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Bells Take Aim at Rival

Telecom firms go after WorldCom's market but deny they are behind an effort to keep it mired in Bankruptcy Court.

November 25, 2002|Jube Shiver Jr. | Times Staff Writer

WASHINGTON — WorldCom Inc.'s archrivals have set their sights on the fallen telecommunications giant, potentially undermining its financial health as it struggles to emerge from the largest bankruptcy filing of all time.

This group of competitors -- which includes Pacific Bell parent SBC Communications Inc. and the other Baby Bell local phone companies -- is lobbying federal regulators for new rules that would require the nation's No. 2 long-distance company to make hundreds of millions of dollars in upfront payments before it can use the Bells' networks to route phone traffic. Currently, WorldCom pays the Bells after it collects from its long-distance customers.

The Bells aren't WorldCom's only foes. The Clinton, Miss.-based carrier also is fighting the largest labor union in the telecommunications industry and even an influential church group that has taken aim at the company.

They all are seeking to slow the financial reorganization of the former telecom titan in a bitter campaign that analysts say is being orchestrated by the Bells, long-distance carriers AT&T Corp. and Sprint Corp., and others hoping to wrest business from WorldCom and head off a bloody price war.

"There are a number of battles on a variety of issues that ... suggest there is an organized effort by rivals to keep WorldCom in bankruptcy as long as possible and make it as painful as possible to ensure they don't get out," said Blair Levin, a former chief of staff at the Federal Communications Commission who is now a telecom analyst for investment firm Legg Mason Wood Walker Inc.

"AT&T, Sprint and the Baby Bells," Levin added, "are clearly better off the longer WorldCom stays" mired in Bankruptcy Court or remains tied up with federal regulators, who are under political pressure to protect consumers from possible service interruptions by financially troubled carriers.

The Bells deny that they are behind any organized effort to undercut WorldCom. They say their only aim is to protect themselves from the same financial ruin that has engulfed WorldCom and so much of the rest of the industry.

WorldCom sought Chapter 11 protection in July, listing assets of $104.billion and debts of $32 billion. The company has been charged by the Securities and Exchange Commission with fraud for misstating earnings by as much as $9 billion dating to 1999.

About 35 major telecom providers have sought federal bankruptcy protection in the last two years, including Winstar Communications Inc. and Global Crossing Ltd., a venture headed by Los Angeles financier Gary Winnick.

Yet critics have singled out WorldCom as a special case because its accounting irregularities were so massive and because the company's aggressive pricing of services -- grounded in what turned out to be fictitious profit -- forced other carriers to follow suit, causing massive industry losses.

One of the key factors fueling the intense lobbying, analysts say, is the desire of SBC, Verizon Communications Inc. and BellSouth Corp. to poach WorldCom's turf. They are angling to enter the $100-billion-a-year market for supplying data and long-distance services to large businesses.

WorldCom and AT&T are the leading providers of such services. But WorldCom is losing its grip on the business as it struggles to emerge from bankruptcy protection. Sprint says it has gained about $250 million worth of business from big company customers at WorldCom's expense. AT&T says it has won some former WorldCom customers too.

The three largest regional Bell phone companies have been largely cut off from the market because of federal rules that restrict their ability to offer long-distance service in their home markets, and they are pushing to get those restrictions lifted.

SBC, for instance, is making an aggressive bid for approval to offer long-distance service in California. A fourth Baby Bell, Qwest Communications International Inc., has been able to develop a significant long-distance presence by building its own nationwide fiber-optic network.

However, WorldCom is beginning to turn the tables on the Bells in their primary market: local phone service.

WorldCom's MCI unit has more than 2 million subscribers for "The Neighborhood," a plan that offers combined local and long-distance telephone services, voicemail, caller ID and other services in 36 states for a monthly fee between $50 and $60.

The jockeying for market share has some analysts speculating that a local Baby Bell will try to gain a national footprint to lure big corporate customers by either acquiring MCI or eliminating the company as a competitor. That's why they believe the Bells are undertaking their own lobbying and encouraging outside groups to pressure WorldCom.

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