How Will WorldCom/UUNet Impact The Internet?

somewinner writes "CNN.com has an article discussing WordCom's impending failure and its possible impact on the internet. Given that WorldCom (via UUNet) handles 50% of US internet traffic, and a large percentage of traffic worldwide, some concern is certainly justifiable. However, the author of the article seems to think that nothing serious is going to happen."

Comments

Keep on running

[ziegast]

The US Secretary of Defense (Rumsfeld) was asked about the impact of WorldCom's demise on communications its contracts with the military. His response was something like: "Where there is a viable need for a service, there will be a provider. Whether it's the corporate shell the the contract was given to or the corporate shell that bought the service from the original corporate shell, the service will continue." His use of the term corporate shell was quite interesting, making corporations seem to be fictional entities surrounding a service. Many times, viable profitable contracts are bought out between defense contractors and the same people who served them just get their paychecks from a different company (eg: Andersen accountants who get hired by the replacing auditors).

Through Global Crossing's bankruptcy, they've been able to keep service up and running for many of their customers. Now, it's not likely that they're getting new business, but the business that they have still manages to continue to run using a minimal staff. Even though MFN has gone bankrupt, you don't see the power going out at PAIX. Adelphia is defaulting on loans, but my cable modem with them still more or less works. The investors lose; the banks and lenders lose; non-core people get laid off; and eventually, a long time later, the customer loses if they obliviously stick around after the company can't sustain operations anymore.

Worldcom is not bankrupt yet. Many believe it's likely though. CNBC reports they have $2B in the bank (one analyst estimates $1.6B after accelerated repayments), $30B in loans, and $54B in sellable assets (worth $8B at $0.20 on the dollar during a fire sale). It's up to the banks as to whether to kill their goose now that it's not laying gold eggs. Even if WorldCom goes bankrupt, the service will continue for quite a while. Some might buy the assets for pennies on the dollar and operate the same business with a better chance at making a profit. All of the direct investors and the lenders and the investors of the lenders will be left holding the bag, but service will continue.

- ez

(proudly ex-uunet, pre-WorldDom)

Bankruptcy certain?

[EastCoastSurfer]

Why does everyone assume that WCOME is now going to go bankrupt? The lied on their earnings, but that doesn't go in and take 3.2B from their bank accout. Also, unless it changed throughout the day the big story on cnbc this morning was that WCOME is saying they are NOT going bankrupt anytime soon. It caused their stock to triple throughout the day (from .07 - .22)

Will the UUNET network go dark? Not a chance. If/When WCOME does have to sell off its assets some other provider will be right there and will probably take the entire division-people and all. FUD does make good news though.

Re:Bankruptcy certain?

[Above]

WCOME has bonds, like all companies do. There is a particularly interesting set, I believe valued around 2.5 Billion that come due in January or Feburary.

They had been trying to work a plan already this year to borrow 5 Billion, and turn around and use that to pay the 2.5 Billion back, and have 2.5 Billion in new cash. The banks weren't buying it though, and no one was loaning them money. At this particular moment, the chance of them borrowing another 2.5 Billion (to pay back the bonds) is about zero, and if they don't the creditors will almost definately force them into bankruptcy.

Now, they have some time to sort things out and get new financing in place. The only other wrinkle is that this fraud puts them in default on pretty much all of the rest of their 30 Billion in bonds. No one has demanded accelerated repayment yet, but that is within their rights.

So, for the next 6 months they have to convince everyone they owe money to that they are going to be able to pay it all back, or file (because if they don't the creditors would file for them). If they manage to walk that tightrope early next year they must then get (probably from the same people) a new loan for 2.5 Billion, or sell off enough assets to raise 2.5 Billion to just pay it outright.

This is but the tip of the iceberg of their financial woes though. There are hundreds of other problems. It is going to be extremely hard for them to avoid Chatper 11. Perhaps a in a a thousand shot right now.

Most importantly, a CEO will always say they are not going to go bankrupt. If they said they were before they filed all sorts of bad things would happen (creditors taking stuff before the filing, for one), so that's not an option. That will be the trumpet they carry until the chapter 11 press release.

Re:A nice resilience test

[abreauj]

No, it means capitalism lost :)

Actually, it was "corporatism" that brought on this failure, not "capitalism". We've been moving away from capitalism here in America since the 1978 Supreme Court decision that defined corporate political donations as "free speech". Our biggest corporations essentially bought the 1980 elections after that decision.

That's when these corporations began a major paradigm shift away from "maximizing profits" and towards "controlling markets". Capitalism requires free markets, and doesn't function in controlled markets.