The WorldCom Endgame

As WorldCom edged closer to the bankruptcy abyss over
the weekend, thoughts turned to the troubled telecom’s future, as either
part of another telecom or chopped up and sold in parts.

WorldCom’s dire financial situation deteriorated over the weekend, after 25
of the 27 banks that provided WorldCom a $2.65 billion loan in May moved to
restrain WorldCom from using the money. Although New York Supreme Court
Judge Helen Freedmen denied the motion, the banks filed a lawsuit against
WorldCom, alleging WorldCom lied about its financial condition when the loan
was agreed to just weeks before the Clinton, Miss., company revealed
$3.8 billion of accounting irregularities
.

J.P. Morgan Chase and Citigroup, the two WorldCom lenders not involved in
the suit, have joined with GE Capital to provide a bankrupted WorldCom with
debtor-in-possession financing, according to a report in the Wall Street
Journal
.

With bankruptcy looming ever closer, the telecommunications industry is
scrambling to figure out how the market will shake out. FCC Chairman Michael
Powell broke his silence on the industry’s woes, declaring it in “utter
crisis” and suggesting a Baby Bell could buy WorldCom’s assets.

WorldCom CEO John Sidgmore, speaking at a press conference a little more
than a week ago, pointedly said WorldCom should survive since, among other
things, it served as a
bulwark
against too much consolidation in the industry.

Now, Powell seems to be saying not so. “There are plenty of doctrines in
antitrust and competition policy that would take into consideration the
duress and state of the market,” Powell told the Journal. “If a Bell
company brought a deal to us, that would certainly be part of the
consideration.”

Meanwhile, the fate of
UUNet
remains unresolved. As the largest backbone provider by far on the
Internet, UUNet gives WorldCom claim to operating 30 percent of the
bandwidth on the 20 largest U.S. Internet backbone routes, according to
Washington, D.C., telecom consultancy TeleGeography.

With UUNet generating $4.7 billion in revenues from Net access and hosting
last year, it would seem long on potential suitors.

If companies want to operate a global network, UUNet is the largest one,”
said TeleGeography analyst Alan Mauldin.

However, Maudin cautioned a bankruptcy filing, which might occur in the next
few weeks, could lead to a mass customer exodus.

“The loss of customers would reduce the value of UUNet,” he said. “If
someone’s going to buy UUNet, they’re not just buying the network, they’re
buying the customers.”

Sidgmore, who served as head of UUNet from 1994 to 1997, has said he plans
to preserve UUNet and does not see any reasons to worry about WorldCom’s
problems adversely affecting the UUNet’s service.

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