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WorldCom: What's Next?

Everyone is trying to figure out what will become of WorldCom Inc. (Nasdaq: WCOME). And despite the company’s efforts to stay out of bankruptcy, nearly everyone on Wall Street believes that a Chapter 11 filing is inevitable.

Exactly how that will proceed and what will result is debatable. Some say there is already a pre-packaged plan in the works to get the company through bankruptcy court relatively quickly. Others say WorldCom’s battle is only beginning and that bankruptcy will likely be a knock-down, drag-out fight to the finish.

The Wall Street Journal reported this morning that bondholders, which hold $26 million in debt, are working on a pre-packaged deal that will get WorldCom through the courts relatively quickly. The idea is that bondholders will make out better in a fast court proceeding.

But there could be a snag in this grand plan. Although WorldCom is reporting revised cash figures of $2 billion, the final audit by WorldCom’s new accountants, KPMG, isn’t finished yet. And if large customers start leaving WorldCom for its competitors, revenues could continue to decline, putting the company on precarious footing. As a result, it’s likely that WorldCom could need to raise more cash in the interim, while a bankruptcy agreement is hammered out. The banks supplying this cash are likely to ask for collateral, putting them in line ahead of the bondholders in getting their money out in the case of a bankruptcy.

With all of this in mind, some analysts following the situation don’t believe that bankruptcy proceedings will go as smoothly as bondholders would like. Judging from history, this would seem a safe bet. Before Global Crossing Ltd. (NYSE: GX) entered into Chapter 11 proceedings, pundits also said there was a pre-packaged plan to get through the courts smoothly, but those plans have fallen apart and the company is still tangled up in court (see Global Garage Sale Coming? ).

“We cannot rule out the possibility of a pre-packaged filing that could be handled relatively quickly, but we believe it is more likely that the process will take time to play out,” said Legg Mason Inc. analyst Blair Levin in a research note published on Wednesday.

“In the interim we believe WorldCom must preserve the value of its operations and keep multiple avenues open for creditors to secure value,” he continued.

Levin’s note outlines four possible scenarios. The most likely, in his view, is that WorldCom’s business will remain relatively intact and will be sold to another carrier. The likely candidates to buy WorldCom are the RBOCs -- Verizon Communications Inc. (NYSE: VZ), BellSouth Corp. (NYSE: BLS), SBC Communications Inc. (NYSE: SBC), and Qwest Communications International Inc. (NYSE: Q). The downside to this scenario is that these players will likely face a long regulatory approval process and might be forced to dump some in-region operations to make the deal go through, said Levin.

The second possible option is that WorldCom will emerge from bankruptcy. This is likely to be the option with the least amount of regulatory hurdles and would be the cleanest financial solution. It is also probably management’s most favored outcome and the option that would most likely ensure that the company’s network remains intact and operational.

If no buyer emerges, then WorldCom’s assets, valued at over $104 billion, will be sold off piecemeal. IDT Corp. has already offered $5 billion for the company’s facilities-based operations and its consumer long-distance business. UUNet, WorldCom’s Internet backbone, would also likely attract buyers.

The fourth and final scenario would be that WorldCom would be forced to file for Chapter 7 bankruptcy, which means that pieces of the company would be auctioned off by the court.

“This is probably the least likely outcome but the most beneficial to the rest of the industry,” said Levin in his note. “Namely after a lengthy Chapter 11 process the company enters a Chapter 7 liquidation, where the assets dissolve away and the remaining customers transfer to other providers.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com Check out Light Reading's July Research Poll on this topic to find out what others think about who's to blame for Worldcom's woes, and whether there are other skeletons in its closet.

BobbyMax 12/4/2012 | 10:09:15 PM
re: WorldCom: What's Next? WorldCom cannot survive as telecom service provider. It cannot survive in the current telecom environment. Furthermore, it does not have a management with statures to pull the company.

Even before all this, WorldCom services were extremely poor with a lot of billing and service problems. The quality of service and its revenues are not likely to improve.

The services offered by WorldCom can be easily taken over by Verizon or even AT&T. But it would not benefit the current situation if SBC gets involved with WorldCom. SBC is one of the largest RBOCs, but it performance has been less than honorable. SBC has not be very wise in reducing its workforce and outsourcing a lot of services at a substantially reduced cost. The operations cost of SBC has gone up. SBC has not been able to upgrade the infrastructure of Ameritek. SBC management is very inept and being out of limelight, it does things that are not conducing to running telecom services.

Similar to Qwest and Global Crossings, WorldCom became a worldwide lab for testing junky products from start-ups and other inferior telecom companies.

Verizon has experience in offering secure services to the government and businesses. In addition, it has been a clean company.
gina 12/4/2012 | 10:09:12 PM
re: WorldCom: What's Next?



RE: "With all of this in mind, some analysts following the situation donGÇÖt believe that bankruptcy proceedings will go as smoothly as bondholders would like. Judging from history, this would seem a safe bet. Before Global Crossing Ltd. (NYSE: GX - message board) entered into Chapter 11 proceedings, pundits also said there was a pre-packaged plan to get through the courts smoothly, but those plans have fallen apart and the company is still tangled up in court (see Global Garage Sale Coming? )."

Check also Williams Communications. There are a lot of articles about WCG's case
and I have sent all the relevant information to R. Scott Raynovich. He promised
to look at it. You can check also WCGRQ lightreading message board where most of the information is posted.

Regards,
Gina
havethetshirt 12/4/2012 | 10:08:59 PM
re: WorldCom: What's Next? WorldCom will more than likely end in the reverse of how it begun - instead of greedily buying existing businesses they will have to sell off chunks of their business.

