WorldCom ripples rock many boats
By Michelle Kessler
USA Today
The WB television network, PGA Tour and Texas Parks and Wildlife service aren't in telecom, but they've already been hurt by the WorldCom scandal. That's because they all did business with WorldCom, as did thousands of other companies.
Now they're trying to figure out where they stand with the struggling giant — and coming up with backup plans.
"This is not going to be pleasant for a lot of companies," says Kerry Adler, CEO of WorldCom customer Webhelp. Among those affected:
• Vendors. WorldCom reported that its capital expenditures dropped 42 percent to about $1.3 billion in the first quarter from a year ago, yet it remained a big customer for many telecom equipment makers. While it's unclear how accurate WorldCom's numbers are because of the accounting scandal, what is clear is that its spending has slowed.
The hardest hit is Juniper Networks, says Christopher Crespi, Banc of America Securities analyst. WorldCom provided about 10 percent of Juniper's annual revenue, including "less than $7 million" this quarter, Juniper says. If WorldCom stops buying, that could dampen Juniper's forecast for the year. "It could easily subtract $50 million or $60 million off their top line," says Soundview Technology analyst Ryan Molloy.
Customers Cisco Systems, Nortel Networks and Redback Networks could also get stung, but WorldCom accounts for just a small percentage of total sales, says Edward Jackson, U.S. Bancorp Piper Jaffray analyst.
All telecom equipment makers could be affected in coming months, even if they didn't do business directly with WorldCom, analysts say. WorldCom was known for buying the latest, most high-tech equipment, forcing competitors to do the same if they wanted to keep up. With WorldCom out of the picture, spending could lag.
• Contractors. In 1999, when consulting firm EDS signed an 11-year, $6.4 billion contract to provide technology services to WorldCom, telecom was a growing industry. EDS is stuck with the deal and a related pledge to buy $6 billion worth of telecom services during that period. Now, EDS says it no longer wants to spend that much with WorldCom. It's in talks to work out a deal.
RMH Teleservices has a five-year contract to provide customer service for WorldCom's MCI division. That accounted for 19.5 percent of RMH's revenue from October to March. "While we cannot predict the future we expect to continue to provide these services for MCI," RMH leader John Fellows said in a statement.
• Business partners. Last year, WorldCom pledged to buy millions of dollars in advertising from AOL Time Warner over several years. The exact terms were not disclosed. Now, that deal could be off, meaning fewer ads for Time magazine, cable's TBS and the WB television network.
WorldCom also provides service to the company's AOL Internet division. AOL says it has backup providers in case WorldCom service is disrupted.
Satellite cable provider DirecTV is holding meetings to determine how to handle its 4-month-old partnership with WorldCom. WorldCom was to provide the underlying network for part of DirecTV's high-speed Internet access service. Similar questions are being asked at Internet Security Systems, a software company that agreed in May to provide security services to WorldCom customers. The value of the two deals was not disclosed.
• Sponsored events. Last week's Fourth of July fireworks celebration on the Mall in Washington was supposed to be paid for by WorldCom, which has sponsored part of the festivities for five years. But the company pulled out. The National Parks Foundation scrambled to find new financing from AT&T.
Also in Washington, the MCI Center arena might soon be looking for a new sponsor and name. The WorldCom Classic, an annual PGA Tour stop in Hilton Head, S.C., is in the same situation.
• Charities. Each month, about 10,000 teachers receive free training in math, science and the arts from the MarcoPolo project, sponsored by WorldCom's charity arm. Now, program administrators and partners — including the National Geographic Society, American Association for the Advancement of Science and The Kennedy Center — are trying to make the project independent of the struggling company. Last week, they pulled WorldCom's logos from the MarcoPolo Web site.
• Customers. The Texas Parks and Wildlife department spent last week printing temporary fishing and hunting licenses as a quick contingency plan. The department relies on a WorldCom computer network to transmit license information to 2,500 vendors. "We certainly have to consider what might happen to our contract," says Suzy Whittenton, a wildlife director.
Webhelp, which outsources customer service for companies such as Microsoft, uses WorldCom to connect its overseas technology specialists with help-seekers in the United States. Because of a contract, Webhelp can't switch providers but was forced to get a backup provider in case WorldCom fails. That means twice the bills. "It's expensive, and at the end of the day, our clients pay for that," Adler says.
