US bans WorldCom from new govt contracts

Reuters ^ | 7/31/2003

[Courier]

US bans WorldCom from new govt contracts Thursday July 31, 7:58 pm ET By Jeremy Pelofsky and Jessica Hall

WASHINGTON/PHILADELPHIA, July 31 (Reuters) - WorldCom Inc. suffered another blow on Thursday after a U.S. agency said the bankrupt telephone company could no longer compete for new U.S. government contracts after finding it lacked proper internal controls and business ethics.

The General Services Administration said it would review whether the temporary ban on WorldCom, which is embroiled in an $11 billion accounting scandal, should be extended for up to three years.

Meanwhile, the U.S. Bankruptcy Court for the Southern District of New York delayed a hearing to approve WorldCom's reorganization plan to Sept. 8 from Aug. 25. The company filed the largest bankruptcy in U.S. history last year.

These developments come just a day after the Federal Communications Commission (News - Websites) said it is investigating whether WorldCom (Other OTC:WCOEQ.PK - News) illegally routed telephone calls to avoid paying connection fees to other carriers.

The GSA agency, which doles out government contracts, said its investigation found the No. 2 U.S. long-distance telephone and data services company had not adequately addressed its material accounting and business ethics weaknesses.

"It is important that all companies and individuals doing business with the federal government be ethical and responsible," GSA Administrator Stephen Perry said.

Ashburn, Virginia-based WorldCom said the decision does not affect its existing government contracts, which draw in about $1 billion in revenue annually. The company has 30 days to respond to GSA though it can ask for an extension.

The ban could be a boon for rivals like AT&T Corp. (NYSE:T - News) as well as Verizon Communications (NYSE:VZ - News), which lobbied against WorldCom and wants the lucrative contracts.

"MORE TO BE DONE"

The company said it has been in talks with the GSA to address the concerns and accelerate its recent efforts to strengthen its internal controls and add ethics training programs. WorldCom expects to announce its full complement of directors on Aug. 15, and plans to hire an ethics manager.

"Clearly there's been a lot done," WorldCom Chief Executive Michael Capellas told reporters. "Clearly there's a lot more to do. We all knew this wouldn't be easy."

"While we certainly agree that we need to gear up on our formal ethics program office, there's been no shortage of effort ensuring that we in fact have zero tolerance" for any improper conduct, he said during a conference call.

WorldCom has received several contracts since its accounting scandal came to light, including the extension of a contract to provide telecommunications services to government agencies, and one to build a wireless network in Iraq.

Thursday's GSA decision also means options for existing contracts cannot be exercised. The company, which filed for bankruptcy protection after revealing that it had improperly recorded expenses, can appeal decision within 30 days.

WorldCom, which plans to change its name to MCI after emerging from bankruptcy, has already agreed to pay $500 million in cash and $250 million in stock to settle civil securities fraud charges related to its accounting debacle.

"I think this is a material but non-lethal penalty from the government and this should not affect the ability of MCI to emerge from bankruptcy," said Scott Cleland, chief executive of the research firm The Precursor Group.

GSA also noted that it was aware of new allegations that WorldCom had improperly routed telephone calls and hidden data about calls to avoid expensive fees for connecting them, charges brought by the company's rivals.

"If these allegations are substantiated, I am prepared to take whatever additional administrative measures may be necessary to protect the government's interest," Joseph Neurauter, the GSA official who headed the investigation, said in a letter to WorldCom.

The U.S. Justice Department, the FCC and Congress are looking into the allegations as well. The bankruptcy court overseeing WorldCom's reorganization ordered the company to update its disclosure statement to address the latest charges.

Sen. Susan Collins, chairwoman of the Senate Governmental Affairs Committee which has been reviewing WorldCom's contracts with federal agencies, praised GSA's decision to "protect the American taxpayers from doing business with a company that has demonstrated a flagrant lack of ethics."

[Courier]

I could make an argument that Worldcom caused the huge stock market collapse of the recent past.

The collapse began in telecom. There was huge overcapacity. Some of it was caused by the mirage Worldcom was projecting of a healthy business. Rival companies also suffered when their real numbers looked puny next to Worldcom's made up numbers.

Everyone involved at Worldcom should spend a long time in prison and the company liquidated to the last pencil.

[lelio]

Agreed on the jail time and liquidation. To keep this company around is a slap in the face of honest companies, especially in an industry with more supply than you can shake a stick at. Plus how on earth did they get an Iraqi cell phone contract?

[Keith in Iowa]

I can ehar it now...pMSNBC's Joe Scarborough will be trying to take credit for this...he put up the address for the GSA in the past couple days, telling people to write them, and tell them to do just what's been done.

