.L. de C.V.            Mexico

Startel-Participacoes Ltda.                                 Brazil

MCI Solutions Telecomunicacoes LTDA.                        Brazil

MCI International Telecomunicacoes do Brasil Ltda.          Brazil

MCI International (Chile) S.A.                              Chile

MCI International (Columbia) Ltda.                         Columbia

MCI Internacional Guatemala, Sociedad Anonima           Guatemala City

Telefonica Pan Americana MCI de Panama, S.A.              Panama City

Telefonica Pan Americana MCI, BV                          Netherlands

MCI International Panama, S.A.                               Panama

MCI International de Venezuela, S.A.                       Venezuela

MCI International (Belgium) S.A./N.V.                       Belgium

MCI International (France) S.A.R.L.                          France

MCI International (Deutschland) GmbH                        Germany

MCI International (Ireland) Limited                         Ireland

MCI International (Italy) S.R.L.                             Italy


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       9
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

MCI Global Ventures, B.V.                                 Netherlands

MCI International (Japan) Co., Ltd.                          Japan

MCI WorldCom Taiwan Co. Ltd.                              Taiwan, ROC

MCI Telecommunications (Israel) Ltd.                         Israel

MCI Telecommunications (South Africa)
  (Proprietary) Limited                                   South Africa

MCI International (Portugal) Telecomunicacoes, Lda.          Portugal

MCI International (Sweden) AB                                Sweden

MCI (CIS) LLC (50%)                                          Russia

MCI-CIS                                                      Russia

Embratel Participacoes S.A. (51.79%)                         Brazil

Empresa Brasileira de Telecomunicacoes (98.75%)              Brazil

NewSatCo Argentina S.R.L.                                  Argentina

MCI Worldcom International (Hungary) Telecommunications
  Ltd.                                                      Hungary

E.L. Acquisition, Inc.                                      Delaware

Wireless Video Enterprises, Inc.                          California

Southern Wireless Video, Inc.                               Delaware

CC Wireless, Inc.                                           Delaware

Cross Country Telecommunications, Inc.                     New Jersey

Cross Country Wireless, Inc.                                Delaware

Wireless Video Enhanced Services                           California

Wireless Video Services                                    California

CAI Wireless Systems, Inc.                                Connecticut

AMI License Corp.                                            Delaware

Atlantic Microsystems, Inc.                                  Delaware

Baltimore Choice Television, Inc.                            Delaware

Baltimore License, Inc.                                      Delaware

Baltimore License II, Inc.                                   Delaware

Buffalo Choice Television, Inc.                              Delaware

Buffalo License, Inc.                                        Delaware

Buffalo License II, Inc.                                     Delaware

CAI CT Holdings Corp.                                        Delaware

CAI Data Systems, Inc. (50%)                                 Delaware

CAI Development, Inc.                                        Delaware

CAI Satellite Communications, Inc. (50%)                     Delaware

CAI Wireless Internet, Inc.                                  Delaware

CAI/AMI Spectrum Management, Inc.                            Delaware



   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       10
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Chenango Associates, Inc.                                 New York

Communications Transport, Inc.                            Delaware

Commonwealth Choice Television, Inc.                      Delaware

Commonwealth License, Inc.                                Delaware

Commonwealth License II, Inc.                             Delaware

Connecticut Choice Television, Inc.                     Connecticut

Connecticut License, Inc.                                 Delaware

Connecticut License II, Inc.                              Delaware

CS Wireless Systems, Inc. (94%)                           Delaware

Eastern New England TV, Inc.                              Delaware

Eastern New England License, Inc.                         Delaware

Eastern New England License II, Inc.                      Delaware

Greater Albany Wireless Systems, Inc.                     New York

Greater Albany License, Inc.                              Delaware

Greater Albany License II, Inc.                           Delaware

Greensboro Choice Television, Inc.                        Delaware

Greensboro License, Inc.                                  Delaware

Greensboro License II, Inc.                               Delaware

Hampton Roads Wireless, Inc.                              Delaware

Hampton Roads License, Inc.                               Delaware

Hampton Roads License II, Inc.                            Delaware

Long Island Choice Television, Inc.                       Delaware

Long Island License, Inc.                                 Delaware

Long Island License II, Inc.                              Delaware

Memphis Choice Television, Inc.                           Delaware

Memphis License, Inc.                                     Delaware

Memphis License II, Inc.                                  Delaware

MMDS Satellite Ventures, Inc. (50%)                       Delaware

New York Choice Television, Inc.                          Delaware

New York License, Inc.                                    Delaware

New York License II, Inc.                                 Delaware

Niskayuna Associates, Inc.                                Delaware

Onondaga Wireless, Inc.                                   New York

Onteo Associates, Inc.                                    New York

PC License, Inc.                                          Delaware

PC License II, Inc.                                       Delaware



   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       11
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Philadelphia Choice Television, Inc.                     Delaware

