Gartner: WorldCom will be bought within two years

WorldCom's accounting scandal has thrown the company into such financial straits that it will not survive on its own, a Gartner...

WorldCom's accounting scandal has thrown the company into such financial straits that it will not survive on its own, a Gartner analyst said.

"Within two years, WorldCom will, ultimately, end up being owned by someone else," likely to be one of the former Bell companies, said Eric Paulak, a senior vice-president in Gartner's enterprise strategies group.

Last week WorldCom revealed that it would have to restate its 2001 and first-quarter 2002 financial results around $4bn (£2.6bn) after accounting irregularities.

The news sent the company's stock into a tailspin and caused the holders of some of its $30bn (£19.7bn) debt to say that the company is in default on its loans.

Those loans could be called in for immediate repayment if the holders chose to do so. As such, the company needs to renegotiate the terms of its debt if at all possible, Paulak said.

WorldCom has $2bn (£1.3bn) in the bank, according to WorldCom president and chief executive officer John Sidgmore at a press conference

That figure, however, is only enough to fund the company's operations for six months, said Gartner's Paulak. "They have to shore up their cash position," he said.

Even if the cash lasts more than six months, the company will go into Chapter 11 bankruptcy protection, Sidgmore added.

Such a move would help protect the company as it restructures in order to avoid complete collapse, he said. Part of that restructuring is likely to involve the selling off of international operations and further layoffs, he said.

The sell-off or shutdown of operations in Japan, Southern Europe and Northern Europe are all possible, Paulak said. Furthermore, the company may have to lay off more than the 17,000 employees it began letting go last Friday (28 June), he said. Those cuts were announced before the accounting scandal. WorldCom could cut its staff in half.

The company is also likely to cut funding to Digex, a Web hosting subsidiary that WorldCom partially funds.

Despite this uncertainty, the telephone and Internet networks controlled by WorldCom are safe, he added.

Given all the uncertainty surrounding the company, WorldCom customers need to create a contingency plan, said David Neil, senior vice-president in the enterprise strategies group.

Such a plan should include getting a second service provider, doing an inventory of the service WorldCom provides to a company, not signing up for new WorldCom services until the company's financial picture is clearer, and possibly hiring a professional services firm to manage the telecommunications services provided by multiple providers, he said.

Companies who are already WorldCom customers do not have a way out of their contracts yet, he said.

"Nothing that has happened so far has done anything to affect the validity of the contract with WorldCom," Neil said. "Enterprises must not be stampeding into a rash decision and potentially make the situation worse."

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