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On a day when

the promise of a fresh start fed a 20% jump in






reminded investors just how stale the telecom business really is.

WorldCom, the big-name telco whose cash-strapped, debt-burdened state is perhaps most often likened to that of Qwest, saw its shares drop 9% Monday despite a strong day for the big market averages. The setback came as credit-rating agency Standard & Poor's cut the beleaguered telco's debt rating two more notches, citing an expected delay in obtaining a $5 billion bank facility.

With the big phone equipment makers joining in a sectorwide rally Monday --


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rose between 4% and 13% Monday as Wall Street bet on a capital spending bounceback -- investors might do well to take a closer look at big telcos like WorldCom, which are showing no signs they can maintain their reduced spending levels, let alone boost outlays.

WorldCom shares closed down 15 cents, or 9%, at $1.45. The stock is more than 90% off its 52-week high, as investors have fretted about the company's ability to generate enough cash to keep paying off its huge debt load.

Those worries intensified Monday after S&P raised concerns about the company's liquidity position. WorldCom said Friday that

the company's in better shape than is widely portrayed in the media and on Wall Street. But if that's so the analysts at S&P didn't seem to notice.

"Even if the bank loan is successfully negotiated, we are concerned about WorldCom's asset valuation in relation to its total debt outstanding," S&P analyst Rosemarie Kalinowski wrote in a statement. "The demand for long-distance voice and data services continues to be impacted by a slow economic recovery, technology substitution and competition."

S&P also warned that WorldCom's stated plans of cutting capital spending by $1 billion in 2003 and cutting its workforce by 20% could hurt growth prospects. The company, which has about $30 billion in debt, remains on watch for further downgrades; earlier this spring both Moody's and S&P cut WorldCom debt to junk, citing the company's cash-flow shortfalls and deteriorating fundamentals.

Of course, all the big telcos have been slashing capital spending to the bone throughout the last year or so, as pricing has stayed weak, punishing once-robust revenue lines at the long-distance and local phone service providers. That has steepened the selloff in the capital-equipment stocks, most of which have followed up with steep workforce cuts and financial shortfalls of their own.

With there being little light on the horizon in that regard, the focus at WorldCom has returned to the company's short-term finances, which have been much in the news lately. Just last month the company

sold some customer bills to raise cash, a move that to some investors smacks of desperation.

Kalinowski stated an expected delay in obtaining the new bank facility could reduce the company's liquidity position over the next year. "The bank facility is also a major factor to re-establishing investor confidence and access to the capital markets," S&P stated.