Copyright 2002 Knight Ridder/Tribune News Service

Knight Ridder/Tribune News Service

The Dallas Morning News…07/10/2002

From LexisNexis

The nation's communications regulators are taking pains to ensure that service to WorldCom Inc.'s more than 20 million customers will not suffer even if the telecommunications company declares bankruptcy.

Unlike other distressed phone and Internet companies that have failed recently, WorldCom's shadow is large and falls far. The nation's second-biggest long-distance company carries more than half the nation's Internet traffic and 70 percent of its e-mails.

On Tuesday, Federal Communications Commissioner Kathleen Abernathy told reporters the agency is "very focused" on making sure customers stay connected. However, she stressed the FCC is not going out of its way to help the company survive.

"It's not our job to decide winners and losers," said Abernathy, who was appointed to the FCC in May 2001 by President Bush. "Our main concern is to ensure consumers are served, and that we will still have a competitive environment."

The Texas Public Utility Commission has also been in talks with WorldCom to assure customers are taken care of, said chairwoman Rebecca Klein.

"Our interests are making sure that customers are taken care of and making sure the dialogue is open with WorldCom MCI," she said.

WorldCom, which the Securities and Exchange Commission has charged with civil fraud for inflating earnings, anticipates no deterioration of service, company spokesman Brad Burns said.

Telecommunications experts second that notion.

"The company can continue to operate," said Phil Jacobson, a general partner at Network Conceptions LLC, a consulting firm. In bankruptcy, "they will dedicate that cash to running the business, to paying the employees, to paying vendors."

The FCC can compel companies it licenses for phone and data services to continue service for at least 30 days after declaring bankruptcy. The agency used that power to force Rhythms NetConnections Inc. to stay in service in August 2001. WorldCom eventually bought the firm's digital subscriber line assets.

But the FCC could not stall the demise of At Home Corp., the cable modem service provider, because regulators lacks jurisdiction over retail Internet service providers.

WorldCom is clearly within the agency's jurisdiction, Abernathy said.

FCC Chairman Michael Powell has met with WorldCom chief executive John Sidgmore to ensure customers will continue to receive telephone and Internet service over WorldCom's vast network.

"The chairman is very well aware of the importance of this company to the telecommunications industry," Abernathy said.

While the FCC has limited legal powers to keep phone companies in business, it can use its prominent status to reassure consumers and businesses.

"The FCC has some influence over perception," said Robert C. Atkinson, a former FCC official. Regulators are, in effect, telling customers, 'Don't panic, Don't be irrational. Just hang in there.'"

That reassurance is key. If customers panic and start leaving in droves, WorldCom could run into a debilitating cash crunch, said Atkinson, a research director at Columbia University's Institute for Tele-Information.

Another concern is financial relations between WorldCom and local-phone companies, which charge long-distance companies billions in access fees to connect to customers. Burns confirmed that one or more of the nation's four major local companies have asked WorldCom to make deposits.

"We are obviously working with them closely on that," he said. "It's important to remember that we are (local) companies' second-biggest customer."

San Antonio-based SBC Communications Inc., the nation's second-biggest local-phone company, declined to comment.

If the deposits are substantial or local companies begin demanding advance payments, WorldCom's cash flow could be squeezed.

"The (Baby) Bell companies would have to be extra careful, because if they change their billing and collection policies, and that was seen as the straw that broke the camel's back, they are going to have some liabilities," Atkinson said.

The FCC would have "no jurisdiction," over an access-charge fight between local companies and WorldCom, Abernathy said.

But Matt Brill, an FCC attorney, said WorldCom may have a case against the Bells if they demanded different payment arrangements.

Klein said the PUC, too, wouldn't be able to mediate on the matter.

Burns said WorldCom doesn't anticipate changes in access charges would affect its service. "We certainly don't expect our customers to be impacted by the current situation in any way," he said.