In years past, equipment vendors, service providers, and other companies were lining up for photo ops with WorldCom Inc. (Nasdaq: WCOM), one of the largest and most aggressive buyers of data networking gear. Having the company as an account was seen as a major coup, despite the economic slowdown.
WorldCom officials did little to discourage that.
"Our data, Internet, and international businesses continue to perform well in spite of the very difficult economic environment," said former CEO Bernard Ebbers in a company statement last October. "We still expect our growth businesses to gain market share profitably during this period of global economic uncertainty."
But then the sky fell: Today's newswires are rife with companies doing whatever they can to distance themselves from WorldCom (see WorldCom Goes Boom and WorldCom Finger-Pointing Begins ).
"Mosaic Group... today reports that, in response to investors' queries, the current receivable owing to Mosaic from WorldCom's wireless division is less than $2 million," reads one.
Compare this to January, when the Canadian direct marketer was keen on cozying up to the telecom giant: "WorldCom Wireless will be our main U.S.-based wireless partner going forward," said David Graf, president of Mosaic's Performance Solutions division.
In the networking market, one of the equipment providers most exposed to WorldCom is Juniper Networks Inc. (Nasdaq: JNPR), which has counted the company as one of its largest customers. This morning, Juniper moved to downplay this relationship by announcing that its sales to WorldCom are expected to represent less than $7 million of its second-quarter results (see Juniper Unaffected by WorldCom).
Nortel Networks Corp. (NYSE/Toronto: NT), Cisco Systems Inc. (Nasdaq: CSCO), and other equipment vendors have, so far, been silent on their WorldCom exposure.
In the networking market, all of the equipment vendors are still under pressure. Cisco has slipped 0.13 (0.97%) to 13.30; Juniper ticked down 0.081 (1.58%) to 5.049; Lucent lost 0.08 (5.06%) to trade at 1.50; and Nortel fell 0.11 (7.48%) to 1.36.
One hedge-fund manager who has analyzed the situation calculates that Juniper has the largest WorldCom exposure, followed in order by Cisco and Nortel.
"I don't know why Lucent has been hit so hard, because they probably have the least exposure [to WorldCom]," says the hedge-fund manager, asking to remain unnamed. He discloses that his firm has been short-selling "almost all" telecommuinications equipment vendors. "I think it's going to get much worse."
Meanwhile, other large carriers have leapt to point to WorldCom's problems as company-specific, and not an industry phenomenon.
"We are confident that our accounting is complete and accurate, and we welcome any questions related to our accounting practices," says Robert J. Dellinger, Sprint Corp.'s (NYSE: FON) executive vice president and chief financial officer, in a statement today. Later in the statement, however, Sprint acknowledges that its net receivables exposure to WorldCom was about $80 million as of the end of May.
Sprint once tried to merge with WorldCom. "The public benefits are too great to pass up," the company said in a statement issued two years ago on the potential merger.
Qwest Communications International Inc. (NYSE: Q) CEO Richard Notebaert notes, somewhat laconically, "Qwest is a different company and I wouldn't be here if I didn't believe that." (See Qwest: 'We're Different'.)
Even WorldCom's realtor has grabbed the 10-foot pole. Parkway Properties Inc. has outlined its leases with WorldCom or its affiliates, claiming they only represent about 2.4 percent of Parkway's total annualized rental income.
Investment companies, too, are backing away from the Mississippi-based carrier. In a statement, ProAssurance Corp. says it holds $4.7 million worth of WorldCom bonds in its $1.5 billion investment portfolio: "ProAssurance expects this investment in WorldCom will be sold or deemed 'permanently impaired.' "
Wholesale phone company ITXC says WorldCom still owes it some $4.8 million in outstanding billings.
EDS, which in the past has touted its WorldCom ties, has announced that its exposure to "unbilled revenues under the WorldCom agreement is not material."
The Royal Bank of Canada merely notes that it "does not comment on specific accounts or the size of their exposures."
— Phil Harvey, Senior Editor, Light Reading
(R. Scott Raynovich, US Editor, Light Reading, contributed to this report.) 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.