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Government Bans MCI

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News Analysis
Light Reading
7/31/2003

The writing appears to be graven into the wall for MCI (Nasdaq: MCIT).

This afternoon, the General Services Administration (GSA), the procurement arm of the U.S. government, barred the company from any further business with the government, stating that MCI lacks the "necessary internal controls and business ethics" to receive further government contracts (see Feds Ban MCI From Gov't Contracts).

The federal government is one of MCI's largest customers. The loss of federal contracts, said to be worth $800 million a year, is likely to crush the company, analyst say, as it struggles to emerge from bankruptcy amid allegations by its competitors that it defrauded them out of millions of dollars in access charges.

The proposed debarment triggers an immediate suspension of the company's eligibility to compete for new Federal government contracts.

Michael Capellas, MCI chairman and CEO, said in a statement: "We are in the process of rebuilding our ethics program and understand that there is still more work to do. MCI has made significant progress on many fronts… Today's news does not in any way affect the timing of our emergence from Chapter 11 protection."

MCI also issued a statement underscoring that its current federal contracts were not affected by the ban (see MCI Swallows Government Ban).

Industry analysts say the company has little chance of surviving this one.

”This is the beginning of the end for MCI," says Phil Jacobson, general partner, Network Conceptions LLC. “This is much bigger than some insider scandal… The GSA’s language is damning; it’s unlikely MCI will survive this.”

Telecom lawyer Kristopher Twomey agrees it’s unlikely MCI can dig itself out of this hole. “We are talking maybe a decade of abuse that’s impossible to take back at this stage.”

Bob Blakely, MCI’s CFO says the company has hired more than 400 accounting professionals, established a new internal controls team, brought in a new external auditor, KPMG, and retained Deloitte & Touche LLP to assist the company with the internal controls project.

— Jo Maitland, Senior Editor, Boardwatch

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fiber_r_us
fiber_r_us
12/4/2012 | 11:41:33 PM
re: Government Bans MCI
How long before they are cut-up into pieces and sold-off?
Jo Maitland
Jo Maitland
12/4/2012 | 11:41:32 PM
re: Government Bans MCI
Good question. How might MCI be split up?
fiber_r_us
fiber_r_us
12/4/2012 | 11:41:31 PM
re: Government Bans MCI
The only thing the is really useful in MCI/WorldCon is their *customers*. Their network (fiber, transport, ATM, FR, IP, voice, OSS, etc) is a cobbled together mess that no one would want to buy or try to operate. Everyone else already offers the same services. The court should just set a shutdown date let the customers choose the best alternative provider. The idea of MCI "emerging from bankruptcy" with a "clean start" is disgusting and insulting to the rest of the industry that ran cleaner shops and to all of the little people that lost fortunes.

In other countries, this would have already been over and MCI/WorldCon would have been liquidated. The US bankruptcy system is only prolonging the pain for the entire industry and the entire nation.
redface
redface
12/4/2012 | 11:41:29 PM
re: Government Bans MCI
Yes, it's time for the "evil doer" MCI/WorldCon to die. They don't deserve another chance.
rjmcmahon
rjmcmahon
12/4/2012 | 11:41:28 PM
re: Government Bans MCI
What this suggests is that entrenched status quo telecom interests has way too much influence in our government. It's extremely negative.

Why did societies which built universities leap frog those that did not? Let's not let our government and its misguided policies send our society down a path towards decay.
signmeup
signmeup
12/4/2012 | 11:41:28 PM
re: Government Bans MCI
You neglected to mention two of their most valuable assets - UUNET and their 1-800 calling card business.

Frankly, the only people that want to see MCI go away are their competitors. No competition is never good for a free market economy.
road__runner
road__runner
12/4/2012 | 11:41:26 PM
re: Government Bans MCI
signmeup

Healthy and fair competition is needed, but not the type of unfair competition which forced other carriers to have to sell assets and entire divisions because WorldCon was magically creating profits and driving its stock price higher while shareholders of T and FON were wondering why they were not seeing the same results. Getting rid of MCI will not eliminate competition in the carrier space. We have too many carriers going after an increasingly smaller total market in the first place (voice revenues tumbling and IP business models still not quite understood).

The telco market is going through a major re-invention and to ensure the long term health of everyone associated with this industry I'd rather see a few healthy players in each sector than lots of sick or corrupt ones. Would you want to see the kind of over-competition, commoditization and price wars that say the airline industry went through to happen to the telecom industry as well ? Or do you in fact enjoy that "meal" of 5 pretzel pieces that you get on most flights today.

While we are talking of WorldCon let me add my belief that some of the UUNET folks played a key role in the creation of the Telecom bubble. All those 400%+ type projections of internet growth came mostly from UUNET.
rjmcmahon
rjmcmahon
12/4/2012 | 11:41:25 PM
re: Government Bans MCI
Would you want to see the kind of over-competition, commoditization and price wars that say the airline industry went through to happen to the telecom industry as well ?

It's going to happen. Bits are much easier to transport than people. The public isn't so concerned with the health of aging and uncompetitive dinosaurs. And preserving the airlines to save their food industry is silly.

These federal "bans" only delay social progress. Who is behind them? It's a sign of a dysfunctional market at its best and political corruption at its worst.
fiber_r_us
fiber_r_us
12/4/2012 | 11:41:24 PM
re: Government Bans MCI
signmeup said:

>Frankly, the only people that want to see MCI go
>away are their competitors. No competition is
>never good for a free market economy.

Most of the people that want them to go away are the ones that have been screwed by them! You can't possibly believe that the elimination of MCI/WorldCon significantly impacts the competative landscape in the telecom space. There are far too many other players (even without WorldCon) for there to be "no competition".
billy_fold
billy_fold
12/4/2012 | 11:41:24 PM
re: Government Bans MCI
likebizy,

You obviously don't work for MCI. If you did you would be faced with the prospect of finding a new job in this environment. I wouldn't want to wish that on anyone; not even my worst competition.

-billy
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