Brave New World For WorldCom?

WorldCom Inc., trying to emerge from the largest-ever U.S. bankruptcy, unveiled a reorganization plan Monday that would strip it of nine-tenths of its debt and give it a new name and headquarters in Virginia.

The telecom giant, whose plan gives creditors control of the company, said it will take the name of its long-distance service, MCI, and shift its headquarters to MCI's base in the Washington suburb of Ashburn, Va., from Clinton, Miss., where it was founded.

The plan, which erases about $36 billion in debt, has won the backing of 90 percent of its creditors - which should assure that the plan wins court approval. The plan also calls for general unsecured creditors to get cash payments equal to approximately 18 percent of an allowed claim, and 7.2 shares of new common stock for each $1,000 of a creditor's allowed claim.

In the meantime, Worldcom can't legally change its name until it emerges from Chapter 11 bankruptcy, which could come as early as September. However, WorldCom's Web site as of Monday redirects visitors to MCI.com., and company news releases about the reorganization plan refer to Michael Capellas as chairman and CEO of MCI, not WorldCom.

Capellas, who spoke to the company's 55,000 employees via Webcast from Ashburn on Monday, also spoke to Mississippi Gov. Ronnie Musgrove and U.S. Sen. Trent Lott, R-Mississippi, to assure then that the former Clinton headquarters will remain as a WorldCom facility. There are about 1,600 WorldCom employees in the Clinton area.

WorldCom also named a new chief financial officer: Robert Blakely, a former CFO of Lyondell Chemical Co. and Tenneco Inc.

Telecommunications industry analysts say the smaller debt load — between $3.5 billion and $4.5 billion — could give WorldCom an advantage over competitors like AT&T Corp. because it still has its vast communications network but not the $41 billion in debt it had when it filed for bankruptcy in July.

WorldCom has since admitted to a massive accounting fraud that could top $11 billion.

While it has struggled to emerge from bankruptcy and shine its tarnished image, competitors and special-interest groups have lobbied to prevent it from emerging from bankruptcy, fearing WorldCom would ignite a price war. Competitors like AT&T and Sprint Corp. have also succeeded in stealing thousands of customers away from WorldCom.

But analysts don't expect that a less-debt ridden, post-bankruptcy WorldCom would kick off a destructive price war that could cripple an already battered industry. In fact, they say expect further cost cutting and some layoffs as the company tries to grow revenues.

"Even with all the write downs and cost cutting, they're still losing revenue and they will have to pay interest on that debt so they need to cut costs further," said F. Drake Johnstone: analyst with Davenport & Co., a regional brokerage firm in Richmond, Va.

As for growing revenue, Johnstone said WorldCom — which serves both corporate and consumer accounts — will find it hard to increase its revenues from corporate accounts until the second half of this year when companies are expected to begin spending again for information technology.

Capellas said in a statement Monday that "our focus will be on servicing our customers, strengthening our core assets, executing on our three-year business plan and solidifying our position as the industry's leading Internet Protocol communications provider.

MCI is the nation's second largest long-distance carrier and adopting its name "would make us proud," Capellas said.

Industry analyst Maribel Dolinev said WorldCom will struggle to increase revenue but has some advantages that should help it become profitable again: Its MCI Neighborhood plan that bundles local and long distance services is still the market leader for those types of plans. WorldCom still have a nationwide network without the $41 billion in debt it had accumulated to pay for it. And it has retained a large percentage of its biggest corporate customers, she said.

"Where they've lost is the small- to medium-sized businesses," said Dolinev, principal analyst with market research firm Forrester Research Inc.

Dolinev also noted that other telecom competitors have instituted bundled service plans and that market has become more competitive.

"The consumer customer market is going to be a lot harder, too, for them now," Dolinev said.

By BARBARA POWELL