TCS Daily

Deconstructing WorldCom

By John Malone - February 20, 2003 12:00 AM

The federal government and courts seem intent on using whatever heroic measures are necessary to keep alive bankrupt WorldCom, which is the home of what experts have described as the largest accounting scandal is U.S. history. But does such an interventionist approach make sense in a free-enterprise system? Why not give WorldCom a "do not resuscitate" order and then force it to live or die on its own merits?

Much of what is assumed today by government officials, the media and others about WorldCom is wrong. Far from being a towering monolith central to the survival of the telecommunications industry, WorldCom is a company. More to the point, WorldCom is a cluster of distinct businesses that easily could be pulled apart and then sold off or operated independently.

The notion that WorldCom's death would lead to widespread service disruptions or other problems also is incorrect. Contrary to what some may believe, WorldCom does not dominate the Internet business or any other one for that matter. In each of its businesses, WorldCom is not the leader and, instead, is the number two player or worse. Numerous deep-pocketed and experienced carriers now waiting in the wings are capable of taking over any or all of WorldCom's businesses.

The disembodiment of WorldCom would not jeopardize or compromise national security, the Internet, network service reliability, or the telecom sector as a whole. It is unreasonable to suggest that massive layoffs would result if WorldCom does not survive intact. Whether the company continues to exist or not, only those telecom jobs will survive for which there is sufficient demand in the marketplace.

In the turbulent wake of the Telecommunications Act of 1996, venture capitalists, private equity firms and individual investors poured countless billions in the telecom sector. The availability of capital, the seemingly unlimited promise of the Internet and the make-it-up-as-you-go-along rules of the "New Economy" demanded little diligence from fresh-faced startups or more experienced players who were now in the right place at the right time.
Many companies focused on all the wrong things and listened to their money men rather than experienced veterans of the telecom industry. The nearly unbearable pressure to enter new markets, sign up customers and buy more equipment turned into pressures to turn a profit. The "double whammy" of the gut-wrenching tech plunge and a lingering recession led to a bloodbath in the telecommunications sector.

But this is nothing more than the familiar boom-and-bust pattern of American business. Consolidation in an industry suffering from over-investment, hyper-competition and over-building of facilities happened with railroads, autos, computers and now telecommunications. Yes, it is true that companies die in the process when industries go through such a shakeout. But the genius of this unsentimental Darwinian process is that it weeds out the weakest firms and ensures that only the strongest survive. The winnowing out of the losers is inevitable when a company is a casualty of what is a purely self-inflicted wound.

John Malone is president and CEO of Eastern Management Group, which is headquartered in Bedminister, NJ. Eastern Management Group is one of the oldest, and most respected management consulting firms, providing professional services to leading edge communications companies and governmental institutions worldwide. The EMG has advised every major telecommunications manufacturer, software company and carrier in North America, Asia, Latin America and Europe. John Malone has been professionally involved with the telecommunications industry for more than 30 years.

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