TCS Daily


All Mixed Up

By John Malone - July 22, 2003 12:00 AM

June 9, 2003 brought the release of "The Second Interim Report of Dick Thornburgh Bankruptcy Court Examiner," a riveting 218-page document chronicling the ascent and discombobulating of WorldCom. According to Mr. Thornburgh, little effort was ever made by WorldCom to integrate its acquisitions. Since acquisitions exist to spew forth efficiencies and cost savings, an important question emerges before the court: If the acquired companies were never really put together, could they be separated? The answer is yes.

Because of the speed with which the flying parts of WorldCom assembled, the business always resembled less of a Wal-Mart than Mall of America. The quilt of long distance companies, local carriers, web hosting businesses and internet backbone firms, to name a few, were something of a whole, but more like a shoe store, a tie shop, a wedding boutique and a haberdashery in the mall. Just as each retailer would maintain its own cash registers, security, payroll and return policy, the WorldCom entities held onto much of their stand-alone infrastructures as the Examiner implies. In other words, as WorldCom improved the shopping center, it did so by adding onto the building, not taking down walls separating the merchants.

Is it difficult to integrate acquired or merged organizations? Over 35 years I have advised telecommunications companies on the acquisition, assimilation and expansion of businesses. Integrating -- though challenging -- is not rocket science. WorldCom could have pulled it off. However, as Thornburgh reports, "integration was impeded by the decentralization of WorldCom management."

Putting together companies is a not-to-be-taken-lightly endeavor, requiring care and attention to detail. These are the keys. First, have good executive management. The Examiner's report quotes a WorldCom employee who lambasted a senior leader, alleging he "ran WorldCom as if it were a 7-11." The telecommunications industry has good leadership in abundance if one looks for it. Second, adopt a "Big Tent" culture. Since WorldCom strove to grow by acquisition, it needed to be sensitive to the various cultures in the companies. Surviving businesses must continuously reinvent themselves, but the report to the bankruptcy court portrays a company resembling warring tribes.

Telecommunications companies are a cocktail of networks, software and people. When a business performs well, the customer gets new service installed when promised, an accurate phone bill, and a collection call when the telecommunication company's patience runs out. All of us have had enough experience with this industry to know as much.

It is reasonable to conjecture WorldCom intended to reinforce its infrastructure, which was always doable. Let's examine what happens if WorldCom is broken apart. Reasonably speaking, some of its businesses would be acquired by telecommunications companies growing to reach critical mass, or perhaps just increasing their scale. Start-ups would also very likely buy assets. Private equity money would step in to fund purchases and growth. Net employment would probably increase, not decrease. Demand for service representatives, engineers, installers, IT personnel, sales and regulatory people could be quite high.

For the 127-year history of the country's telephone industry, assets and whole companies have moved around seamlessly. The break-up of the Bell System in 1984 dwarfs any change imaginable at WorldCom. As quiet as a church mouse the dissolution of Ma Bell occurred. National security was not threatened, though the event occurred at the height of the Cold War. Network reliability did not falter. And the metamorphosis of the Bell System into eight parts yielded the best telecommunications network in the world. Could this happen to WorldCom? We don't know.

Under any scenario WorldCom does not go away, anymore than matter, which is never destroyed. WorldCom is one big asset with enormous value. Management's arguments to keep the company whole reflect this point. However, if the asset were disassembled, WorldCom's brain trust of employees would still be needed to reassemble and operate the next generation entities.

John Malone is president and CEO of Eastern Management Group, which is headquartered in Bedminister, N.J. The EMG has advised every major telecommunications manufacturer, software company and carrier in North America, Asia, Latin America, and Europe.
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