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It's "Merge, Buy, or Die" in Telecom
Posted: 05-May-2002 [Source: Business Week]

[Reports says telecom consolidation seems inevitable.]

by Alex Salkever -- "The man with the cowboy boots is gone. Throughout a 17-year ride in the phone industry, Bernard Ebbers cultivated a rebel image with his penchant for Western wear and his iconoclastic take on the phone business. His revolution ended on Apr. 30, when he resigned as CEO of No. 2 long-distance carrier WorldCom (WCOM ), a company he had built by acquisition from his original base as a rural long-distance reseller in Jackson, Miss.

Ebbers' abrupt departure -- "this was something I hadn't planned for," says CEO-designate John Sidgmore, the former head of WorldCom's Internet unit -- if nothing else is an indication of the pressure-cooker atmosphere that's reshaping an entire industry.

The WorldCom news capped a harrowing April for the telecom business. On Apr. 16, urban fiber-optic network operator Metromedia Fiber Network (MFNXE ) defaulted on $975 million in debt held by Verizon after a 30-day grace period expired. A week later, upstart long-distance voice and data wholesaler Williams Communications Group filed for Chapter 11 bankruptcy protection.

WALL STREET DOUBTS. Meanwhile, all four of the supposedly bullet-proof Baby Bells announced earnings shortfalls for the first quarter. One -- Qwest Communications (Q ) -- faces its own liquidity crisis, thanks to Wall Street doubts about the quality of its earnings and a heavy debt load. On the same day Ebbers resigned, Qwest announced a first-quarter loss of $162 million, equal to 10 cents a share, more than twice what analysts had expected and considerably worse than a year earlier, when it had profits of $218 million, or 13 cents a share.

Investors got the message: By April's end, the industry's stock indexes were down 25% vs. early March."


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