Capellas Hums Quick-Turnaround Tune at WorldCom

WorldCom's revival effort was humming Friday after the company confirmed Michael Capellas as its new boss.

The bankrupt telco's success in landing a respected chief tells industry watchers that the company's books, besmirched by some $9 billion in erroneous accounting, are now nearly clean. As a result, a revamped company could emerge from Chapter 11 around the middle of next year.

The selection of Capellas, the former Hewlett-Packard president, ended a closely watched executive search that included a handful of phone industry bigwigs, including Gary Forsee, the No. 2 guy at BellSouth (BLS Quote).

"I think it's a signal that the biggest accounting manipulations have already been exposed and that if anything new is discovered it will likely be small entries," says Marty Hyman, an industry consultant and adviser to the WorldCom creditor committee. "There's some comfort to be taken from this. It shows there may be a foundation to the economics of the business."

Posin' a Threat

Despite bankruptcy and the revelation of widespread use of potentially fraudulent accounting practices, WorldCom poses a formidable threat to the rest of the industry. As operator of the nation's No. 2 long distance company and a fast-growing local phone business, WorldCom has shown less vulnerability than some expected. Now, teetering telecom rivals and their investors fear the competitive advantages of reborn WorldCom free of onerous debts and recharged under a new hard-hitting management team.

While WorldCom has to negotiate settlements with at least four groups of credit stakeholders and a number of banks, people close to the situation, including Hyman, say the company could emerge from bankruptcy as early as May or June of next year.

In addition to the debt settlements, one of the challenges Capellas faces is designing a business plan that all parties can agree on. The company must get a handle on just how big of an operation it intends to be, say debt analysts and industry observers. One former executive says it is reasonable to expect a slimmed-down version of WorldCom, similar in many ways to the original MCI.