Pittsburgh Choice Television, Inc.                       Delaware

Pittsburgh License, Inc.                                 Delaware

Pittsburgh License II, Inc.                              Delaware

Rochester Choice Television, Inc.                        Delaware

Rochester License, Inc.                                  Delaware

Rochester License II, Inc.                               Delaware

Springfield Choice Television, Inc.                      Delaware

Springfield License, Inc.                                Delaware

Syracuse Choice Television, Inc.                         Delaware

Syracuse License, Inc.                                   Delaware

Syracuse License II, Inc.                                Delaware

TelQuest Satellite Services LLC (56.68%)                 Delaware

Washington Choice Television, Inc.                       Delaware

Washington License, Inc.                                 Delaware

Washington License II, Inc.                              Delaware

Winston-Choice License, Inc.                             Delaware

Winston-Choice License II, Inc.                          Delaware

Winston-Salem Choice Television, Inc.                    Delaware

Wireless Enterprises LLC (75%)                           Delaware

Housatonic Wireless, Inc.                                New York

ACS California, Inc.                                    California

CS Wireless Battle Creek, Inc.                           Delaware

D&W TV, L.L.C. (75%)                                      Texas

MetroCable, Inc.                                          Ohio

Metropolitan Satellite Corp.                              Ohio

USA AirLink, Inc.                                        Delaware

USA Spectrum Holdings, Inc.                              Delaware

USA Wireless Cable, Inc.                                 Nebraska

Valley Wireless Cable, Inc.                             California

SkyTel Communications, Inc.                              Delaware

SkyTel Corp.                                             Delaware

Mtel Technologies, Inc.                                  Delaware

Mtel International, Inc.                                 Delaware

Mtel Latin America, Inc. (76%)                           Delaware

COM/NAV Realty Corp.                                     Delaware

   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       12
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Intelligent Investment Partners, Inc.                    Delaware

Mtel American Radiodetermination Corporation             Delaware

Mtel Cellular, Inc.                                      Delaware

MobileComm Europe Inc.                                   Delaware

Mtel Digital Services, Inc.                              Delaware

Mtel Microwave, Inc.                                     Delaware

Mtel Service Corporation                                 Delaware

Mtel Space Technologies Corporation                      Delaware

Mtel Asia, Inc.                                          Delaware

SkyTel Telecomunicaciones Argentina, S.A.               Argentina

Mtel Chile S.A.                                           Chile

Mtel Costa Rica S.A.                                    Costa Rica

Mtel del Ecuador S.A.                                     Ecuador

Telecomunicaciones SkyTel C.A.                          Venezuela

Comunicaciones Racotec, S.A.                            Costa Rica

Fagem Electronica, S.A.                                 Costa Rica

Mtel Columbia S.A.                                       Colombia

Radio Aviso S.A.                                          Uruguay

Nubal S.A.                                                Uruguay

Mtel China, Inc.                                         British VI

SkyTel (UK) Limited                                          UK

Mtel (UK) Limited                                            UK

Mtel Dominicana, S.A. (50%)                          Dominican Republic

Mtel Guatemala S.A. (50%)                                 Guatemala

SkyTel Panama                                               Panama

Wireless One, Inc.                                         Delaware

Wireless One Operating Company, LLC                          Texas

Tru Vision Wireless, Inc.                                  Delaware

Wireless One PCS, Inc.                                     Delaware

Wireless One of Alabama, Inc.                               Alabama

Wireless One of Florida, Inc.                              Delaware

Wireless One of Florida Leasing Company, Inc.              Delaware

Wireless One of Georgia, Inc.                              Delaware

Wireless One of Georgia Leasing Company, Inc.              Delaware

Wireless One of Louisiana, LLC                              Texas

Wireless One of Louisiana Leasing Company, LLC              Texas


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.

                                       13
<PAGE>

                                                                    EXHIBIT 21.1


                              MCI WORLDCOM, INC.
                              ------------------
                              SUBSIDIARIES/(1)/
- --------------------------------------------------------------------------------
                                                      Jurisdiction of
     Name of Company/(2)/                              Incorporation
     ---------------                                   -------------

Wireless One of Mississippi Leasing Company, Inc.         Delaware

Wireless One of Tennessee, Inc.                           Delaware

Wireless One of Tennessee Leasing, LP                    Tennessee

Wireless One of Texas, Inc.                               Delaware

Wireless One of Texas Leasing, LP                          Texas

Wireless One of Tallahassee, Inc.                         Delaware

Wireless One of Bryan, Texas, Inc. (80%)                  Delaware

Bartel, Inc.                                              Alabama

Tru Vision-Flippin, Inc.                                  Delaware

Tru Vision-Gadsden, Inc.                                  Delaware

Tru-Vision-Huntsville, Inc.                               Delaware

Tru Vision-Jacksonville, Inc.                             Delaware

Tru Vision-Lawrenceburg, Inc.                             Delaware

Tru Vision-Memphis, Inc.                                  Delaware

Applied Video Technologies, Inc.                          Delaware

Tru Vision-Chattanooga, Inc.                              Delaware

Gulf Coast Wireless, Inc.                                  Texas

Pan Wireless Communications, Inc.                         Delaware

Wireless Media Services, Inc.                             Delaware

Phipps Wireless, Inc.                                      Florida

SWCC, Inc.                                                 Georgia

Shoals Wireless, Inc.                                     Tennessee

Wireless One of Natchez, Inc.                              Delaware

Wireless One of Alabama Leasing Company, Inc.              Alabama

Wireless One of Arkansas Leasing Company, Inc.             Delaware

Wireless One of Kentucky Leasing Company, Inc.             Delaware

Wireless One of Tennessee GP, Inc.                         Delaware

Wireless One of Texas GP, Inc.                             Delaware

Wireless One of North Carolina, L.L.C. (50%)               Delaware


   (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

(2) Certain of the subsidiaries of the Company conduct business under portions
              of their full name or acronyms of their full name.


