WorldCom Aftershocks: Crisis Boosts Telcos

Some solution providers see increased sales and tighter relationships with alternate carriers as a result of the accounting scandal that continued last week to rock carrier giant WorldCom.

Aside from extra calls from worried customers, the biggest WorldCom aftershock so far has been an increase in customer requests for multiple lines with multiple carriers, they said.

"I advise customers to diversify their risk over multiple carrier backbones. Now I'll have to tell them to diversify their risk over multiple carrier balance sheets," said David Morken, CEO of Bandwidth.com, a master agent in Research Triangle Park, N.C.

Agents and VARs were already battling falling commissions from carriers, shaky customer confidence and a dismal financial outlook for the telecommunications sector before WorldCom revealed it had hidden $3.8 billion in expenses and found itself the subject of a Securities and Exchange Commission inquiry.

"The best thing that can happen [to the telecom segment] is for some of [the carriers] to go under and be absorbed," said Rob Goble, CEO of Venicom, a master agent in Scottsdale, Ariz.

"If they have millions of clients, like WorldCom does, and they go down, it bodes well for companies like Qwest [Communications International], AT&T [and] Sprint and will help them get out of the red and back into the black," he said.

The WorldCom crisis escalated last week when the company defaulted on $4.25 billion in loan agreements, saw its stock fall to 6 cents per share and informed the SEC that there may be more accounting irregularities.

The agency has already filed a civil lawsuit alleging fraud against the carrier. Current and former WorldCom executives, meanwhile, are scheduled to testify before Congress this week.

Solution providers and analysts said the turmoil under way in the telecom sector has made it clear that diversification is vital. Many recommend forming relationships with three or more providers or signing on with an agent that has several carrier partnerships in place.

Venicom, for example, works with five RBOCs, eight Internet exchange providers and several CLECs, Goble said. "I see smaller agents going out of business every day because they didn't diversify, and they didn't build up internal support [because they thought] they could get support from the carrier."

With WorldCom and other carriers laying off thousands of employees, Goble predicts carriers will lean more heavily on the channel. "We are the cheapest way for them move and grow," he said, adding that although the sector is struggling, the need for telecommunications services remains strong. "It's ironic that demand is growing, yet so many of them are struggling," he said.

Several solution providers said customers have not yet begun to terminate contracts with WorldCom nor have they encouraged accounts to switch, but these partners questioned the carrier's ability to attract new customers. "The day before the [WorldCom] news hit, one of our customers signed a deal with AT&T instead of WorldCom, and I'll tell you, we breathed a sigh of relief," said Matt Evans, business development manager at ePlus, a network services provider and systems integrator in Wilmington, N.C.

At a press conference last Tuesday, WorldCom CEO John Sidgmore said bankruptcy is a possibility if lenders call or accelerate payments on loans. When asked by CRN what steps WorldCom is taking to prevent agents and resellers from taking customers to other carriers, Sidgmore said WorldCom is working directly with resellers to regain their confidence.

AMY ROGERS & LARRY HOOPER contributed to this story.

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