WorldCom's False Profits Torment Telecom
Telecom's false profits are about to cast the industry's already staggering suppliers into a lake of fire and brimstone.
Evidence has been mounting over the past year that the telecommunications sector's fundamentals aren't just deteriorating -- they were never anywhere near as good as they appeared in the first place. That means that players along the industry supply chain are likely to see less and less cash from the greenback-starved big telcos. That will surely mean more pain for investors and probably more work for bankruptcy lawyers everywhere.
Take the WorldCom, please. The big telco's now twice-revised numbers show that operating profits were some 35% lower for the past three years than originally reported. On Thursday, WorldCom boosted its restatement to a staggering $7.1 billion -- and counting.
WorldCom looks plenty bad on its own. But if you add to that Qwest's (Q) revelation late last month that it misbooked $1.1 billion in sales and costs -- mostly relating to controversial network capacity swaps -- you begin to get the sense that a fair amount of the industry's recent growth was built on rather shaky foundations. And again, with government probes sweeping through the books of big companies, it's fair to expect additional restatements in coming weeks.The problems aren't limited to the investors who lost their shirts in WorldCom and Qwest, though. No, the weakness is more far-reaching: It seems WorldCom and its similarly fraud-suspected rivals like Qwest and Global Crossing helped create the illusion that the once-bland, utility-like business of telecom was suddenly reborn as a lucrative new economy enterprise.
|Fessing Up to Fewer Profits
Getting closer to WorldCom's real operating income
|*Total for the past three years, including the first quarter of 2002|
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