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WorldCom clients advised not to run yet

Analysts are unanimously telling companies to stay put and avoid hefty penalties for early contract termination, at least until the contracts expire.

With WorldCom teetering on the brink of bankruptcy, the company's jittery customers are being advised to hang tight for now--but also have a backup plan ready.

Research firms such as Giga Information Group, Gartner and the Yankee Group say they've been besieged with calls asking for advice about where to turn if WorldCom flames out. Analysts are unanimously telling companies to stay put, at least until their contracts expire. Many companies will have no choice--contracts carry hefty penalties for opting out early.

On Wednesday, Gartner hosted an hour-long conference call with clients, titled "WorldCom's Financial Woes: Make Contingency Plans." It's not a small topic for WorldCom customers, who are being targeted by other telecommunications companies. Meanwhile, WorldCom's future is far from certain after the accounting scandal and a likely bankruptcy filing, said analysts.

For the immediate future, Gartner recommends customers stick with WorldCom, but formulate plans to migrate to new carriers. Analysts David Neil and Eric Paulak, who led the Gartner conference call Wednesday, said there's time--WorldCom's business will survive even if it declares bankruptcy.

"WorldCom's network is a core aspect of the global economy, and the federal government in the U.S. is dependent on WorldCom services," Paulak said.

That take is a common theme among analysts.

"We're getting a lot of calls from customers asking for advice," Yankee Group analyst Courtney Quinn said. She offered WorldCom customers advice: "You don't want to put the nail in the coffin before its time."

The only catch is that customers may not be able to leave WorldCom. Quinn said most companies have at least 2-year contracts, though many are 5-year deals. Some, like Electronic Data Services, have contracts that exceed 10 years.

"We don't expect to see an exodus of customers in the short term for that reason," said Quinn.

Gartner said the biggest threat to WorldCom customers is lower quality of service as the company cuts workers, but noted that switching carriers in short order can be dangerous considering telecommunications rivals are also struggling.

"Switching carriers on the fly is prohibitive in its complexity," Quinn said.

Analysts said dumping WorldCom for a struggling rival like Qwest Communications could make things worse. Gartner said Qwest is "not seen as strong" and told clients to consider carriers such as AT&T, Sprint, SBC Communications, BellSouth and Verizon in the United States. Internationally, Gartner flagged Equant, Infonet, British Telecom, and Singtel as good choices.

To plan for a potential WorldCom switch, Gartner advised clients the following:

• Pay close attention to the services you receive from WorldCom and all other network providers. "Customers can't just assume providers will meet their service level agreements," Neil said.

• Refuse to sign up for any new services with WorldCom, at least until the company gets new loans negotiated with banks. WorldCom has said it should have new financing arrangements by the end of the month.

• Don't extend current contracts for any longer than six months. Extending deals for six months should be a safe bet and land better prices. Also try to negotiate a better deal without extending the WorldCom contract. "It's worth a shot," Neil said.

• Duplicate Web site data and consider alternative hosting companies, if a site is hosted by WorldCom or its subsidiary Digex.

• Evaluate how a second Internet service provider (ISP) could be useful by using a virtual private network (VPN).

• Look at a secondary provider for any wide area network (WAN) service.

• Keep in mind that if you do decide to migrate some of your services to a new company, it could take longer than usual, since WorldCom layoffs are likely to complicate the procedure.

WorldCom customers also need to diversify and treat their IT budgets like an investment portfolio.

"People relied heavily on WorldCom and now want to diversify," Giga Information Group analyst Brownlee Thomas said. Thomas recommends clients spend no more than 65 percent of their budgets with one service provider, and he said customers should look for clauses in contracts that will let them escape if their service provider falls apart.

News.com's Larry Dignan contributed to this report.