Ill. CLEC group said statement by Qwest CEO Richard Notebaert that he considered it “fundamentally wrong” for Qwest to compete in local markets of Ameritech, which he headed until Ameritech merged with SBC in 1999, indicated there might be collusion between Bell companies to thwart competition. Notebaert said competing for Ameritech’s residential customers “might be a good way to turn a quick dollar but that doesn’t make it right.” His statement, quoted in Ill. news media, came as Qwest announced 3rd- quarter loss of $214 million and 13% fall in revenue, to $3.8 billion from $4.37 billion year earlier. Notebaert said expanding into new local service markets in other regions wasn’t good strategy. He also sided with SBC in opposition to unbundled network element platforms (UNE-Ps) because of pricing he called “nuts.” Notebaert said Qwest provided competitive data and long distance service to large businesses in Chicago area but had no plans to offer local service to small businesses or residential customers. In response, Ill. Coalition for Competitive Telecom called Notebaert’s comments “evidence of potential collusion among regional Bell phone monopolies to not compete against one another and kill off potential competitors in local phone service.” CLEC group said remarks indicated Bells’ strategy was to divide country into local phone “fiefdoms,” not compete against each other, and devote their collective efforts to “eliminating would-be competitors in local service.”
Qwest net 3rd-quarter loss widened to $214 million from $142 million loss year earlier as revenue fell 13.2% to $3.8 billion. Company attributed drop to competitive pressures in local and long distance services, continued economic factors and reductions in data and IP services due to its efforts to eliminate what it said were less-profitable businesses. Losses appeared to cross all of Qwest’s segments, with business services revenue down 5.8%, consumer services 9.2%, wholesale services 20% excluding $133 million in optical capacity asset revenue that was subject to restatement. On brighter side, Qwest CEO Richard Notebaert said company “took significant steps to strengthen the company’s balance sheet and address liquidity concerns” in 3rd quarter. Qwest CFO Oren Shaffer said senior management was “creating an efficient and disciplined company” while “we continue to de- emphasize low-margin businesses and drive costs out of our core operations.”
CLEC industry has stabilized and “is about to turn the corner,” ALTS Pres. John Windhausen said at news briefing on progress report his group released Thurs. Report said: “Industry experts are lagging behind the real developments in the marketplace. Indeed, several signs point to the likelihood of a CLEC revival in 2003.” However, BellSouth spokesman said news that reasonable number of CLECs were reaching state of financial equilibrium served “to restate what all 9 regulatory agencies in BellSouth’s region have confirmed -- BellSouth’s network is open to competition.”
Saying it lacked oversight, General Accounting Office (GAO) dismissed protests filed by Sprint and Global Crossing over hotly disputed, $450 million defense network contract awarded to WorldCom. Defense Information Systems Agency (DISA) awarded IP network contract to WorldCom before carrier filed for bankruptcy. Sprint and Global Crossing protested after WorldCom disclosed in June it had overstated earnings by $3.8 billion in 2001 and 2002. Carriers argued that DISA’s contract decision was based on faulty financial information from WorldCom, which meant Defense Research & Engineering Network (DREN) contract award should be void.
In 17 states, phone call to “211” can help troubled persons in need of social assistance find shortcut through bewildering maze of public- and private-sector health and human service agencies to reach ones that can offer assistance. Many other states are considering establishing 211 referral service. But valuable as that service has proved to be in places where it’s available, economic woes afflicting states, municipalities, businesses and charities may affect pace at which it spreads, observers said.
Experts differed on whether WorldCom would gain unfair advantage if it emerged from bankruptcy as debt-free, fully intact company. In panel sponsored by New Millennium Research Council in Washington Fri., RHK senior analyst Shing Yin argued that reemerged WorldCom, even if free of debt, would remain “inefficient competitor” with EBITDA earnings half that of competitors AT&T or Sprint. Even without interest payments, cash flow would improve to only “slightly below breakeven -- about the same as Sprint,” he said. In contrast, Janice Aune, pres. of Minn.-based regional carrier Onvoy which counts WorldCom as customer, feared price war as several long-haul carriers emerged from bankruptcy in next few months. In industry with glut of capacity because market share had been valued above profits, “what will compel different behavior after bankruptcy?” she asked: “Nothing, I say frankly.” Aune compared AT&T wholesale rates that she called “phenomenally competitive” with prices discussed by unnamed long-haul carrier. That carrier, about to emerge from bankruptcy, plans to undercut AT&T’s rate by 52%, she said.
Battle for control of Gemstar TV Guide International between major shareholder News Corp. and CEO Henry Yuen appears to be nearing climax as joint proposal is submitted to board to restructure management. Gemstar didn’t provide details of restructuring, which was announced late Wed. night, and company officials weren’t available for comment. But people reportedly familiar with talks told Wall St. Journal (WSJ) that Yuen, who founded Gemstar and guided it to merger with TV Guide 2 years ago, would become nonexecutive chairman.
WorldCom revealed late Thurs. that internal review had found another $3.3 billion in improperly reported earnings since 1999, nearly doubling initial $3.8 billion that was announced in late June. As result, company said it would have to restate its financial report for 2000, in addition to already announced restatement of 2001 and first quarter 2002. WorldCom said in news release that it was continuing its internal financial investigation and “investors and creditors should be aware that additional amounts of improperly reported EBITDA [earnings before interest, taxes, depreciation and amortization] and pretax income may be discovered and announced.” Company said it expected further writeoffs of previously reported assets, “including the likelihood that it may determine all existing goodwill and other intangible assets, currently recorded as $50.6 billion, should be written off when restated 2000, 2001 and 2002 financials are released.” It also will reevaluate “carrying value of existing property, plant and equipment.” Meanwhile, House Financial Services Committee Chmn. Oxley (R-O.) said Fri. he planned to subpoena more documents from Citigroup as part of investigation into WorldCom and activities of financial analyst Jack Grubman.
CNBC reported Thurs. that WorldCom had found additional $2 billion in fraudulent accounting on top of $3.8 billion already reported. Company found fraudulent statements dating back to 1999 and 2000, CNBC said. Company originally reported it had issued fraudulent statements in 2001 and 2002. When it originally disclosed fraudulent reporting, WorldCom said it could uncover more accounting fraud as it continued to investigate further back in time.
WorldCom’s Chapter 11 filing has added yet another wrinkle to embattled $450 million Defense Research & Engineering Network (DREN) contract that Defense Information Systems Agency (DISA) awarded to carrier before it filed for bankruptcy. After WorldCom revealed $3.8 billion in accounting errors related to access charges and other areas, DISA said it was conducting legal analysis of DREN contract (CD July 2 p). At about same time, General Services Administration had said it was conducting review of WorldCom’s ability to sign future federal govt. contracts. This month, Global Crossing and Sprint launched new challenges at General Accounting Office to DREN contract that they lost to WorldCom. Protests cite new facts that have emerged on WorldCom’s finances since DISA decision in April. Latest complication is that contract now becomes asset tied up in bankruptcy court proceedings, limiting agencies’ ability to revoke or otherwise alter its terms. “With WorldCom’s decision to file for Chapter 11 bankruptcy protection, the DREN contract is now considered an asset under federal bankruptcy laws,” DISA said in written response to question. “Any legal action (terminations) must go through the Bankruptcy Court because of the ‘automatic stay’ that prevents adverse contractual actions against petitioners absent court approval.”