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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

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.
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....

FMU
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 >
>competition".

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".
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
likebizy 12/4/2012 | 11:41:24 PM
re: Government Bans MCI Don't let the door hit you in the ass on the way to oblivion!!!!!!!!!!
likebizy 12/4/2012 | 11:41:24 PM
re: Government Bans MCI "billy_fold"
I understand and appreciate what your saying. However, I do believe that MCI should be split up and if so a vast majority of their current employees will hopefully kept their jobs under new ownership. My point for making my original statement is simple. I don't believe a company or an individual should be allowed to cheat the way they did and not be punished. For example, I don't think you would want you neighbors kid to cheat in the "little league" game and be allowed to continue to play!
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.
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 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 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.
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.
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.
Jo Maitland 12/4/2012 | 11:41:32 PM
re: Government Bans MCI Good question. How might MCI be split up?
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?
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