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By the looks of things, WorldCom's answer to the telecom meltdown is to hire a guy who has never worked for a phone company before.


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President Michael Capellas resigned Monday amid reports that WorldCom's board has picked him to lead the company's reorganization.

The Wall Street Journal

reported that Capellas topped a list of candidates that also included



executive Gary Forsee, as


reported recently.

A WorldCom spokeswoman said Monday that there was "nothing to say at this point." But company insiders expect a new chief to be named by year-end once auditors and creditors are satisfied that the books have been sufficiently cleansed. And if Capellas is indeed the failed telco's choice as a new leader, it will only add to the murmurings on Wall Street that WorldCom is plotting a path out of the financial mire that will ultimately lead to a deal with a big local phone outfit.

Outside the Bells

The possible choice of an outsider like Capellas comes as a bit of a surprise to observers who have grown accustomed to seeing top telecom spots filled by a never-ending supply of Baby Bell executives.

Michael Capellas

Capellas -- though well-recognized name and an accomplished businessman -- may be in some respects a consolation prize, say some observers. While he certainly has the clean background and operational leadership to fill the role, he lacks the firsthand industry expertise needed in this view to run a sprawling communications company.

WorldCom's board may elect Capellas, but the creditors' committee appointed by the court trustee has veto power, should they need it. The committee is interested in getting a candidate from within the industry to help navigate some of the arcane operations and numerous complex business arrangements typical of a large telco, says Marty Hyman, an industry consultant and adviser to the WorldCom creditor committee.

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"The list of candidates wasn't all that long, and not once did I ever hear the name Capellas," says Hyman. "Capellas is a great guy and a household name, but it just may be that the other candidates before him said no."

Capellas didn't return a call seeking comment.

Even if Capellas does get the WorldCom post, that doesn't mean the local phone giants won't play a big role in WorldCom's restructuring efforts. According to common matchmaking logic, WorldCom's extensive business customer list is a prize target for the Baby Bells, which are looking to offset declines in their local business. Going by this view, it's Capellas's experience as a dealmaker, rather than his lack of experience in the telecom industry, that defines his candidacy.

With the rules on separation of local and long-distance services about to end, analysts have long predicted that the ultimate successors to the current round of phone business giants will be about three or four consolidated service providers. Critics have blamed the industry's collapse on an overabundance of phone companies that rang up crippling debts and unleashed damaging price wars.

Indeed, WorldCom itself was at the epicenter of the strategic shifts that remade the telecom industry from a slow-growing profit center to a worldwide loss leader.

The company launched a search for a new chief after current CEO John Sidgmore bowed to pressure from the company's creditors, many of whom are looking to clear the deck of WorldCom hands. Sidgmore, a former vice chairman, replaced founder Bernie Ebbers last summer. Since then the company has revealed more than $9 billion worth of accounting misdeeds. WorldCom is currently working with its creditors' committee and the bankruptcy court trustee toward a restructuring.

For their part, the Bells have consistently tried to lower expectations about any merger spree just around the corner.


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chief Ivan Seidenberg told investors at a UBS Warburg conference Monday that his company is more inclined to rent the network pathways it needs rather than acquire them through a merger.

Ringing Endorsement

Meanwhile, it wasn't long ago that Capellas would have appeared a long shot for a trip to Clinton, Miss. Capellas' career path started in the steel industry before taking him into the oil business and then to software at


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. Four years ago he took up the reins at computer maker


as its chief information officer. Observers note that he brings one key accomplishment that makes him a good fit at WorldCom -- he has done a big merger.

Capellas was later CEO of Compaq, which merged with Hewlett-Packard earlier this year. But Capellas was passed over for the top job at the combined company in favor of H-P chief Carly Fiorina, despite his reputation as a strong operating presence.

Going by what some investors are saying, maybe Capellas is the right person to get the phone industry over its merger hangup.

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