Solution Providers Field Calls From Worried Worldcom Clients

WorldCom

Michael Fong, CEO of Calence, a Tempe, Ariz.-based solution provider, said customers are asking his company to come up with contingency plans for them and to scrutinize their contracts with WorldCom in case the carrier files for bankruptcy protection.

"No one fears that the network will totally disappear," Fong said. "But customers relying on WorldCom are concerned about service failures and about the level of service they will receive going forward."

David Morken, president of Bandwidth.com, a Research Triangle Park, N.C.-based master agent for WorldCom and other carriers, said at this point he is advising his customers to remain with WorldCom service. The bulk of Bandwidth.com's WorldCom customers are midsize businesses using the carrier's T1 service from what was Uunet.

"I continue to be completely shocked with the revelations and the scale of them," Morken said. "It's a shame that the management of the company has jeopardized what is really a phenomenal offering."

Still, Morken added, the network will likely remain in service even if WorldCom doesn't survive.

WorldCom revealed late Tuesday that it plans to restate its financial statements for all of 2001 and the first quarter of 2002 after an internal audit revealed misstated earnings of more than $3.8 billion.

WorldCom said transfers from line cost expenses to capital accounts were not made according to generally accepted accounting principles. The transfers amounted to $3.055 billion in 2001 and $797 million in the first quarter of 2002. Without the transfers, the company would have reported a loss for 2001 and for the first quarter, WorldCom said.

WorldCom said it has fired CFO Scott Sullivan and controller David Myers. The company also will begin to lay off 17,000 employees Friday.

"Our senior management team is shocked by these discoveries," John Sidgmore, WorldCom CEO, said in a statement. "I want to assure our customers and employees that the company remains viable and committed to a long-term future. Our services are in no way affected by this matter, and our dedication to meeting customer needs remains unwavering."

Even President George W. Bush weighed in on the matter, promising to get to the bottom of things. Speaking at a Wednesday morning press conference, Bush said he was "deeply concerned" and called the revelations of WorldCom "outrageous."

"We will fully investigate and hold people accountable for misleading not only shareholders, but employees as well," Bush said.

And while shocked at the news, some solution providers couldn't help but smile just a bit while watching WorldCom crumble. Many Cisco partners have been faced with "predatory competition" from the carrier selling networking gear at less than cost for at least the past 18 months. The carrier's deep discounts have driven margins down for all Cisco partners, solution providers say.

John Freres, president of Meridian IT Solutions, Schaumburg, Ill., said he is sorry that "a lot of good people" are going to lose their jobs, but the demise of WorldCom could help the Cisco channel.

"I'm sorry for the people who are going to lose their jobs, but I'm glad this is happening to the unscrupulous management at WorldCom," he said. "From a business perspective they have been an unhealthy competitor, driving margins down for all Cisco partners. Now we can see that those margins obviously aren't sustainable."