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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Fiber_me_up 12/4/2012 | 11:41:14 PM
re: Government Bans MCI All this talk of "they" should shut down the company....who is "they"?

Only one group can liquidate MCI - the owners.

If those owners (shareholders, current debt holders) feel that there is more value in maintaining operations than in selling, they have the right to keep the company in business.

Obviously, the government can influence through fines and other administrative actions....

optical_man 12/4/2012 | 11:41:18 PM
re: Government Bans MCI If you've ever sold to WCOM, you know.
If you've ever tried to close a contract for equipment, you know.
If you've ever talked to the sales teams (which is highly unusual for vendor types selling into the core), you know.

First thing I heard that upset me was:
Bernie was buying SO many companies that Circuit Sales Guys could book 50K/month on ONE BILLING SYSTEM, and book the same 50K/month on MANY OTHER billing systems, to get paid commissions on ALL SYSTEMS!!!!
(guess now I can tell what I know, now that their lawyers are going to be to busy with liquidation to sue me for telling the truth)
Next thing I know is the vendor kickback system. Never left any cash, or golf clubs with WCOM executives (or stock.......)
Did deals, but glad I was able to walk away from the sleaze pit of Richardson, Texas.
redface 12/4/2012 | 11:41:19 PM
re: Government Bans MCI Since 1998, the approach at our household has been never to do business with MCI, after some very bad experience we had with them. MCI has been a very rude and unethical company. A company like this should have no place in society.
rjmcmahon 12/4/2012 | 11:41:20 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.

That may not be the arguement. The position may be should companies be able to use Chapter 11 as a competitive advantage. Folks who haven't dumped all their equity investors and devalued their debts would properly see this as unfair.

If memory serves, Best Buy pulled this trick in the home appliance space.
CanMan 12/4/2012 | 11:41:21 PM
re: Government Bans MCI From being a former worldcom customer in my IT days a few years ago I can honestly say I have never, ever dealt with a company that was so arrogant, rude and customer unfriendly. WorldCom never cared about their customers, only making the institutional investors, Bernie and Grubman wealthy. I know they caused many network managers a sleepless night.
I know that management team is gone but memories last a long time, especially bad ones.
I say string them up, hang them and let them dangle in the wind.
Now we just need to get Bernie tossed in a jail cell with mike tyson so he gets what he deserves.

grapsfan 12/4/2012 | 11:41:22 PM
re: Government Bans MCI In their legacy, not-making-money-anymore business, yeah, fiber, you're right. MCI competes with the other interexchange carriers.

But their two primary business targets today are in direct competition. MCI is pushing into residential local/long-distance bundling, just like the RBOCs (and Sprint and AT&T). And the enterprise market, bundling voice & data for business applications, is another "everyone playing there" space.

I think you might end up being right, however, about the other half of this thread. If MCI was forced to sell-off their assets and cease as they currently exist today...most of their employees would still have jobs with whomever buys each piece. MCI's operations, network architecture, etc., is so different than what I've seen with other carriers that there's no way for a bunch of outsiders to keep the house of cards from teetering over.
signmeup 12/4/2012 | 11:41:22 PM
re: Government Bans MCI Let's look at those "competitors" for a moment - which one would you put money on? The entire IXC market is on loose footing; I can see that segment being swallowed up by the RBOCs now that they have the government's permission. Right now, AT&T, Quest, Sprint, ect. are mostly concerned that MCI will be able to come out of bankruptcy minus the majority of their debt load and drive prices down further, eroding what little profit margins are left. I personally don't see that happening, but the bigger issue has nothing to do with MCI at all - the reality is that LD has become a commodity and none of the IXCs were built to survive selling a commodity product. Qwest (or perhaps Level3) probably had the best shot in a commodity market, but poor management and even poorer execution killed that reality.

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. I don't like what happened there any more than the next guy, but if we play by those rules there would truly be no more competition - just because others have not been caught does not mean that they are innocent. MCI will have a hard enough time coming out of bankruptcy and trying to maintain their customer base, let's at least give them an opportunity to see if they can survive.

signmeup 12/4/2012 | 11:41:23 PM
re: Government Bans MCI >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 >

I absolutely can believe that the elimination of MCI would be at the detriment of the telecom space. Where would you suggest all of the innocent employees go once their jobs go away? They are the ones being punished now, not the people responsible. As far as all of the other players, I guess if you count only RBOCs, then you may have a point. I would hate to see what would happen to the telecom industry if all we had left were the RBOCs. What incentive would any of them have to provide additional value added services? Look how long it took them to roll out DSL services! And that was ONLY because they thought they might lose the stranglehold on the twisted-pair they own to every house to the cable MSO's.

The people that screwed you are no longer at MCI. Get over it.
fiber_r_us 12/4/2012 | 11:41:23 PM
re: Government Bans MCI MCI competes mostly with AT&T, Qwest, Sprint, Level 3, etc... not the RBOCs. The service slack would easily be picked-up by these companies and there would still be plenty of competition. Your original argument was that without MCI there would be "no competition" and only their competitors wanted them to go.

You are now making the point that the liquidation of MCI would effect the employees. No doubt it would, but that is a different argument. As sad as it would be for the "innocent" employees, I don't agree with the notion that the industry as a whole should continue to support MCI just to save their jobs. The services (and some of the jobs) would move to other places. There is no long-term benifit to the industry in supporting a broken company as the industry as a whole will only support so many jobs and MCI should not have any special advantage over others in keeping those jobs.
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".
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