WorldCom Posts Profit


WorldCom this week posted a profit for the month of January vs. a significant loss for December 2002.

The carrier had net income of $155 million in January, compared with a loss of $580 million in December. Revenue for January was $2.16 billion vs. revenue of $2.20 billion in December 2002. WorldCom also ended January with $2.8 billion in cash, $300 million more than it had at the beginning of January.

"We still have a lot of work to do, but we're delivering on our 100-day plan," said Michael Capellas, chairman and CEO of WorldCom, in a statement. "Customer service continues at all-time highs, we're making solid progress on our cost-reduction initiatives, and we're profitable. We remain on track to emerge from Chapter 11 protection later this year."

In January, Capellas introduced an aggressive 100-day plan to submit its reorganization strategy by April 15 to emerge from bankruptcy.

Capellas then set deadlines for WorldCom to complete its cost-reduction plans, which included decreasing line costs by 4 percent, lowering sales general and administrative (SG&A) costs by 3 percent, decreasing overhead and indirect SG&A by 9 percent and reducing bad debt in business and international channels by 20 percent by March 31.

WorldCom was also expected to complete its three-year business plan by March 1 and launch a branding program by April 15.

"We know we have to rebuild our organization," Capellas said in January. "Bad things have happened to us, and I'm not going to stress on it, but we're going to take it on and rebuild. We'll hire in key spots, and some segments of our organization have been decimated. We'll look at them and start fresh. In everything we do, we need to promote accountability."

With a presentation slogan of "rebuilding trust and integrity in everything we do," Capellas introduced an ethics office based on an enhanced code of ethics, as well as a zero-tolerance policy.

WorldCom also intends to "attack" the SMB market with the help of agents, Capellas said.

The SMB push--centered primarily on the carrier's Connection offering--is one strategy among many that Capellas has emphasized. Launched last summer, WorldCom's Connection program provides DSL or T1 Internet access, VoIP, hosting and a number of other services aimed at SMB customers.

"[The SMB space] is, in fact, one of the very largest markets," Capellas said. "In our addressable space, it looks like about a $25 billion market. This is the space we should be natural at [given our] ability to do all-in-one products with one touch."

Agent partners are leery, however, of WorldCom's commitment to agents in the SMB space.

In January, the court presiding over WorldCom's bankruptcy case sent out a notice to void 900-plus agent contracts.

At the time, a WorldCom spokesman said the company has the right under bankruptcy law to reject contracts that don't play to its interests or those of its SMB customers.

"What WorldCom is doing is giving itself a quick revenue shot in the arm," said one agent executive, who requested anonymity. "What's happening is we lose our customers, and WorldCom starts getting our customer commissions."

As of December, commission payments from WorldCom to partners had resumed, giving some the impression that WorldCom was turning its channel program around. But several of those partners' contracts were voided this month, WorldCom agents said.

"Yes, we're on that list, but luckily we have a WorldCom fallback plan with [companies] who are not on that list," said an executive at a master agent partner that had started receiving payments again from WorldCom.

To the surprise of several partners, WorldCom followed up the bankruptcy court notice with new contract offers. Also in January, WorldCom introduced its plans to re-engage agents in the SMB space.

"Our intent is not to gut the current agent/VAR program, but a whole lot of the agent agreements didn't make sense for our direction," said Ron McMurtrie, vice president of business marketing at WorldCom, in a January interview with CRN. "We're now restructuring the agreements for both of us to infuse [partners] with new technology and products around a converged computing environment."

Renegotiations began in January, with WorldCom starting at the "top of the stack" with agents and VARs that have strong revenue-generating capabilities, a large customer base and upsell abilities, McMurtrie said.

One WorldCom agent said the carrier has approached his company to renegotiate their relationship. "My reaction was, 'Didn't they cancel commissions to us twice already?,' " the agent said. "How can they be trusted?"

Another component of WorldCom's 100-day turnaround plan was a focus on convergence, wireless solutions and content distribution, Capellas said.

"The most significant shift under way in the telecom space is the convergence of voice and data, which will create new opportunities for WorldCom as a major player in the convergence of networks to a common IP infrastructure, he said.

And while wireless solutions are eating into some of WorldCom's core markets, Capellas said they pose an opportunity for the carrier to act as both an infrastructure provider and a voice-and-data integrator.

Content distribution will also be "king," Capellas said. "[Internet users] are generating millions and millions of pages and digitizing everything, and that has to be sent out somehow over the Internet. That will also be us."

In addition, WorldCom is gearing up to launch several new products and services, including a new network product set, new DSL products, a new IP dial service, expanded broadband offerings and data center services, utility services and new long-distance and local calling plans.

"We've got to bring back our focus on new product development," Capellas said. "This has to be creatively taking a lot of our infrastructure and packaging it into applications, customer-specific products and vertical-specific products, and then taking [those bundles] to market."