Government Bans MCI
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