WorldCom On Track To Profitability


WorldCom CEO Michael Capellas' 100-day reorganization plan to bring the struggling carrier out of bankruptcy appears to be paying off somewhat.

In March, the Clinton-based company reported a profit for the month of January vs. a significant loss for December 2002. WorldCom reported 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. The carrier also ended January with $2.8 billion in cash, $300 million more than it had at the beginning of the month.

"I think this [profit] is great news, and it bodes well for the new leader-

ship team and Capellas'

100-day plan," said David Morken, president of Bandwidth.com, a Durham, N.C.-based communications service provider. "Historically, WorldCom has been viewed as a bellwether company, so hopefully this is a [positive] indicator for the entire industry."

Since filing for Chapter 11 in July, however, WorldCom's sales have continued to fall. When the company filed for bankruptcy, it had $2.46 billion in monthly sales, but that number has since dropped from month to month, and analysts estimate the carrier's annualized revenue decline at 26 percent.

"We still have a lot of work to do, but we're delivering on our 100-day plan," said Capellas. "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 the aggressive 100-day plan, which called for WorldCom to submit its reorganization strategy by April 15.

Capellas then set a deadline 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.

"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 also introduced an ethics office and a zero-tolerance policy around unethical conduct.

Also in January, Capellas stated his intent for WorldCom to "attack" the small- and midsize-business market with the help of agents.

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 a 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."

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," said Ron McMurtrie, vice president of business marketing at WorldCom, in a January interview. "We're now restructuring the agreements for both of us to infuse [partners] with new technology and products around a converged computing environment."

In January, WorldCom began renewing negotiations 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?"