Internet Giants Prepare for WorldCom 'Storm'

swight1701 writes: "MSNBC has an article about how E-bay and others are enacting contingency plans in case WorldCom goes under and no one steps in to run UUNet right away. Also talks extensively about how this is happening already in Europe with KPNQwest, who is telling their customers, 'During this week you can already expect outages to happen that we cannot solve any more. At the end of this week we expect that larger parts of the network will be down.' Can telecommunications giants realistically keep up with the public's need for ever-growing bandwidth without going bankrupt?"

Comments

Re:WorldCom Storm

[Restil]

You're partially correct. However, it isn't the amount of the exec salary that is the problem. Its the salary cap. Exec salaries over $1 million can't be deducted. Now you can debate until you're blue in the face what a proper exec salary is, but in the end, it comes down to, whatever the company is willing to pay and whatever the exec is willing to work for. The marketplace at work.

However, by implementing a cap on the salary, the corporations are forced to find alternative ways to make up the difference. They're not going to throw money away to the government, so they pay the execs with stock options instead. Now, stock options for the regular employee aren't always a bad thing. It builds company loyalty, and gives the employees an extra reason to go the extra mile. However, with execs, the situation is different. A lowly employee typically would be unable to cause a massive shift in the stock price by anything he/she is able to do. However, execs can. They have full control over the corporation, including what the public finds out about. And since they also have control over how the accounting system works, and their salaries depend on the stock price always going up, they're going to manipulate (to the razor's edge of legality if necessary) the accounting to maximize the value of their options.

There might be another reason why this happened, that didn't have much to do with executive greed. Worldcom screwed up, but its possible that they didn't actually do anything illegal. A lot of expenses CAN legitimately be expensed over 10 years, even labor in some cases. Ultimately, it wouldn't matter, they just pay the expenses over a longer period of time. In the dot com boom, they had a desparate need to expand quickly, so they depreciated the expenses, which is permitted, and wouldn't have had such a dramatic effect, except for one small problem. The bubble burst, and their steadily increasing revenue stream suddenly fell far short of where it should be.

Now, Worldcom isn't in bad shape, they're just deep in debt. Its still a viable corporation with a healthy revenue stream, and given enough time and some responsible financial management, it would recover from this without any problem. However, in the wake of Enron, there was a pressing need to find and disclose all potential problems, and with these new startling revelations, the creditors are suddenly panicing and pulling their lines of credit. Hence their
current situation.

What's potentially scary about this, as of yesterday, you could purchase a controlling share of Worldcom for about $10 million. Of course, the low price is due to the impending bankrupcy. However, as daunting as the billions of dollars of debt might seem, Worldcom is still a viable company for someone who might be able to refinance the debt. Know of any large software companies that have that much working cash available?? Who might want to own a significant percentage of the backbone? Think its too far fetched??

-Restil