WorldCom's business-as-usual fantasy: the saga drags on and revelations about the demise of WorldCom are appearing on an almost daily basis. Grahame Lynch wrestles with the problem of separating telecom truth from fiction - News Analysis

Telecom Asia, Sept, 2002 by Grahame Lynch

When large companies enter bankruptcy, one of their first imperatives is to portray the appearance of business as usual. But WorldCom, where fact is indeed often stranger than fiction, seems to have taken this to extremes. Never mind last month's arrests of former CFO Scott Sullivan and former controller David Myers, or the revelation that Worldcom's $3.85 billion in shuffled funds was actually more like $7.1 billion. Imagine how the tens of thousands of retrenched WorldCom employees felt when they found out on 2 August, that 75 of their old New York colleagues were going on a "all-expenses paid booze cruise" on the ritzy Cloud Nine cruiser?

According to The New York Post, the bankrupt WorldCom was laying on Norwegian salmon, filet mignon, prime rib, roast filet of ostrich and hand-dipped chocolate strawberries for its staff. The cruise--described as a "global implementation and support event"--was organized under a cloak of secrecy, even to the extent of inviting staff by phone and not email to avoid a paper-trail that might make its way into the bankruptcy court.

The same day, WorldCom was forced to make an embarrassing call to staff after a monumental stuff-up. That morning's payroll contained a full payout of second quarter bonuses and incentives--with one problem. It didn't have the bankruptcy court's permission to make such payouts. Indeed, the company was to take back in the following payroll what it had given with the first, if it couldn't secure the court's approval in time.

While these shenanigans excite the industry gossips, the sad reality for WorldCom is that its major customers are sick of the crisis and the chaos and are looking for alternatives.

Sales down

Another leaked memo, this time to The Financial Times, indicated that WorldCom's European new sales are down as much as 50%--a statement attributed to a senior WorldCom executive but later denied by the company's public relations department.

The anecdotal evidence suggests that customers are beginning to defect. Primus Telecommunications CFO Neil Hazard said on a recent conference call that his company had received a surge in "Requests for Proposal" from WorldCom customers. BT Ignite Asia Pacific president Graham Moore made a similar claim in a recent interview with Australian newsletter Communications Day.

Customer problem

Although many defections are unlikely to occur quickly as a result of contractual obligations and the like, its clear that WorldCom may have problems in retaining its biggest customers.

One of the greatest problems for WorldCom is on the wholesale side. WorldCom has various debtor and creditor arrangements with operators across the globe--and all will feel some form of pain. VSNL in India, for example, is owed at least $60 million from WorldCom and is unlikely to see much of it for some time. On the other hand, carriers who owe WorldCom money might find themselves the subject of action from bankruptcy court lawyers seeking speedy settlement of outstanding dues. After the mess is sorted out, how many carriers are likely to want more exposure to WorldCom if solvent alternatives exist?

One of those solvent alternatives may turn out to be Global Crossing, itself in Chapter 11. Because of its comparatively lower sales revenues, Global Crossing is a cheaper buy than WorldCom--so much so that Hutchison Whampoa and Singapore Technologies Telemedia managed to successfully bid for Global Crossing's assets for an even cheaper price than the one they offered earlier this year. (See page 12 for details)

But the greatest surprise is that despite its problems, Global Crossing actually managed to beat its performance targets in the first half of the year. Not only did the company over-deliver on sales, but it also managed to beat its cost-cutting targets. For the month of June alone, Global Crossing secured $250 million of sales whilst retaining cash of over $1.2 billion.

Indeed, the companies who get out of Chapter 11 the fastest might be the eventual winners of the race between the lean-and-mean debt-free who emerge from bankruptcy protection and those currently solvent companies that still make good on their debt and expense obligations. The latter may soon find themselves with what is nothing more than an uncompetitive cost base. As for WorldCom, its tawdry soap opera is expected to continue for at least the remainder of the year.