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Friday, 9 August, 2002, 11:07 GMT 12:07 UK
Q&A: What next for WorldCom?
Disgraced telecoms giant WorldCom has disclosed two massive accounting errors and filed for bankruptcy protection.

But can the second biggest long distance phone firm in the United States survive against all odds? BBC News Online looks ahead.

Doesn't bankruptcy mean the end of WorldCom?

No, not necessarily. WorldCom has filed for something known as Chapter 11 bankruptcy in US law.

That gives it space to try to recreate itself whilst being protected from the demands of creditors.

During that time, WorldCom can continue to operate its businesses as before.

In fact, the firm's president, John Sidgmore, has said the firm hopes to set itself to rights in between nine months and a year.

He's promised "business as usual" and said the firm has "plenty of cash" to run on.

WorldCom is, no doubt, hoping to cut a deal with its creditors to restructure its debts, sell off some marginal businesses and tighten up its core businesses.

Although "deeply concerned", the US telecoms regulator has said it does not expect disruption to phone or internet services.

So will WorldCom pull through?

WorldCom has 20 million customers and some real assets to set it apart from many casualties of the technology boom.

It provides long-distance phone services to more people in the US than any other telecoms firm except AT&T, though it faces competition - and price wars - from regional phone firms pushing into the long distance market.

In the US, it owns nearly a third of the core data cables that the web runs along - known as the internet backbone - and its UUnet internet unit is big in Europe too.

But it's got hefty debts - $41bn of them, against assets of $107bn, according to the Chapter 11 filing.

Its creditors have agreed they won't demand the sale of any assets until October, giving WorldCom a chance to come up with a plan.

WorldCom has had an injection of $2bn (1.2bn) from a group of banks to help it pull through, though it was reported to have been looking for $5bn.

It has already said it will slash 17,000 jobs, mostly in the Americas, to cut costs.

Will its admission of a second accounting error make a difference?

Its disclosure of a second accounting error now takes the company's total fraud to more than $7bn.

Obviously, this proves embarrassing for the company's new management, but the markets are unlikely to be shocked.

However, WorldCom has warned that there may be further revelations to come - which could unnerve investors.

WorldCom's brand will also take another battering from this latest problem.

One analyst described it as "beyond comprehension".

But it's not quite as bad as it seems?

Well, there's still plenty to keep WorldCom's bosses awake at night.

The US stock market regulator, the Securities & Exchange Commission (SEC), is conducting an inquiry and has filed a civil lawsuit against the firm.

Analysts will also be worrying about quite how big the hole in the firm's books really is - especially with the latest warning that there could be more revelations to come.

But perhaps the biggest risk facing WorldCom is that it may not be able to persuade customers to stay on board.

The internet backbone business is awash with overcapacity, which means there are plenty of alternatives for any WorldCom customers who decide to switch providers.

"If WorldCom closed its doors entirely, I doubt there'd be any disruption," said Professor Michael Noll, an expert on the internet from the University of Southern California.

Is WorldCom going to find itself at centre of a big court case?

Two of WorldCom's former executives - previous chief financial officer Scott Sullivan and ex-controller David Myers - have been arrested on charges of cooking the books.

The two men face prison terms of up to 65 years if convicted.

The SEC also called WorldCom's original account of the problem "wholly inadequate and incomplete".

So far, there are at least four inquiries into WorldCom going on:

  • WorldCom has promised a comprehensive internal audit of its books.
  • The company has also commissioned an independent investigation into its accounting practices.
  • The SEC is conducting its own investigation.
  • Several committees of the US Congress have promised to hold special hearings, or expand hearings into the Enron scandal to look at WorldCom as well.

WorldCom co-founder Bernie Ebbers, who resigned as chief executive in April, has not yet been charged with any crime.

But everyone's still watching to see what his fate will be.


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