Internet is
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SAN FRANCISCO (CBS.MW) -- As the world's largest carrier of Internet
traffic, and the courier for 70 percent of all e-mails, WorldCom
continues to play a vital role around the globe. And disruption of the
company's services would certainly have a significant impact on
communications.
At the moment, it appears as though WorldCom -- which went from a
market cap of $120 billion in 1999 to about $300 million today -- will
be able to meet its bills and keep the services intact, even if it
finds itself in bankruptcy.
"I don't think there's much chance, if any, of any blip in the
service," said John Sidgmore, WorldCom's (WCOME: news, chart, profile)
president and CEO, at a Washington press conference Tuesday,
responding to a question about whether the company had a contingency
plan for management of the Internet pipeline should the company file
for Chapter 11.
"Strangely enough," he added, "we would be much more attractive as a
company to lend money to if we were in bankruptcy than where we are
now. And so I don't really see a significant ... chance of the UUNet
network [WorldCom's Internet backbone unit] going dark under any
circumstances. I really just don't." Watch Sidgmore's news
conference.
Continued service in bankruptcy
WorldCom, which has $30 billion in debt, operates in more than 100
countries on six continents and serves some of the largest agencies of
the federal government, including the Department of Defense.
"Both commercial and national-security interests rely on WorldCom's
operations continuing without disruption," said Sidgmore. See Homeland
security means Net security.
Analysts agree. "There is too much interest in keeping this service
going," said Blair Levin, an analyst at Legg Mason.
So while WorldCom might find itself facing bankruptcy protection, the
risks of the network operations shutting down is slight, according to
Levin. Indeed, many companies filed for bankruptcy in order to
continue to service their customers. See previous Net Sense: Why
Chapter 11 can be a good thing.
That said, the Clinton, Miss.-based WorldCom is fighting to avoid
Chapter 11. "We are working very, very hard with the banks and others
to try and find ways to accomplish our goals without going into
bankruptcy," said Sidgmore.
Fortunately for WorldCom, the company doesn't have an interest payment
due this year. But in January 2003, WorldCom is scheduled to pay a $1
billion debt obligation.
Financial problems could be exacerbated as vendors demand upfront
payments for supplies and services and might even try to squeeze the
company on pricing, Sidgmore said. The company did not provide the
names of those vendors nor did it elaborate on whether there were
sufficient funds to cover vendor obligations in the near term.
The company, has, however, $2 billion cash on hand and is generating
cash flow, according to Brad Burns, a WorldCom spokesman.
WorldCom customers
Sidgmore also tried to alleviate any concerns that WorldCom's business
is eroding. To date, WorldCom has not lost any customers, he said.
Some of WorldCom's big accounts are the Nasdaq, the Department of
Defense, and AOL Time Warner.
It is possible that WorldCom's customers, however, will shift more of
their Internet backbone needs to other providers in order to secure
undisrupted service for their customers.
WorldCom is among the suppliers of backbone capacity for AOL, which
uses multiple providers.
"America Online has long taken a portfolio approach to its network
management, and that provides us with the flexibility we need to
provide reliable service to our customers," said AOL Time Warner (AOL:
news, chart, profile) spokesman Jim Whitney.
EarthLink (ELNK: news, chart, profile), like AOL, has pursued a policy
of multiple providers for its Internet traffic. EarthLink buys
backbone capacity from WorldCom, Level 3 (LVLT: news, chart, profile)
and Sprint (FON: news, chart, profile).
"We have redundant coverage across the U.S.," said Linda Beck,
executive vice president of operations at EarthLink. There are
contingency plans in place if moving off the WorldCom network is
necessary, she added.
Experience with bankrupt companies
EarthLink, which provides Internet access to 4.9 million subscribers,
knows about working with a bankrupt vendor.
PSINet, which went public in May 1995 along with UUNet, was one of the
first Internet companies to file for bankruptcy and one of EarthLink's
suppliers. Ashburn, Va.-based PSINet filed for bankruptcy protection
in June 2001, but EarthLink managed to keep up its service because of
the availability of Internet capacity through other suppliers and the
timely warning PSINet gave its customers.
"PSINet gave 45 days notice that they were shutting down," said Beck.
PSINet went on to sell some of its Internet operations to Telus (CA:T:
news, chart, profile), Canada's second-largest telecommunications
company, for an undisclosed amount. Cogent Communications, an
all-optical ISP, purchased PSINet's 6,000 customers in the U.S.,
intellectual property rights, as well as PSINet's network backbone for
$10 million.
Late Tuesday, IDT (IDT: news, chart, profile) offered to buy
WorldCom's MFS and Brooks Fiber units and its MCI customer and
small-business long-distance units, according to a statement. See full
story.
WorldCom said it will consider any serious offers, but it is highly
unlikely the company would consider selling core assets, such as the
MCI consumer business, said WorldCom's Burns. Additionally, WorldCom
would not consider selling its Internet backbone business, said Burns.
That business was created when WorldCom purchased MFS Communications
in December 1996 for $15.4 billion in stock and debt, according
Dealogic. MFS purchased UUNet in August 1996 for $1.84 billion in
stock.
EarthLink also dealt with ICG Communications, which went through
bankruptcy. The company never shut down its services and EarthLink
maintains some relationship with the company.
It was a different story for wireless network provider Ricochet,
however. After filing for bankruptcy and shutting down, EarthLink had
to stop reselling the service.
Shutdowns are an imminent problem for customers of KPNQwest's Ebone
Internet network in Europe. Technicians at KPNQwest's Ebone Internet
operation began shutting down the service Tuesday evening after a
Belgian bankruptcy administrator rejected a last- minute bid for the
Brussels-based data network. See story.
So, what would WorldCom sell?
While WorldCom does not plan on selling its core assets, it will
consider selling noncore assets, according to Burns. That includes its
wireless resale business or its MMDS business, which is wireless
spectrum purchased from the government for $2 billion to $3 billion to
offer fixed-wireless service in 13 markets. Additionally, WorldCom
would consider selling its controlling stake in Embratel, one of
Brazil's largest long-distance companies. WorldCom has a 47 percent
controlling stake in Embratel (EMT: news, chart, profile) and a 19
percent financial interest.
Should WorldCom begin selling off assets, it would be quite a change
in direction for a company that's been an aggressive acquirer of
assets. Since 1996, WorldCom bought 15 companies for $77 billion,
according to Dealogic.
Wireless Web
Openwave Systems (OPWV: news, chart, profile), a wireless
infrastructure software company, saw shares plunge 57 percent to $2
after warning that quarterly sales would be down as much as 22 percent
from a previous estimate of $80 million.
Openwave said revenue would be between $64 million and $71 million. It
blamed tight carrier spending and weakness in Europe.
The company expects to lose between 17 and 20 cents a share. Analysts
had forecast a 9-cent loss.
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weekly commentary. See "Homeland security means Net security."