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Thu, Mar 04, 2004 - Page 12 News List

Uncertain future for WorldCom

BACK IN THE GAME The company will emerge from bankruptcy this month as a potential takeover target, as one of its founders faces accounting scandal charges


US Attorney General John Ashcroft announces at a news conference in New York on Tuesday that charges were unsealed in Manhattan Federal Court against Bernard Ebbers, the former CEO and president of WorldCom. The indictment charges Ebbers with conspiracy and securities fraud in connection with his participation in a scheme to inflate artificially the price of WorldCom stock.


WorldCom, the telecommunications giant that was brought to the brink of collapse from accounting fraud, is poised to emerge from bankruptcy as its co-founder and former chief executive, Bernard Ebbers, now faces criminal charges related to the US$11 billion accounting scandal.

But the company faces a competitive climate markedly changed and far less hospitable than when it filed for bankruptcy in July 2002.

Wall Street and industry analysts said that, in light of the changes in the turbulent telecommunications industry, WorldCom would be hard pressed to remain a stand-alone company, and may well attract takeover interest as soon as it emerges from bankruptcy on April 28.

What has put WorldCom's future independence in doubt, analysts said, is the trend toward telecommunications megacarriers that sell long-distance, local and wireless phone service, as well as Internet access, and television programming through cable and satellite services.

That trend puts increasing pressure on companies like WorldCom and AT&T, which have good businesses in the long-distance niche but are less well positioned to compete against competitors that can offer many bundled services to consumers.

WorldCom, which plans to change its name to MCI when it emerges from bankruptcy, "will not remain an independent company long-term," said Scott Cleland, the chief executive of Precursor, an independent research company. "Long-distance is an artificial business segment that has little future."

The fortunes of WorldCom and AT&T and other long-distance companies were dealt a further setback Tuesday when the federal appeals court in Washington blocked regulations issued by the Federal Communication Commission that could have made it easier for long-distance companies to compete in the local telephone market. The FCC rules required the local telephone companies to lease access to their lines to other telecommunications competitors, like WorldCom, at low prices set by state regulators.

Still, analysts say WorldCom controls huge assets that make it an attractive takeover target.

When it filed for Chapter 11 bankruptcy protection, the company had about US$30 billion in long-term debt. By last October, when the bankruptcy court approved its reorganization plan, WorldCom had around US$5.8 billion in long-term debt, giving it one of the cleanest balance sheets in the industry. The company had about US$24 billion in sales last year, said Igor Volshteyn, a research analyst with Tejas Securities Group Inc, which specializes in assessing distressed securities.

More significantly, the lion's share of WorldCom's business is in one of the most lucrative telecommunications markets -- serving large companies with data and telephone access. Industry analysts say the size of that corporate market and WorldCom's stake are hard to measure exactly, but they say WorldCom has about 35 percent of the market, with AT&T having 40 percent to 45 percent.

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