WorldCom: More Lumps

RBOCs seek large security deposits from the company.

Two weeks into its bankruptcy and reorganization, WorldCom Inc. still cant seem to avoid attracting more trouble.

After company leaders cautioned that WorldCom cannot afford stifling new demands from its suppliers if it is to avoid service disruption during reorganization, RBOCs (Regional Bell Operating Companies), which provide WorldCom with last-mile connections to many of its customers and aspire to compete with it in long-distance service, sought to begin tightening the noose.

According to sources, the long-distance companys struggle for survival presented the RBOCs with an opportunity to push federal regulators to start demanding upfront payments for local connections and to force WorldCom to fork over hefty security deposits, even as the Clinton, Miss., carrier is mired in debt.

Such stiffening financial arrangements are exactly the kind of squeeze plays WorldCom CEO John Sidgmore cautioned would compound the companys troubles and could force service interruptions.

Caught in the middle are federal regulators, who have taken a tough tone with WorldCom while promising to ensure service continuity. While the Federal Communications Commission has a responsibility to users, sources close to the FCC said members are being pressured to consider the possibility of a sale of WorldCom assets to a more stable owner—perhaps one of the RBOCs.

"[Local Exchange Carriers] are ferocious defenders of their fiduciary interests," said David Kaut, an analyst with Telecom Research Group of Legg Mason Wood Walker Inc., in Washington. "I think they would be happy to get compensation wherever they could. The FCCs mandate could come into conflict with the bankruptcy courts mandate. Thats where you get into the question of what trumps what."

FCC Chairman Michael Powell said he would act "promptly and vigilantly" to protect users and would even intervene in bankruptcy proceedings if necessary. Powells warning was in regard to service interruptions, and sources close to the agency said it is unclear what Powell might do about the so-called access charges WorldCom must pay RBOCs to reach most of their end users.

Still, within a few weeks, Verizon Communications Inc., SBC Communications Inc. and BellSouth Corp. plan to impose more-stringent terms on long-distance carriers for connecting to the local networks, according to officials.

"This is part of the vicious cycle," Legg Masons Kaut said. "The more people ask for advance payments and deposits, the worse it is for WorldCom, and the worse it gets for WorldCom, the more people are going to ask for."

In a petition filed with the FCC last week, New York-based Verizon said the industrys troubles could be resolved only through higher prices. Raising the specter of a full-blown telecommunications apocalypse, Verizon urged the FCC to persuade the bankruptcy court to ensure advance payment to the local carriers during WorldComs reorganization.

Beginning Aug. 3, BellSouth, of Atlanta, plans to expand the security deposit obligations on "any customer whose credit worthiness has materially deteriorated" and to modify the way disputes over connectivity arrangements are resolved. The company notified the FCC of its plan just before the WorldCom bankruptcy filing but has been trying to change the arrangements for about the past six weeks, according to BellSouth spokesman Bill McCloskey.

Related stories:

  • Editorial: Wake-Up Call From WorldCom
  • FCC Gives WorldCom Stern Warning
  • WorldCom Ties Tip EDS Revenues
  • WorldCom Debacle Causes Telco Shock Waves
  • Former WorldCom CEO, CFO Take the Fifth