The WorldCom Endgame

FCC Commissioner Michael Powell has hinted that he might allow a Regional Bell Operating Company (RBOC) to buy the beleaguered holding company that includes MCI and UUNet.

by Brian Morrissey of internetnews.com [July 17, 2002]

As WorldCom (now delisted and trading under the over the counter stock symbol WCOME) 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.

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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