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Commentary: Make contingency plans

Overstating profits by nearly $4 billion and cutting more than 20 percent of its work force is disastrous news for WorldCom but enterprises should not plan to jump ship yet.

    By Eric Paulak, Gartner Analyst

    Overstating profits by nearly $4 billion and cutting more than 20 percent of its work force is disastrous news for WorldCom--which could face bankruptcy--but enterprises should not plan to jump ship yet.

    See news story:
    WorldCom customers scramble
    Additional information will doubtless come out. When the situation has been clarified, several (or all) of the following could have happened:

    • Banks could choose not to extend a planned-for $5 billion credit line.

    • Operations in Latin America and Europe could join the wireless business in being sold off.

    • Funding for subsidiaries such as Digex could be at risk.

    • Criminal charges and shareholder lawsuits could be filed.

    • Everyone--investors, customers and employees--could lose faith in telecom companies.

    Gartner believes that the huge staff cuts will inevitably hurt WorldCom's service quality. Companies should therefore make contingency plans. Gartner's advice is similar to what it gave after KPNQwest's recent financial warning, although the plight of WorldCom's customers is not as dire--yet. Companies should:

    • Consider not signing up for any new WorldCom services until its financial situation is clearer and it is guaranteed to get some bank credit.

    • Sign six-month extensions for expiring contracts.

    • For Web sites hosted by WorldCom or Digex, start duplicating data and considering alternative hosts.

    • Evaluate how a second Internet service provider (ISP) might be used for Internet access as well as for wide area network (WAN) needs by deploying a Virtual Private Network (VPN). Remember to turn on IPsec when creating a VPN.

    • Where there is no alternative ISP, order backup dialup ISDN (Integrated Services Digital Network) services for key locations. These can be installed in a couple of weeks.

    WorldCom customers should also document all their WorldCom services and total networking needs so that they can issue formal requests for proposals if needed.

    WorldCom's troubles provide opportunities for other carriers, particularly big incumbents and those with lower debt. AT&T, Sprint and regional Bell operating companies will benefit in the United States. BT Group should pick up considerable business in Europe. Equant and Infonet should do well internationally.

    (For a related commentary on WorldCom's situation, see gartner.com.)

    Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.