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WorldCom bankruptcy may stir, not shake, Net and other services

WorldCom’s historic bankruptcy will have little impact on Internet stability and other services, experts said. By Brock N. Meeks.
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Although a vast amount of the Internet’s total traffic is carried by some piece of WorldCom’s network, experts say consumers and businesses won’t likely feel any impact resulting from the company’s historic bankruptcy filing. But that doesn’t mean pockets of consumers won’t feel the sting of service disruptions, analysts warned.

WITH THE COMPANY in the white hot spotlight for having filed the largest bankruptcy in history, WorldCom is now fighting for survival on a day-to-day basis. Though a bankruptcy court Monday provided some financial breathing room for the company, approving a $2 billion loan package while keeping braying debtors from breaking down the doors just yet, that move is cold comfort for the thousands of Internet Service Providers and their customers that depend on WorldCom’s global Internet architecture.

WorldCom officials have tried to calm any fears of service disruptions.

“The bankruptcy allows the company to operate more or less normally, except for considerable scrutiny of any asset divestiture, acquisitions or other transactions that are not in the normal course of business,” Vinton Cerf, widely regarded as one of the “Fathers of the Internet” and now an MCI vice president, told “I believe the backbone will be operated reliably and responsively.”

Dozens of Internet and telecommunications companies have gone under over the last couple of years, some like Northpoint Communications and ExciteAtHome leaving millions of customers scrambling for new providers while others like Global Crossing keep operating their networks uninterrupted.

“I think there will be some disruption but it will be pretty localized as companies decide what they want to do in light of the bankruptcy,” said Michael St. Johns, a member of the Internet Architecture Board, a 13-member technical advisory group to the Internet Society.

St. Johns has been here before; he worked at AtHome as that company’s Internet assets were swallowed up by major cable companies. As companies like AT&T cobbled together their cable modem networks from the pieces acquired from AtHome, service was sporadic causing headaches for thousands of users.

“At least for the next three months or so you’ll have companies deciding they don’t want to worry about WorldCom and moving off [their] system,” St. Johns said. “And so customers would notice some disruption” because their ISPs will be switching over all their services from WorldCom to another provider, he said. “If WorldCom actually goes out of business the disruptions will be a bit more major,” but still localized as companies would have to scramble for new provides, St. Johns said.

And even if something did happen and WorldCom’s network suddenly went dark, few large companies would be caught flat-footed. Most companies have contingency plans, in the form of redundant connectivity contracts, in case their primary network goes down.

That sort of back up is crucial in the online world. Whereas a service interruption might spoil a fantasy football league’s latest scoring update that same type of interruption could mean millions in lost revenue for a highly trafficked E-commerce site.


“As an immediate matter, this [bankruptcy] should create no difficulties in maintaining dial-tone phone service for MCI WorldCom customers for the foreseeable future,” said Gene Kimmelman, co-director of Consumers Union’s Washington office.

“If this drags on for a long time, with enormous disputes about how to divide the assets or who gets to buy them up, that’s when there is greater danger of quality of service and losing the competitive zeal that was there,” Kimmelman said.

Government regulators also are keeping a close eye on the WorldCom developments. The company provides most of the government’s telecommunications services, servicing 20 different agencies from Commerce to NASA, the Pentagon and the Securities and Exchange Commission. In 2001 the company earned nearly $463 million from those contracts, according to the General Services Administration.

“While I am deeply concerned by this development, I want to assure the public that we do not believe this bankruptcy filing will lead to an immediate disruption of service to consumers or threaten the operation of WorldCom’s Internet backbone facilities,” Federal Communications Commission Chairman Michael Powell said. The FCC “will act vigilantly and to the full extent of its statutory authority” to protect customers from losing service, Powell promised.

And then there’s the law. FCC rules state that a customers must be given at least 30 days notice before turning off the switch. “We’re not going to see a situation where they turn the lights out. The company will continue to operate,” said Drake Johnstone an analyst with Davenport & Co. in Richmond, Va.

But the law doesn’t always work like it does on paper. Federal regulators were unable to prevent Northpoint Communications from shutting down until its customers had had enough time to find new service.

Meanwhile, Global Crossing, which filed for the fourth-largest bankruptcy in U.S. history in January, continues to operate a high-speed network that connects more than 200 cities in 27 countries while it considers selling some of its assets or tries to emerge again as a stand-alone company.

The blunt truth is, there are few places more inviting for a trouble company to hide than wrapped in the cloak of a Chapter 11 bankruptcy proceeding. The company is allowed to shed debt like a snake sheds its skin. And although a company in chapter 11 must operate under tight constraints it does so with little worry about competitive market forces.

Indeed, when emerging from a Chapter 11 bankruptcy a company like WorldCom finds itself lean, mean and hungry. WorldCom may even set off a pricing war because it’s able to undercut the current market price to gain rapid market share, says Scott Cleland, president of the Precursor Group.

“During bankruptcy the judge and the process want to protect the continuing operations and taking care of customers is core to that,” Cleland said. “And for the big customers, there aren’t many places for the WorldCom customers to go.”

Reuters contributed to this story.