- WorldCom's CEO, John Sidgmore has promised a quick recovery from the company's bankruptcy, but until that happens, end users see months of uncertainty ahead.
"Any prudent telecom manager would certainly have someone in their back pocket," says Bill Moore, the president of the Communications Managers Association (CMA) and the telecommunications manager at the Museum of Modern Art in New York. The CMA, which represents large end users, intends to advise its members to be ready for anything.
"I think the best course of action right now is to watch the situation very closely, but be prepared to move quickly," Moore says.
End users should "hold the initial conversations with some other providers" as well as see whether they have adequate backup service in place, says Moore. "So if the unthinkable happened you wouldn't be left high and dry."
Some end users are already heeding that advice.
"In short, we're going out to the market to get some quotes and have them in our desk drawer just in case we need them," says Robert Rosati, CIO at Werner, a ladder manufacturer in Greenville, Pennsylvania.
Rosati says he's concerned about WorldCom's ability to deliver services. "Employees can lose focus" when their company is in disarray, he says.
The bankruptcy filing has made Henry Reitinger, CIO of the Ceres Group, a Cleveland-based insurance company, less confident in WorldCom's future, but he says it's too soon to tell what the impact of bankruptcy will be.
The next few months will be critical, says Reitinger. "I'm not worried about what's going to happen tomorrow, I'm more worried about what's going to happen two or three months from now," he says.
But WorldCom's decision to file for Chapter 11 bankruptcy protection will make it difficult for end users with contracts to switch providers.
In bankruptcy, there is an automatic stay, and neither customers nor creditors can walk away from the company at this point unless WorldCom service gets so bad it constitutes a breach of their contract, says Colleen Boothby, an attorney and telecommunications expert at the law firm Levine, Blaszak, Block & Boothby in Washington.
However, bankruptcy restrictions are "why this network is not going dark," says Boothby. It's also why the company was able to get financing, since Worldcom's customer stream won't be disturbed as long as the company continues to provide service, she says.
Indeed, Sidgmore stressed the point that at his press conference. He says the bankruptcy filing would "stabilise" the company and allow it to manage its debt.
Sidgmore also says that he hopes to have WorldCom emerge from bankruptcy by the first quarter of next year as a much stronger company.
Bankruptcy "became the only way to provide for our company's future," Sidgmore says. He added the action will allow the company to secure financing to supplement its cash flow.
WorldCom, like much of the telecommunications industry, has been struggling for many months with weak customer demand. But the company's problems spun seemingly out of control last month when it revealed that its earnings had been inflated by nearly $US4 billion over the past 15 months to help prop up its sagging stock price.
One of WorldCom's largest customers, the US government, which pays WorldCom more than $US425 million a year for defence and other agency communication services, is watching this latest action closely.
The US Federal Communications Commission deputy general counsel, John Rogovin, was due to represent the FCC in federal bankruptcy court for the Southern District of New York, an FCC official U.
WorldCom can't just switch off service. Under federal law, the company would have to give at least 31 days notice before taking an action. "The FCC wants to make sure that it's protected and the judge is aware" of the law, says Robin Pence, an FCC spokeswoman.
WorldCom has obtained an agreement to arrange up to $US2 billion in debtor-in-possession financing, of which $US750 million has already been committed by several banks. This process, if it is approved by the Bankruptcy Court, would allow the company to operate its business normally while it focuses on its new strategic plan, restructures its finances, reduces its debt burden and strengthens its balance sheet, the company says.
Sidgmore pledged to emerge from bankruptcy a stronger company. "We will still have the best set of assets in the telecommunications industry," he says. "While this is not the path that we wanted to take, we think it's clearly the right thing to do for our future with this company."
The company has not lost any major customers, and Sidgmore says he believes bankruptcy would stabilize the company and make it easier to deal with customers and vendors. "I think we can be much more certain about where we are headed," he says.
Sidgmore also announced the election of two new members to WorldCom's board of directors -- Nicholas Katzenbach and Dennis Beresford.
Katzenbach was US attorney general from 1965 to 1966, as well as a longtime senior vice president and general counsel at IBM.
Beresford is an accounting professor at the Terry College of Business at the University of Georgia, and previously was chairman of the Financial Accounting Standards Board from 1987 to 1997.
Katzenbach and Beresford have not previously been involved in the company's affairs, WorldCom said in a statement.
David Legard, of the IDG News Service contributed to this report.