Chunk 1 - Long Distance
The majority of their long distance customer base and largest revenue source basically is just the former MCI. (Isn't it a little ironic that WorldCom was every able to pull off a hostile over of MCI....can we say a slightly over-inflated stock price??) Verizon is not an approved Long Distance Carrier in all 50 states therefore that may not really a viable option. (Plus I would think (or hope!) someone may see some anti-trust issues here.) Long Distance is a dying market with low-profit margins...unlike the local market - long distance prices have reduced nearly 1000% since deregulation and the introduction of competition...when you think about it - when was the last time your local carrier reduced their prices?

Chunk 2 - Local Services
Having worked at WCOM in this area - I can tell you that this is a clusterf*ck that no one would want. Many of their lines are leased which basically means they are at an operational loss here - however, you can creatively book the top line revenue...I am not sure who actually thought that you can be profitable by reselling the ILEC services. Once you waive the set-up fees which the ILEC does not waive for you, discount the service, lease the line for 3 year commitment even though the customer only commits to pay you for 2 years, cover all of the ancillary costs of porting, directory services, testing, ASR/LSR, maintenance, etc. and then actually bill the customer - there is little to no room for any profit. Actually you just have more pissed off customers because the incumbent local carriers for some reason tend not to put resale customer orders at the top of the priority list. When I was a WCOM is was common knowledge that at least 33% of the local customers signed - dropped WCOM prior to installation because the average provisioning time for a T1 was 45 days. I am not sure who would want this lemon - I would say sell the customers back to their respective ILEC's since they are actually providing much of the service anyway. However, buyer beware!

Chunk 3 - UUNET
2/3rds of the nations internet does travel on their backbone...however, since it is a network comprised of leased circuits - many of which I am sure WCOM is paying the actual casual month-to-month rates for because the did not renegotiate the contracts when the discount terms expire. (Having also worked at Verizon, I know that after the contract term expires - the customer automatically is billed the month-to-month casual rate which easily can be thousands more a year.)

Chunk 4 - Fiber (MFS, Brooks)
There is some value here since the expensive part (trenching, running conduit, digging up streets, etc.) is already done here - however the market demand is not there yet...but it will be someday. However, having seen the WCOM operational support systems - I do question if they even know physically locate where all of there fiber is. Also - need to find out how much of the fiber they actually own vs. lease.

All in all - it's not going to be pretty, easily or even too much fun...because what everyone seems to forget - signing the papers to buy a piece of the company is the easy part - actually assimilating the products, customers and employees into your business operations and systems is a whole different can of worms that very few in this industry have done well.
buliwyf 12/4/2012 | 10:08:59 PM
re: WorldCom: What's Next? Hmmm.
"WorldCom: What's Next?"

Why is it whenever reply to this thread it magically disappears (??) Don't pose a question in a public forum if you don't want an answer.

s/million/billion/

eh?
havethetshirt 12/4/2012 | 10:08:58 PM
re: WorldCom: What's Next? You have my sincerest condolences for having to experience the WCOM destruction of MCI. I was there after the merger - and definitely did not feel the love between both parties! It is unfortunate that many large corporate acquisitions were allowed to happen solely because WAY over inflated stock prices. Quest should never have been in the position to buy US West and AOL should never have been in the position to buy Time Warner. Now that the bubble has burst you are left with the lesser experienced and sometimes totally incompetent executives managing (destroying)what were once stable companies that are ironically riddled with the debt of their purchaser. I sure hope that the folks at Sprint send the folks that blocked the merger Thank You notes!
havethetshirt 12/4/2012 | 10:08:58 PM
re: WorldCom: What's Next? Ooops! Forgot the to mention the most illustrious division of WCOM - Wireless Services which is completely worthless. It is all resale and anyone who has used them probably would aggree that their customer service and billing are examples of how not to do business. Spare these poor customers who are contractually tied to WCOM and let them be serviced by the actual wireless provider - they might have a better chance of being billed accurately...
Bumper_car 12/4/2012 | 10:08:58 PM
re: WorldCom: What's Next? I was a MCI employee when WorldCom took over. One of the first things that some noted was that we no longer had access to marketing research and reports from organizations such as "Yankee Group". The next thing that we noted was that the WorldCom local access and fiber facilities were all manually provisioned. WorldCom management evidently felt it was better to have high operational costs instead of leveraging their capital costs through such things as digital cross connects.

When we finally got an inventory done of the fiber that WorldCom had, both local and long haul (Apparently WorldCom did not know what they had.) we found that they did not have the wavelength count bandwidth that the MCI fiber facilities had.

The real asset that WorldCom has is the long haul fiber plant. Much of it is the MCI facility that was put in before WorldCom took over. This facility is the long haul carrier for several of the RBOCs as well as high end (read high bandwidth) customers with broadband leased circuit private line services.

A lot of work was done with optical switching and wavelength services architectures by the MCI employees before WorldCom management took over and drove them off. With the break up of WorldCom perhaps this technology might have a chance of "getting off the ground" and the fore runners in this work getting to finish what they started.
LightMe 12/4/2012 | 10:08:40 PM
re: WorldCom: What's Next? BobbyMax wrote:
Similar to Qwest and Global Crossings, WorldCom became a worldwide lab for testing junky products from start-ups and other inferior telecom companies.

Dr. Seuss writes:
BobbyMax has no facts
BobbyMax is a hack
BobbyMax must be set back
Stop posting BobbyMax

willywilson 12/4/2012 | 10:06:07 PM
re: WorldCom: What's Next? long distance prices have reduced nearly 1000% since deregulation and the introduction of competition

---------

Can some intrepid mathematician explain to the rest of us dimbulbs how you reduce a price by "nearly 1000%?" Is WorldCom mailing monthly checks to its customers? How do I sign up?!
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