WorldCom sees hope in Chapter 11

Chief Executive Officer John Sidgmore says that the telecommunications company's bankruptcy filing could help assuage customers' fears and keep them in the fold.

Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
Margaret Kane
3 min read
WorldCom's chief executive said Monday that the company's bankruptcy filing could help assuage customers' fears and keep them in the fold.

CEO John Sidgmore spoke at a press conference Monday, a day after announcing the largest bankruptcy in U.S. history. The filing puts to rest some questions about the future of the long-troubled telecom giant, which last month owned up to nearly $4 billion in accounting improprieties.

"The worst possible period where we were at most risk was the last few months, where there was great uncertainty. Now, in a strange way, entering Chapter 11 we will be stabilized to a certain extent. We can get out and communicate our strategy to our customers and vendors," he said. "We still have not lost any substantial customers over last few months. We have had plenty of customers who have registered concern, but there hasn't been any exodus."

WorldCom customers have been inundating analysts and research firms for advice on what to do about their reliance on the company for telecommunications and other services. On the whole, the advice has been to stay put, at least until current contracts expire.

And analysts agreed that the bankruptcy filing does put WorldCom on somewhat firmer footing.

"We believe that the company can continue to function fairly well since, unlike most other telecom failures, it has a strong recurring-revenue base," wrote Merrill Lynch analyst Adam Quinton in a research note. "Company executives and regulators have said over the last few days that they expect no interruption of service to the company's...consumer customers or many enterprise customers."

But WorldCom has lost at least one potential customer. It was in the running for a Federal Aviation Administration contract worth a possible $3.5 billion. WorldCom had been the incumbent on that contract, but the new deal went to international communications equipment company Harris.

"That their existing customers aren't running out the door is one thing, but WorldCom isn't winning any new big business. That new money isn't coming in the door when it needs it," said Lisa Pierce, research fellow at Giga Information Group. "I haven't seen any customers moving to WorldCom in this time. I do know of a number of cases where WorldCom was being considered and didn't get the (contract)."

And although the bankruptcy filing will help stabilize the financial situation, Pierce added, "it doesn't solve any legal problems."

WorldCom, with 60,000 employees and operations in 65 countries, said it expects to hire a restructuring expert to aid the management team, and it aims to emerge from Chapter 11 in about nine to 12 months. The bankruptcy does not include its international operations.

The company, which has more than 20 million customers and transmits half the world's Internet traffic, said it will have access to up to $2 billion in debtor-in-possession funding to keep operating, maintain its network and pay employees under the bankruptcy reorganization.

The Clinton, Miss.-based company on Monday received approval from the U.S. Bankruptcy Court for the Southern District of New York for $2 billion in debtor-in-possession funding to keep the company operating while it reorganizes.

Sidgmore said Monday that he plans for the company to hold onto as much of the "core business" as possible.

"Our plan is going to be essentially to keep company intact. It doesn't mean we won't have some business restructured, or that we won't get out of some businesses. But I suspect our plan will include keeping core centerpieces intact," he said, listing UUNet, the U.S. long-distance business and its data business in particular, the CEO added.

"The reorganization here is not going to be the (type) where you jump in and sell all the assets, in my opinion. The value in WorldCom is not in the switches and pipes we have underground and the hard assets. I think the value of WorldCom is the 20 million customers, the brands, the customer relationships and the product set."

He said he did not expect the company to announce any more layoffs; WorldCom has already said it is letting go about 28 percent of its work force.

Reuters contributed to this report.