|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|
That was bad enough in terms of luring investors who would later be fleeced. But worse still is that the fiction of new sales and high profits helped open the door to an industrywide price war and equipment buying arms race. Those forces further robbed earnings at the supposedly solid players, leaving them bleeding precious cash and undercutting everyone else up and down the industry food chain, say analysts. "Judging by WorldCom's actual margins, profitability was much less than we ever thought," says Paine Webber analyst John Hodulik. Over the past three years, WorldCom was pulling in an average operating margin of 33%, according to the company's original financial reports. Now, subtracting the bogus cost manipulations, WorldCom's real margin was less than half that at 13%. "WorldCom's aggressive pricing generated only moderate profitability at the operating line," says Hodulik.