Williams Communications Group Inc. emerged from bankruptcy protection on schedule yesterday, with a new name, a much lighter debt load, and with want-ads out for a new CEO (see Williams Emerges as WilTel).

The Tulsa-based carrier, which filed for Chapter 11 on April 22 this year, announced today that it has reemerged from the process as WilTel Communications Group, and that it has slashed its $7.15 billion debt load to a mere $375 million. The company said that it has no other debt obligations besides those related to its headquarters building in Tulsa, from where it will continue operating. The new company has been incorporated in Nevada.

“This is good news for Williams,” says Jeff Kagan, an independent analyst based in Georgia. “It’s a rare second chance to start with a clean slate.” However, he warns, WilTel’s emergence could be terrible news for the industry. “This could be a recipe for disaster if they decide to compete on price. They have an unfair advantage that puts pressure on other companies that haven’t filed for bankruptcy… The last thing we need is a price war in the industry.”

While the lighter debtload will certainly give WilTel a competitive advantage, many observers doubt that it will be enough to carry the new company to profitability.

“Obviously that helps,” says Phil Jacobson, an analyst with Network Conceptions LLC. “But there’s still a lot of capacity and bandwidth in the ground… and still too many carriers. The same pressures are going to come back... Williams will find itself having to reduce prices over and over until it goes out of business again.”

With few signs of a telecom recovery in sight, it is difficult to believe that the growing number of carriers now returning from the dead, after shedding most of their debt in Chapter 11, will succeed in the same market where they've already failed. This is especially true for companies like WilTel, which seems to be emerging with pretty much the same business plan as it had when it was forced into bankruptcy six months ago, Jacobson says.

Williams Communications went under in the first place because of a bandwidth glut that made running its 33,000-mile fiber optic network, connecting 125 cities around the globe, unprofitable. “Carriers’ carriers are still going to have big problems for a long time to come,” Jacobson says. “If these companies keep coming back, the prices are going to continue coming down.”

“If they haven’t done a business-plan revamp,” Craig Johnson, an independent analyst based in Portland, Ore., agrees, “they’re not going to make it. It’s very cutthroat right now.”

WilTel didn’t return numerous calls asking for comment by press-time.

In today’s release, WilTel also announced that CEO Howard Janzen, who has headed the company since its inception in 1995, has resigned. Janzan has also vacated his seat on the company’s board of directors. “…Howard is the major reason for the Company’s rapid emergence from Chapter 11 and for the seamless management of operations and customer care since the Company’s founding and over these difficult past six months,” the board of directors said in today’s statement. “We thank him for his commitment and hard work on behalf of the Company as the Board begins the search for the next leader to continue WilTel’s growth and industry leadership.”

“Starting out with a clean slate both on the balance sheet and the CEO seat is good,” Kagan says. “Of course it depends who they replace him with.”

While changing the company’s name and replacing some of the management at the top will probably add to the new company’s credibility, Johnson says that without changing the business model, it’s not going to be enough. “Everything is so tarnished that it’s going to take periods of time for the tarnish to wear away. Everyone’s in the rebuilding-of-image mode.”

In accordance with the company’s reorganization plan, which was approved by the courts on September 30, all existing Williams Communications shares have been canceled, and 50 million WilTel shares have been issued (see Court OKs Williams Reorg Plan and Williams Settles With SBC). The former company’s unsecured creditors have received 54 percent of the shares, while 44 percent have gone to New York investment bank Leucadia National Corp. The investment bank has invested $150 million in the company and spent another $180 million buying out Williams Companies Inc. claims. Former shareholders of Williams Communications who have filed class-action lawsuits could recover the remaining 2 percent of the new equity, in addition to any money the court might award.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com