WorldCom CEO faces Herculean task

As the company's hastily selected new chief exec, John Sidgmore is a chastened voice, groping for answers that can help revive the struggling telecommunications giant.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
At the peak of the telecommunications boom, John Sidgmore was WorldCom's designated cheerleader, pointing to the explosion of the Internet as an unending trail of profits for his company.

Today, as the hastily selected new CEO of WorldCom, Sidgmore is a chastened voice, groping for answers that can help revive the struggling giant. In a conference call with analysts and reporters Tuesday, just hours after the announcement that he would replace WorldCom founder Bernie Ebbers, Sidgmore was open about his lack of immediate answers.

"I'm not here to say I'm going to single-handedly turn things around," Sidgmore said. "But the company has a much more negative face and a negative perception than it deserves...In terms of restoring credibility, I think I and the management might be able to turn things around."

Sidgmore faces a Herculean task righting the affairs of a company that still controls one of the largest swaths of the Internet's backbone and one of the most sprawling international networks in the world. WorldCom faces a crisis of confidence on Wall Street, among customers worried about its future and among its own employees.

Ebbers, whose strategy of rampant acquisition led WorldCom into telecommunications' top ranks, leaves behind a company that is laboring under more than $25 billion in debt, being investigated by federal securities regulators, and has lost more than 80 percent of its value. A final set of blows for Ebbers came as criticism erupted over his personal $366 million loan from the company, and as WorldCom told Wall Street earlier this month that revenue for 2002 would be a full $1 billion below what had been originally projected.

Sidgmore dismissed all talk of financial catastrophe, saying, "We don't believe there is any way, under any scenario, that we will run out of cash." The company has about $172 million in bond debt due this year, but that will jump to $1.7 billion next year and to more than $2 billion in 2004.

Financial analysts weren't convinced. Dresdner Kleinwort Wasserstein analyst Bruce Roberts on Tuesday downgraded the company's stock to "sell," saying the risks of owning the stock far outweighed the possible gains. J.P. Morgan said in an analyst note Tuesday that concerns about the company's future are already driving key data customers to AT&T.

Sidgmore, who has taken a low-profile role as a WorldCom vice chairman in the last few years, was open with analysts on the conference call that he didn't have quick answers. He struggled to explain how his vision would differ from Ebbers' vision, settling finally on an answer that brought back his erstwhile role as the company's Internet advocate: Focus on the high-growth businesses. In telecommunications, that means data and data services.

"I don't think you can turn a company like this into a fast grower overnight," he said. "But I think there are substantial growth opportunities in there that we haven't pursued recently."

In their call with analysts, the new executive team said it would spend the next 30 to 60 days evaluating the company's assets, determining what is core and what can be sold off. Chief Financial Officer Scott Sullivan said the company expected to find assets worth between $1 billion and $2 billion that would be "non-core."

WorldCom has devoted much of the last few years to highlighting its "On-Net" strategy, which would allow data or phone calls to be carried on the company's own network--instead of handed off from company to company--around the world.

He said he was unlikely to sell off any of these "integrated" network assets. He pointed to wireless technology and international assets as most likely to reach the block.

Industry analysts said a key part of his task will be to link the sprawling network more tightly together, however. Ebbers' acquisition spree brought in dozens of infrastructure and technology companies that are only nominally linked. Most telling is Sidgmore's former company UUNet, still one of the largest Net backbone and service providers, but which still operates as a separate entity within WorldCom.

"Ebbers ran WorldCom very much like a holding company," said Lisa Pierce, an analyst with research firm Giga Information Group. The company has at least three networks running Internet-style transmissions, as well as two frame-relay networks and two ATM networks, she noted. "That means there are efficiency problems, there are network management problems, and those turn potentially into performance problems."

These technical issues are critical in the midst of the telecom carnage, analysts say. AT&T has benefited in the past few quarters from what some Wall Street analysts are calling a "flight to quality"--essentially a migration of customers to companies they're sure won't go out of business, and will provide reliable service.

WorldCom hasn't benefited from this trend, analysts say. Indeed, its recent profit warning capped two consecutive quarters of falling net income.

Gartner analysts Jay Pultz, David Neil and Eric Paulak say that it is likely that in 2002, a healthier network service provider will bid for WorldCom.

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Sidgmore said that a large portion of his time in the next few months would be to reenergize the sales force, which has suffered badly from cutbacks and top-level defections over the past few years. He and other top executives will mount a "road show" to visit with regional sales teams, and they will go along on high-level sales calls, he said.

His own experience bringing Microsoft and AOL in as customers at UUNet will serve WorldCom well as it refocuses on big corporate clients, Sidgmore promised.

"The fastest way to create growth is to create large deals with large companies," he said.

Nevertheless, the message from the once-ebullient cheerleader for the future of the Net, and of WorldCom's role in it, is that the future is still uncertain.

"We don't have enough knowledge right now to give you the full picture," Sidgmore told analysts. "We're not economists; we don't know when this is going to turn around. But we have the staying power to get through anything."