News

WorldCom fraud risk grows

Mike Simons and Cliff Saran
The massive fraud at WorldCom, the US-based telecoms group, could be a disaster for businesses according to analysts.

The £2.5bn hole in WorldCom accounts comes on top of the bankruptcy of KPNQWest, which provides a third of Europe's network capacity and the Chapter 11 protective bankruptcy of WorldCom rival Global Crossing.

"Events at WorldCom are a complete disaster for users," said Camille Mendler, director of European fixed telecoms research at analyst Yankee Group. The fallout would not just affect WorldCom customers, staff and shareholders, she told CW360.com.

"WorldCom is unlikely to shut up shop, but if it goes into Chapter 11 protective bankruptcy, it will be a nail in the coffin for competition."

Much of the excess capacity that has driven down telecoms prices is disappearing as new market entrants like WorldCom, KPNQWest and hit problems, she said.

Julian Hewett, chief analyst at Ovum agreed with Mendler. The turmoil at WorldCom was "pretty catastrophic" he said.

He suggested the company was set for a downward spiral into bankruptcy as suppliers cut its credit lines, the share price continued to fall and staff become more demoralised.

Both Mendler and Hewett urged organisations to check their disaster recovery plans.

Mendler said users should look to sign with up alternative suppliers. Most corporate contracts, she said, contain a clause saying the contract can be terminated in the event of a supplier being threatened with bankruptcy or change of ownership.

Ovum's Hewett said large businesses should already have a dual sourcing strategy to allow them to switch network providers in the event of one of the suppliers going out of business.

Businesses without such a strategy face major upheaval if they have to switch to an alternative network provider, Hewett warned.

"You cannot change a network quickly. In some cases, moving to a different provider could involve digging up the street outside company buildings to lay new cable," he said.

Another potential problem when switching providers could be with the configuration of virtual private networks (VPNs). On switching network providers he said, "Users need to re-program all the addresses in their network for the VPN."

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