Solution Providers React To Worldcom Bankruptcy Filing

WorldCom

In fact, the move wasn't very surprising, solution providers said. WorldCom President and CEO John Sidgmore, along with the business media, had broached the bankruptcy option since the Clinton, Miss.-based telecommunications company admitted on June 25 that it inflated profits by falsely accounting for $3.85 billion in expenses.

"So much of this was absorbed by the marketplace that what's happened is kind of anticlimactic," said David Morken, president of Bandwidth.com, a master agent based in Research Triangle Park, N.C. Because of the bankruptcy expectations surrounding WorldCom, customers with mission-critical systems already have secured redundant connections or found new carriers, Morken said.

Still, customers that want to leave WorldCom now may have trouble canceling contracts since the carrier's financial restructuring is being overseen by a bankruptcy judge, industry observers said. Even customers with contract provisions for bankruptcy may be subject to some limits under WorldCom's Chapter 11 filing, they noted.

"Bankruptcy laws are complex," said Kate Gerwig, a network service analyst at research firm Current Analysis. "Even if a company has a [bankruptcy clause, it can't necessarily get out of the contract."

Dennis Garecki, marketing manager at DataCom Networking, a Bur Ridge, Ill.-based solution provider, said he would advise customers to watch the WorldCom developments carefully. Although Sidgmore said at a Monday press conference that WorldCom would like to keep key assets, it remains to be seen if the company will be forced to sell off components to remain financially viable.

"The dilemma for people who are WorldCom customers is there are going to be choices to be made about which businesses remain as part of the core company," Garecki said.

Indeed, Gerwig said Sidgmore's desire to keep assets such as UUNet, long distance and European data services is ambitious for a company in WorldCom's position. "They will emerge [from bankruptcy as a very streamlined company," she said, adding that only 5 percent to 10 percent of companies emerge from Chapter 11 bankruptcy. Several telecom companies, including DSL provider Covad Communications, recently have bucked that trend, however.

Customers sticking with WorldCom believe its critical Internet backbone--the nation's largest--will stay intact, regardless of the carrier's fate.

"I don't think the government will let [the UUNet backbone go away, but whether it stays with WorldCom is another question," said Phil Lagestee, general manager at Gemini Associates, an Irvine, Calif.-based integrator. "WorldCom services the military and several federal agencies. Too many pieces of the government are relying on that [connectivity."

Some of WorldCom's largest channel partners said the carrier's financial difficulties have not seriously interrupted its service. Network availability has not been impacted, although there have been some minor delays in support and provisioning, said a spokeswoman at EDS, Plano, Texas.

"EDS is taking the necessary actions to ensure its clients' telecommunication needs are being met," she said in a statement. EDS, which provides IT services to WorldCom under an 11-year, $64 billion agreement reached in 1999, said the carrier has not made its payment for services provided in May. The payment was due on July 15.

CDW Computer Centers, another large partner, had no service concerns to report. "It's business as usual," a CDW spokesman said.

WorldCom announced its Chapter 11 bankruptcy filing on Sunday, in part to protect it from accelerating creditor claims. Sidgmore said the company is close to securing up to $2 billion in loans to help it continue to operate and vowed that customers won't experience network interruptions during the restructuring period.