WorldCom Spells New Approach M-C-I

The new MCI may end up looking a lot like the old MCI.

With WorldCom moving closer to settling fraud charges with regulators, the industry is focusing intently on the embattled phone giant's restructuring efforts. The company projects confidence, pledging on its Web site to offer "the same strengths, but a new approach to doing business."

But as reliable details about WorldCom's actual operating performance become available, some observers are increasingly saying that the healing process will hinge on the removal of many of its constituent parts.

Much has been made of the possibility that WorldCom -- soon to be renamed MCI, in an effort to shake off the stigma of scandal and insolvency -- will emerge from bankruptcy largely intact. Under this widely discussed scenario, the company that Bernie Ebbers built out of some 60 bull-era acquisitions will be all but rewarded for its unseemly behavior, emerging as a juggernaut of sorts through a steep, court-approved debt reduction. Investors of this mind fear the company will all but lay waste to an already teetering telecom industry.

Yet the latest findings on WorldCom show that rival telcos have little to fear, say industry observers. In fact, some people suggest that the company may have no choice but to tear down the entire house that Bernie built, save for that nice profitable MCI wing that was welded on at the end of 1998.

Deep Flaws

Though far from groundbreaking or conclusive, a preliminary report on WorldCom by a court-appointed examiner shows a deeply flawed company with little operational coherence. And if not for some $7 billion in accounting tricks, the company would have been losing money, not racking up profits, in four of its five most recent quarters ended in March.

Indeed, contrary to popular belief, the report indicates that even free of its interest payments, WorldCom remains a roaring cash incinerator. According to recent monthly financial reports, WorldCom posted an August net loss of $92 million on revenue of $2.4 billion. And in July, the company lost a whopping $333 million on $2.46 in sales.