CEO Ebbers hints at WorldCom split

WorldCom is the second telecom company in a week with plans to separate its declining long-distance business from its other growing operations.

WorldCom Stock price from October 1999 to present.

Source: Prophet Finance

Speaking to analysts about the company's quarterly earnings, chief executive Bernie Ebbers said Thursday that a future WorldCom will consist of two businesses. One will be "almost completely focused on digital services," he said, with the other concentrated on voice services--namely, long-distance.

Ebbers said three months ago that the company would consider restructuring to isolate the rapidly declining long-distance business from WorldCom's other operations, all of which are growing. AT&T addressed a similar problem Wednesday by outlining a plan to split into four companies.

Ebbers told analysts that he would outline "the entire story" of the company's restructuring at its investors conference Nov. 1.

He acknowledged that pricing pressures, new technologies such as Internet phone service, and the rise of wireless are eating away at WorldCom's long-distance business, most of which it gained with the purchase of MCI two years ago.

Ebbers declined to address rumors that, like AT&T, WorldCom will attach a tracking stock to its long-distance business. "We will share our full plans on Nov. 1," he said.

WorldCom is "positively positioned to capitalize" on its digital businesses, he said, but "we must continue to execute there."

The $6 billion deal with Intermedia Communications that gave WorldCom a controlling interest in Web-hosting company Digex will be central to WorldCom's digital strategy, Ebbers said.

"We have the right assets for a fast-growing digital business," he said.

However, Ebbers said the company continues "to hit bumps in the road in dial-up Internet access."

Earnings meet the Street
For the quarter ended Sept. 30, the company Thursday posted earnings of 47 cents per diluted share on income of $1.4 billion, equaling the per-share estimates compiled by First Call/Thomson Financial. That was an increase of 26 percent from 37 cents per diluted share for the same quarter last year.

WorldCom announced an after-tax charge of $405 million for accounts it has decided are no longer collectible.

Company executives said that one-third of that charge was for lost business abroad. They also pointed out that the third quarter witnessed 17 bankruptcies among WorldCom clients, compared with an average of about two in past quarters.

Total revenues added up to $10 billion, compared with $9 billion in the year-ago quarter. Domestic data revenues grew 23 percent to $2 billion from the same quarter last year, with dedicated Internet revenues up 51 percent to $640 million.

The quarter also saw the company file a complaint with the European Commission regarding its rejection of WorldCom's proposed merger with Sprint.

When that deal fell through, analysts noted that WorldCom had missed a chance to own a national wireless operation. But analysts were told by WorldCom executives Thursday that AT&T's decision to spin off AT&T Wireless shows it's not essential for a major telecom company to own a wireless endeavor.

Merrill Lynch downgraded WorldCom Wednesday from a "long-term buy" rating to "long-term accumulate."