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WorldCom plans massive layoffs as soon as next week

A company official says the reduction focuses on the integration of UUNet and addresses low-growth operations such as consumer long-distance.

As early as Monday, more than 10,000 WorldCom employees could be receiving pink slips, a company executive said Friday.

Division heads have already submitted their reduction plans to management, and layoffs could begin as soon as next week, the executive said, with cuts continuing through February. The result should be a trimming of about 15 percent of the company's 77,000-employee work force, the executive confirmed, with few, if any, layoffs coming from the corporate ranks.

The cuts are the latest effort by WorldCom and its CEO, Bernie Ebbers, to increase corporate profits and to turn around the company's struggling stock, which--along with those of long-distance competitors AT&T and Sprint--has lost more than half its value in the last year.

WorldCom had no comment on the layoffs.

The cuts are driven by two factors, the executive said Friday: the long-awaited integration of UUNet into WorldCom's Business Markets division and the need to derive dividends from the tracking stock being assigned to services such as consumer long-distance that have seen declining revenue.

"We had two companies doing exactly the same thing with completely different sets of people" in UUNet and the Business Markets division, the executive said. "Often, customers were left with a decision between two companies--UUNet and WorldCom."

With WorldCom just completing the integration of UUNet, employees with overlapping responsibilities will be let go, for a total of about 13 percent to 15 percent of the combined workers in those units. It is unclear which division, UUNet or Business Markets, will take a greater hit.

Bumpy merger
The UUNet integration continues to be an awkward one. The unit has fought to remain independent since 1996, when WorldCom acquired UUNet's new parent, MFS Communications. Just last week at WorldCom's Network Operations Center in Ashburn, Va., a group of reporters was led on a tour by a manager wearing a UUNet shirt and distributing UUNet fliers. He referred to WorldCom as a "UUNET vendor," mere hours after WorldCom's chief operating officer, Ron Beaumont, who had come over from UUNet, praised the smoothness of the union.

"They probably do have some overhead, the way they've cobbled the company together," said Jupiter Research analyst Joe Laszlo. In addition to adding UUNet and MFS in recent years, WorldCom has also swallowed MCI and Wiltel.

15 percent of the employees in consumer services such as long-distance will also be let go, the WorldCom executive said. Last November, Ebbers outlined a restructuring that would shift low- or no-growth businesses such as consumer long-distance and wholesale services to a separate tracking stock. That stock, unlike WorldCom's primary stock, would be dividend paying, Ebbers promised investors.

"He has to pay out dividends to meet his promise to Wall Street," the executive said, and personnel reductions will be one way WorldCom trims expenses to permit those payouts. The wholesale unit will be cut by about 25 percent, the executive said.

"This could be a bit of a risky move," Jupiter's Laszlo said. "I don't know in the consumer business how much you can move away from people to automated systems before you start to see a decline in quality."

The long-distance market is more competitive than ever, Laszlo said, "and WorldCom can't possibly compete on price any more. They're skating on an incredibly thin margin as it is."

He suggested that strong customer service might be the only way WorldCom could stave off the continuing erosion of its long-distance business, and that service could be hurt by layoffs.

Still, he said, WorldCom clearly is trying to respond to investors. "The market is pushing companies throughout telecommunications," Laszlo said. "When it's a bull market, it's all about growth, but when there's a hiccup in the market, there's an immediate retrenchment."