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MCI push into local market set to continue

British Telecom's US partner, MCI, yesterday pledged to press ahead with its costly expansion into the $100bn (pounds 61bn) local American phone market, regardless of the outcome of the joint review into the group's strategy launched by the two companies.

Doug Maine, MCI's finance director, insisted the drive into local phone markets remained the company's top priority. "MCI is never slow to seize the opportunity. Now is exactly the time to make our move," he said.

The upbeat message came as the US carrier confirmed a drop in earnings in the second quarter of the year, a fortnight after the shock profits warning which threw the $20bn merger with BT into jeopardy. Profits between April and June dropped by 6.7 per cent, to $280m after tax, while the local operations lost $61m.

MCI's huge investment programme in the local market accelerated further, with $970m spent in the second quarter, compared with $900m during the same period the year before. Mr Maine said the programme was "pure MCI", making "short-term investment to ensure long-term success".

He also angered British analysts and investors by discounting an early conclusion to the review, suggesting the findings would emerge in "weeks rather than months". The comments met with surprise from institutional shareholders last night, who had expected an announcement much sooner.

James Dodd, telecoms analyst with Dresdner Kleinwort Benson, said most shareholders were hoping for news "within days". He added: "The senior management at BT and MCI should have been focused on these problems since the deal was announced last year, not getting to grips with them now."

One institutional investor described BT's handling of the affair as "abysmal". The shareholder continued: "The only time we've had contact with BT is when we've asked for it. They say it's good to talk but they're not doing it."

The institution added: "BT's management now has a serious credibility problem. MCI is telling its investors in the US that the merger terms can't be renegotiated. We'd like some answers from BT now."

The MCI figures also showed a worrying slowdown in growth in its core long-distance phone business, previously the main driver of profits. Sales from long-distance calls rose by 4.7 per cent to $4.4bn in the second quarter, compared with a rise of 12 per cent last year.

Mr Maine warned that long-distance growth for 1997 would be flat, as the regional phone companies began attacking MCI's traditional territory for the first time.

BT will today report a small drop in profits for the same three-month period, to around pounds 850m, as the impact of regulatory price cuts continues to bite.