WorldCom Faces Service Outages in Europe

WorldCom (WCOME) has stiffed its European telco partners on an estimated $1 billion tab and now faces service interruptions for some of its international calls, according to a company insider familiar with the situation.

A WorldCom spokesman said Wednesday that the company is "working through some invoicing issues" with some overseas telcos, and was confident the companies "will work together" to maintain service. The names of the partners wasn't immediately available.

The news comes as investors continue to fixate on the question of whether WorldCom can stay out of bankruptcy in the wake of massive accounting irregularities unveiled late last month. The stock has plunged 99% this year as WorldCom has endured a slowdown in its business that exacerbated cash-flow issues caused by its heavy debt load. Wall Street has lost confidence in the big telco amid a series of management changes, earnings shortfalls and investigations of its accounting and business practices.

Given that setup, questions about the company's finances remain a top worry for investors. Revenues from overseas calls are generally split, at a prearranged ratio, between the companies that handle the phone traffic. But it seems cash-strapped WorldCom hasn't been holding up its end of the bargain and has been withholding payments to some partners, the insider says. Like anyone who doesn't pay their phone bill, WorldCom is now facing service cutbacks.

Typically these settlements between domestic and international companies are made twice a year, says Brownlee Thomas, an analyst with Giga Information Group, a research and consulting firm. Thomas estimates WorldCom owes close to a total of $1 billion to its partners.

Observers caution that these settlements can hit snags from time to time as companies work out disputes. But given the dire financial straits WorldCom has stumbled into, nonpayment is far from out of the question.

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