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

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rjmcmahon 12/4/2012 | 11:37:01 PM
re: Government Bans MCI How else do you punish a corporation?

How about take away their status of persons and don't let trusts of absentee landlords become more powerful than the local government.

In the developed world, especially in the US where there is such a lack of counterweights to corporate power(e.g. unions), we are seeing more and more abuses and fewer and fewer real sanctions.

The government and demographics seem to be the only true counter balance. (And the government is much more powerful than a corporation. It's just not so obvious who is who when they are sleeping together.)

We're not too far away before a mass migration out of corporate America occurs. When that happens, look out.

PS. What form of human organizations would you choose to replace the modern corporation?
telebud 12/4/2012 | 11:40:30 PM
re: Government Bans MCI If MCI were a file swapper the government would
of sent Ebbers and friends to the big house.
gea 12/4/2012 | 11:40:35 PM
re: Government Bans MCI BobbyMax:

All your base are belong to us.
BobbyMax 12/4/2012 | 11:40:38 PM
re: Government Bans MCI MCI should have banned MCI in doing business with the goernment. Hiding long distace calls as local calls is the height of corruption at MCI. They owe millions of dollars to AT&T and other long distance careers.

The US government is prepared to arrest Irqis and other innocent US citizens merely based on the suspicion of a GI, but it is unwilling to arrest Enron and MCI employees for their illegal activities.

An article in Wall Street Journal suggests that in spite of Sarbane-xley a lot CEOs are still trying to undermine this act. Doing this they are circumbenting the law. There has been no change in the stock options pattern and salary enhacement tricks. The booard members are still not independent because of the benefts they receive with a few hours of meetings. We have to say: May God Save America.
telebud 12/4/2012 | 11:40:59 PM
re: Government Bans MCI AT&T could host a 'fire' sale.

America's Terrorist Telecommunications..
gardner 12/4/2012 | 11:41:00 PM
re: Government Bans MCI
My problem with your argument is that it appears you believe that because WorldCom broke the law, they should be taken apart, irregardless of the fact that 99.99% of the employees had absolutely nothing to do with the end result.

How else do you punish a corporation? If they are above the law then how do we protect ourselves from crimes being committed by them? Corporations are already almost at the point that they exercise similar if not greater power than governments. And yet they are undemocratic by nature. In fact, in many developing nations (foreign) corporations already have more power than the local government. In the developed world, especially in the US where there is such a lack of counterweights to corporate power(e.g. unions), we are seeing more and more abuses and fewer and fewer real sanctions. The government doesn't even seem to be able to put any of the Enron or WorldCom executives behind bars. One executive (Samuel Waksal) has been jailed for his crimes and he wasn't even associated with the worst evils of the 90s stock bubble. When are the others going down? How do you plan to prevent future damage to the economy and welfare of the nation without sanctions of some sort? I'd rather see Ebbers in the slammer but I'll settle for his stitched together empire dismantled.

So you tell me: what are we going to do? Do you want to ruled by undemocratic entities that use their enormous economic clout to subvert the democratic process? Think of it. Corporations are autocratic entities run in a top down manner, often by people who would make Machiavelli blush. These corporate barons have far more influence over government decisions than you do and NONE are elected. They aren't even elected by stock holders let alone the citizens of the nations they run roughshod over! What if we didn't jail petty criminals because it might hurt their innocent kids? Would that be a good idea? If not then why refuse to dismantle corporations? Clear it up for me because I just don't understand! We're all about not mollycoddling some poor schmuck who rips off a liquor store and does 1/10000 the damage that a Worldcom or an Enron does but we have to mollycoddle corporate criminals because of the collateral damage! That's the kind of foolish reasoning the corporate kleptocracy wants you to use. Don't be fooled.
God 12/4/2012 | 11:41:05 PM
re: Government Bans MCI Everybody (including LR) seems to think this is a done deal. Guess what, it isn't. As far as I know, GSA "PROPOSED" to exclude MCI from future government business, and MCI now has 30 days to prove that they meet the requirements.

This was a nice piece of lobbying from ATT and Verizon, but the game ain't over.

The title of this article should have been "Government proposes to ban MCI"
rosebudd 12/4/2012 | 11:41:09 PM
re: Government Bans MCI signmeup wrote:
My problem with your argument is that it appears you believe that because WorldCom broke the law, they should be taken apart, irregardless of the fact that 99.99% of the employees had absolutely nothing to do with the end result.

Two themes keep popping up:
1.1 The market would be negatively impacted if MCI were to bust. Well not really. If the market is currently paying for a service and it no longer buys this service from MCI, it will buy it from someone else. The goverment will still spend the $800 mil. Who gets the money? Does this mean more equipment sales? Could probably be a good thing for equipment vendors.

2) What would the innnocent employees do? Again, if a service is in demand, and someone is paying for it, it has to be staffed accordingly. Any other company(/ies) that picks up MCI's $800 million piece of the pie, will have to hire accordingly.

Let the market have its say. Japan's overprotectiion of its social fabric (i.e. preserving jobs at rotten companies) is at root cause of their dysfunctional economy. Let's not repeat those mistakes here. Thank you US government for dealing what might very well be the final blow to a rotten corrupt enterprise.
telebud 12/4/2012 | 11:41:10 PM
re: Government Bans MCI With MCI out of market now. And Sprint PCS not
in good shape and Verizon in trouble who is left
to control the Market? Why none other then the
Original Big Bull!There goes your competitive
free telecommunications US Market.
malakraday1 12/4/2012 | 11:41:10 PM
re: Government Bans MCI I feel for the innocent employees at MCI. I don't want to see them lose their jobs but I don't see another way around the problem. MCI needs to go away not just because they are unethical but because if they emerge from bankruptcy debt free then that will prolong this telecom depression well into the next decade.

The telecom market is broken. The healthy dynamic had characterized the market before 1997 or so is gone. The market needs to be fixed. I would much rather have fewer competitors that are financially healthy than many debt laden competitors that continue the stagnation we have now. Allow the market to heal and then more competitors will sprout up again.

One also has to realize that from a certain perspective Worldcom could be viewed as one of the major causes for the telecom depression. It was their phony accounting for profits as well as bandwidth usage that drove this market into the unsustainable frenzy that occurred in '98 - 2000.

Let's vote MCI off the island.
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