[TrebleRebel]

I have to admit that my husband made off with a very nice laptop upon his leaving...we just kind of don't talk about it.

[Trust but Verify]

Allow me to add to your observations.

First, among Worldcom's creditors are competitors like Verizon and former Baby Bells. They are owed many millions of dollars which the bankrupt company will have wiped out.

Next, they appear to have cheated those same companies out of revenues by routing calls around their networks.

And last, this is the best one of all, they emerge from bankruptcy with their debt discharged, the huge government contracts intact and they can eat their competitor's lunch because they have no debt service.

If they get away with this, it will be used as a roadmap for future looting of publicly held companies.

[rface]

For what its worth: Some Thanks to Kudlow and Cramer for keeping the pressure on

[Bogey78O]

Ding Ding Ding!!!

We have a winner.

When Worldcom declared bancruptcy BellSouth and Verizon droipped about 5-6$ a share in a single day. They've yet to fully recoup to their former level. BellSouth had stayed around 32-34$ a share up till then before bottoming out in March and is now languishing around 27.

[comnet]

WASHINGTON -- WorldCom said Tuesday it has hired a Washington law firm to head an internal investigation into claims it routed calls to avoid access fees.

On Monday, AT&T accused WorldCom in a bankruptcy court filing of improperly diverting calls to Canada to avoid paying access fees to local telephone companies. AT&T said some calls originated in the State Department and other government agencies, suggesting that WorldCom jeopardized national security.
http://www.detnews.com/2003/business/0307/30/b03-231133.htm

[Courier]

If Worldcom is allowed to emerge from Bankruptcy, considering all the various facts people have posted, I will become totally jaded on politics.

There is an odor of powerful people protecting Worldcom against all common sense.

[ETERNAL WARMING]

Notice that the article says "new" contracts. They were just given a gazillion dollar contract with the gov, weren't they? Looks like that will still go thru. This law wouldn't apply.

[FreepOnTheBorderlands]

Who is Worldcom? the name change to MCI took place four months ago. If the author cannot even get his/her facts straight about that, how can one trust the rest?

As for those who wish for MCI to be shut down and liquidated, to what ends would you like that? You *do* realize that half of the domestic internet traffic still travels over what is referred to as AS701, as well as the fact that a little startup called AOL relies heavily on AS701 to allow their users to actually USE their service. Those of us in the trenches that keep AS701 and the rest of the MCI backbone running are extremely frustrated by such stupid "shut em down" talk. It makes us shudder, knowing just how hard the net would be hammered if AS701 went out of service.

Furthermore, if MCI was liquidated, who would be able to pick up all of that traffic, and all of those customers? AT&T? Verizion? Anyone remember Northpoint? Remember what happened to all their customers when their remains were bought up?

Yes, I speak as a MCI employee, but I also speak as a burned stockholder. That's REAL stock, not the options that rest of the employees lost in the bankruptcy. Did the accountants and higher-ups commit some truely heinous acts? H*ll yes. Did the technical employees drop the ball at any point through the whole fiasco to the detriment of networking services? H*ll no!

In the end though, it probably won't matter. The last of the corrupt old guard is seeing to dismantling the very same groups who kept the networks running throughout the bankruptcy dispite all the layoffs. Once AS701 DOES go down, feel free to blame EDS, not MCI.

[Chad Fairbanks]

I have to admit that my husband made off with a very nice laptop upon his leaving...we just kind of don't talk about it.

You sound almost... proud... Please tell me you were kidding...

[1Old Pro]

the bankrupt telephone company could no longer compete for new U.S. government contracts after finding it lacked proper internal controls and business ethics.

It's obvious that any company who would hire an anti-Ameican like Danny Glover as their spokesman lacks ethics.

[TrebleRebel]

Not proud in the least. I can't answer for him. But I hate that he stooped to WorldCom's level of lawlessness.

[Courier]

Northpoint shut down rather suddenly, not compatible.

Nothing would be shut down before substitutes are in place. The other carriers have many times said they can pick up all the traffic.

I feel for you personally, but, a liquidation may even benefit you in the long run.

If Worldcom/MCI is allowed to come out with no debt and unfairly compete with honest companies, the telecom mess will extend far into the future.

[Wolfie]

Wow, the U.S. gov't says WorldcCom lacks proper internal controls and business ethics? Man, is that ever the pot calling the kettle black.

[tyen]

Wow, the U.S. gov't says WorldcCom lacks proper internal controls and business ethics? Man, is that ever the pot calling the kettle black.

I was surprised it took this long for someone to post this observation. Upon reading that quote, Wolfie's comment was the first thing that ran through my mind.

If government at all levels were subjected to the same standards as private companies and individuals, there would be a lot of government workers behind bars.

[comnet]

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