Sidgmore: UUNet Is Safe

Worldcom says shutdown unlikely as partners weigh impact of company's woes.

A week into its financial meltdown, WorldCom Inc. officials were scrambling to assure customers that its networks—especially its UUNet Internet backbone—were not in danger of shutting down.

Meanwhile, the carriers largest business partners were doing damage control of their own, trying to assess their exposure to the WorldCom mess while sending the message that the telecommunications companys problems would not affect them no matter what the outcome.

In an impassioned statement before the media last week, WorldCom CEO John Sidgmore acknowledged the widespread outrage ensuing from WorldComs disclosure of more than $3.8 billion in improper accounting and subsequent charges of fraud by the Securities and Exchange Commission.

But "the chances of us having a blip in our service are low," Sidgmore said. "I dont see any significant chance of UUNet going dark under any circumstances."

Sidgmore maintained the company has more than $2 billion in cash. WorldCom may eventually have to file for bankruptcy protection, but that is not the preferred course, Sidgmore said. Instead, the company is trying to sell some assets, including operations in South America and Japan as well as its fixed wireless business and real estate and its mobile wireless resale business.

While many analysts are skeptical of Sidgmores attempt at positive spin, they largely agree that the Clinton, Miss., carriers Internet backbone will remain intact.

"It is not credible, most of what [Sidgmore] said—its hard to believe that a guy who was No. 3 at a firm didnt know what was going on," said Allan Tumolillo, an analyst at Probe Research Inc., in Cedar Knolls, N.J. "The possibility of UUNet going dark is probably less than 5 percent, but theres nothing in the laws of physics, nature or the economy that says networks cant go dark."

Officials at Electronic Data Systems Corp., the WorldCom partner hit hardest by the accounting scandal, said they believe that, even if WorldCom were to go belly up, its network would remain intact.

"It is a global network with a lot of value, and we dont expect it to go anyplace," said EDS Chief Financial Officer Jim Daley, in Plano, Texas. Although some EDS clients have asked about the WorldCom network, none has asked to be moved to another network supplier, Daley said.

EDS, which has reciprocal $6 billion contracts with WorldCom for outsourcing and network services, spends about $1 billion on telecommunications costs for itself and its clients, and about half of that is WorldCom business. But for all major outsourcing contracts, EDS has business continuity plans in place that would allow a quick switch to a secondary supplier, officials said.

EDS largest outsourcing client, the U.S. Navy, expressed confidence that its $6.9 billion Navy and Marine Corps Intranet project will not be affected by any WorldCom issues. The Navy has a per-seat, end-to-end services contract with EDS, which subcontracts with WAN suppliers such as WorldCom for connectivity. "If they dont meet their [service-level agreements], they dont get a lot of the money. EDS will be working hard to meet our expectations," said an NMCI spokesman in Arlington, Va.

Despite the assurances, EDS stock price last week took a 40 percent battering after jittery investors reacted to EDS ties with WorldCom. Still, EDS officials claimed the services company would lose only 16 cents a share in earnings if WorldCom were to file for bankruptcy.

Several Wall Street analysts described the investor reaction as hysterical.

"This is a pile-on strategy. Theres been so much negative sentiment created over the last year," said Joseph Vafi, an analyst at Robertson Stephens Inc., in San Francisco. "WorldCom was 2 to 3 percent of [EDS] revenue stream. The [markets] reaction is out of proportion."

Besides EDS, other companies that partnered with WorldCom in recent years are distancing themselves rhetorically from the beleaguered company. Internet Security Systems Inc., a maker of threat-protection software, two months ago teamed with WorldCom to expand the carriers managed security services portfolio.

"The relationship is in its infancy, so the company wont be affected," said an ISS spokesman in Atlanta.

In February, Compaq Computer Corp. heralded a partnership with WorldCom to market Web hosting and Internet co-location services, and in October, Sun Microsystems Inc. joined forces with the carrier to deliver managed hosting services. Neither Compaq nor Sun responded to inquiries.