- The Washington Times - Monday, July 22, 2002

NEW YORK WorldCom Inc. filed for Chapter 11 bankruptcy protection yesterday evening, the embattled telecommunications company's chief executive said.
The filing took place in U.S. Bankruptcy Court in Manhattan.
"The first priority was to stabilize the company financially," WorldCom President John Sidgmore said before the filing, referring to the receipt of approximately $2 billion to maintain operations while the company reorganizes. "We don't think that there will be any significant impact on the employees and vendors, for that matter, and we should have plenty of cash to make it."
The Chapter 11 filing by WorldCom followed other former high-flying companies, such as energy trader Enron Corp. and Global Crossing Ltd., that crumbled into bankruptcy amid a crush of accounting investigations by federal regulators.
Mr. Sidgmore said the company would look at selling some of its non-core assets and that "potentially includes some of our Latin American facilities" and wireless resale business. "Certainly not UUNet or MCI or any of the core assets."
UUNet owns and runs some of the Internet's biggest thoroughfares in the United States, and MCI is the company's core long-distance business.
WorldCom admitted June 25 that it falsely accounted for $3.85 billion in expenses, which inflated profits. That same day, it fired Chief Financial Officer Scott Sullivan, who subsequently was accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.
WorldCom also announced that it would lay off 17,000 workers, or 20 percent of its global work force.
Even before the hidden expenses were exposed, WorldCom was engulfed in financial turmoil.
Its stock price traded as high as $64.50 in June 1999. However, shares of WorldCom and other telecommunications companies slid as the dot-com bubble burst and other market forces caused an industrywide implosion. WorldCom shares closed Friday at 9 cents on Nasdaq.
Everyone connected to WorldCom competitors, employees and suppliers was girding for the fallout from its bankruptcy.
"This isn't going to be a ripple on a pond. It's a tidal wave from a boulder," said Jeff Kagan, a private telecom analyst in Atlanta.
For suppliers and creditors, it's the possibility that WorldCom's debts might be wiped away by a bankruptcy judge.
For competitors, it's the pain of losing investors fleeing all things telecom.
For WorldCom's 63,000 workers, there are acute worries about future employment.
"This is a case of lose-lose," said Scott Cleland, chief executive officer of the Precursor Group, a telecom research firm. "It's like a virus that gets spread to everyone. Suppliers get shortchanged. People who do business with them get shortchanged. A lot of bad debt will get absorbed."
The one group that probably won't have to worry is WorldCom's telephone customers. Even if the company fails, authorities say its networks will keep operating until they are sold or while the company works out its troubles.
"I don't think customers will notice much," said Carl D. Howe of Forrester Research. "After a while, you may get a different logo on your phone bill."
Many doubt the WorldCom name will survive long.
"They're a criminal brand, in the same group as Enron," said Patrick Comack, a telecom analyst with Guzman & Co. in Miami. "I question whether WorldCom is a viable company, even without its debt."
Down the road, however, a world without WorldCom could turn into a friendlier place for the remaining U.S. telecoms.
"This is going to be the big event that were going to look back on and say, 'That was the turning point,'" said David Willis, a telecom analyst with the Meta Group.
Beleaguered long-distance carrier AT&T; Corp. might feel some relief, especially if WorldCom's most lucrative business customers start looking to jump carriers.
"It couldn't happen at a better time for AT&T;," Mr. Willis said.
AT&T; spokeswoman Eileen Connolly said the company has been phoning WorldCom's corporate customers to assure them that AT&T; would be glad to handle their business. Some customers have contacted AT&T; on their own, she said.
Sprint also might win some of those customers, Mr. Willis said.
Elsewhere, WorldCom might pose a tempting takeover target for one of the four remaining Baby Bell carriers, especially Verizon and SBC, analysts say. The carriers are said to be among the handful healthy enough to purchase the assets.
WorldCom's Metropolitan Fiber Systems, another network provider, and Web site host Digex Inc. also could become coveted assets.
Some say the gobbling of WorldCom could set off a wave of mergers, thinning the ranks of competitors. And, in time, the playing field could revert to domination by the telecom titans of the past: AT&T; and its Baby Bell progeny.
The worst-case scenario for the industry is a WorldCom that sheds its debts in bankruptcy, only to resume aggressive competition reducing long-distance rates further in an attempt to gain subscribers, said Drake Johnstone, telecom analyst with brokerage Davenport & Co.
"That would be a disaster," he said.
Even at pennies on the dollar, WorldCom assets are going to be a tough sell among telecom survivors, Mr. Cleland said.
"The only players strong enough to consolidate have troubles of their own," Mr. Cleland said. "No one's willing to assume more risk and liability. This is an every-company-for-itself market. There is no quick fix."


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