                                       14

<PAGE>

                                                                    EXHIBIT 23.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in the Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-52168, 33-69322, 33-71450,
33-89072, 333-02115, 333-10349, 333-16531, 333-16015, 333-30279, 333-30281,
333-45079, 333-45095, 333-45083, 333-62609, 333-62613, 333-36901, 333-85393,
333-85389 and 333-85919) and Form S-3 (File Nos., 33-77964, 333-10455,
333-10459, 333-20911, 333-45067, 333-45127, 333-60859 and 333-85431).

                                             ARTHUR ANDERSEN LLP

Jackson, Mississippi
March 29, 2000

<PAGE>

                                                                    EXHIBIT 23.2

                         INDEPENDENT AUDITORS CONSENT

The Board of Directors and Shareholders
MCI WORLDCOM, Inc.

We consent to incorporation by reference in the registration statements on Form
S-8 (File Nos. 33-52168, 33-69322, 33-71450, 33-89072, 333-02115, 333-10349,
333-16531, 333-16015, 333-30279, 333-30281, 333-45079, 333-45095, 333-45083,
333-62609, 333-62613, 333-36901, 333-85393, 333-85389 and 333-85919) and
Form S-3 (File Nos. 33-77964, 333-10455, 333-10459, 333-20911, 333-45067,
333-45127, 333-56895, 333-60859 and 333-85431) of MCI WORLDCOM, Inc. of our
report dated February 18, 1998 relating to the consolidated statements of
operations, changes in shareholders' equity and cash flows of Brooks Fiber
Properties, Inc. and subsidiaries for the fiscal year ended December 31, 1997
and the related schedule, which report appears in the 1999 annual report on
Form 10-K of MCI WORLDCOM, Inc.

                                             KPMG LLP

St. Louis, Missouri
March 29, 2000

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MCI WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                             876
<SECURITIES>                                         6
<RECEIVABLES>                                    6,868
<ALLOWANCES>                                     1,122
<INVENTORY>                                          0
<CURRENT-ASSETS>                                10,324
<PP&E>                                          33,728
<DEPRECIATION>                                  (5,110)
<TOTAL-ASSETS>                                  91,072
<CURRENT-LIABILITIES>                           17,226
<BONDS>                                         13,128
                              798
                                          0
<COMMON>                                            28
<OTHER-SE>                                      51,210
<TOTAL-LIABILITY-AND-EQUITY>                    91,072
<SALES>                                              0
<TOTAL-REVENUES>                                37,120
<CGS>                                           15,951
<TOTAL-COSTS>                                   29,232
<OTHER-EXPENSES>                                  (242)
<LOSS-PROVISION>                                   951
<INTEREST-EXPENSE>                                 966
<INCOME-PRETAX>                                  7,164
<INCOME-TAX>                                     2,965
<INCOME-CONTINUING>                              4,013
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     3,941
<EPS-BASIC>                                       1.40
<EPS-DILUTED>                                     1.35


</TABLE>

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MCI WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000

<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               DEC-31-1998
<CASH>                                           1,727
<SECURITIES>                                         0
<RECEIVABLES>                                    6,229
<ALLOWANCES>                                       920
<INVENTORY>                                          0
<CURRENT-ASSETS>                                10,769
<PP&E>                                          26,843
<DEPRECIATION>                                  (2,275)
<TOTAL-ASSETS>                                  87,092
<CURRENT-LIABILITIES>                           16,180
<BONDS>                                         16,448
                              798
                                          0
<COMMON>                                            28
<OTHER-SE>                                      45,213
<TOTAL-LIABILITY-AND-EQUITY>                    87,092
<SALES>                                              0
<TOTAL-REVENUES>                                18,169
<CGS>                                            8,534
<TOTAL-COSTS>                                   19,111
<OTHER-EXPENSES>                                   (44)
<LOSS-PROVISION>                                   395
<INTEREST-EXPENSE>                                 692
<INCOME-PRETAX>                                 (1,590)
<INCOME-TAX>                                       877
<INCOME-CONTINUING>                             (2,560)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                   (129)
<CHANGES>                                          (36)
<NET-INCOME>                                    (2,767)
<EPS-BASIC>                                      (1.43)
<EPS-DILUTED>                                    (1.43)



</TABLE>

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MCI WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000

<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               DEC-31-1997
<CASH>                                             175
<SECURITIES>                                        54
<RECEIVABLES>                                    1,546
<ALLOWANCES>                                       223
<INVENTORY>                                          0
<CURRENT-ASSETS>                                 1,981
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