Telecom battering as bad news mounts

The torrent of bad news helped trigger a concerted plunge in stock markets around the world.

Bargain hunting turned the New York exchange around once European markets had shut up shop.

But still the effect was to further cement the impression that there are still skeletons to come out of phone companies' closets.

Up to the ears

Many of the companies in the firing line are from a roster of corporate bad boys, mired in debt and - in some cases - dishonour amid the string of scandals emanating from USA Inc.

But the Europeans were first out of the gate as France Telecom, whose shares slid 14.6%, was hit by a downgrade of its debt.

The company's buying spree in the 1990s left it nursing loans totalling more than 60bn euros - more than five times its market valuation - and credit rating agency Moody's warned that debt could actually grow to 75bn euros this year.

The rating on its long-term bonds dropped two notches to Baa3, barely better than junk, and incidentally adding hundreds of millions of euros onto its annual interest payments.

The disfavour comes as France Telecom struggles to refinance troublesome German arm Mobilcom.

The bad news helped trigger falls in London as well, as Vodafone slipped 2.8% to 87.5p, its worst level since January 1998.

Also in Europe, bankrupt KPNQwest - whose network is only still functioning because some of its staff are working for nothing to keep it alive - is facing a probe requested by its banks into accounting irregularities.

Crossed wires

Meanwhile, in the US, the usual suspects were lining up.

The first to fall foul of the rumour mill was Global Crossing, whose thousands of miles of fibre-optic cable have remained largely dark as telecoms over-confidence generated a huge glut of over-supply in the late 1990s.

Now in court-appointed protection from its creditors, the Bermuda-based company admitted that five of its employees have destroyed documents after the point at which a federal investigation began.

Although the company said none of the papers in question were relevant, newspaper reports suggested that even the company's lawyers were not sure that was the case.

Meanwhile, one of its shareholders is asking for a court-appointed trustee, to look into allegations of "fraud, dishonesty and misconduct" - specifically the suspicion that revenues and costs were misreported to flatter the company's financial performance.

Global Crossing's shares barely moved, not least because they are now worth little more than a few pennies.

World of trouble

But WorldCom was less lucky, its heavily battered stock dropping more than a quarter as Salomon Smith Barney - the company's bankers - warned that it might have to restructure its debts.

Before Monday, WorldCom shares were already more than 90% down on the start of 2002, partly on suspicions that it, too, has been less than frank about its true financial position.

Multi-million dollar loans to its ex-chief executive and founder, Bernie Ebbers, to pay for his purchase at inflated prices of the company's on shares have hardly helped its standing.

But the broker's warning that customers are still reducing their spending and that access to credit is likely to prove problematic was taken as a cue for an even more vigorous selloff, knocking 31 cents off the share price and depressing it to 91 cents.

Without a rapid recovery, that could push WorldCom off the Nasdaq index, which demands a minimum price of $1 for listed stocks.