Not the end of the line just yet

Will the telephones keep ringing and the PC monitors go blank? WorldCom is not just the US's second-largest long-distance telephone provider, it is a local phone service and the world's largest carrier of internet traffic. The news of its bankruptcy left millions of subscribers wondering if they would be cut off. Such an outcome would be hugely damaging to the US economy.

However, the company's 20 million telephone consumers and thousands of corporate customers in the United States will not see their service affected, at least not in the near future. The US Federal Communications Commission (FCC) ensures, along with state utilities agencies, that long-distance and local telephone services and high-speed internet access cannot be shut off without a warning period of four weeks.

In other telecoms shutdowns, service interruptions have been avoided, except in the case of NorthPoint Communication, which gave only three days' notice when it closed off its DSL internet access provider. Even with WorldCom filing for bankruptcy "we don't think it will lead to a catastrophic situation for consumers", said FCC chairman Mr Michael Powell.

The company will remain in business as the bankruptcy procedures are worked out, helped by new infusions of cash from Citibank and JP Morgan Chase, two of its biggest creditors, which are owed some $3 billion (€2.97 billion) each.

"We are going to go aggressively forward and restructure our operations. I think, ultimately, we will emerge as a stronger company," WorldCom chief executive Mr John Sidgmore said.

WorldCom plans to continue serving its residential and business customers and they should see no impact in the short term. However, it is the customers who might disconnect from WorldCom, the parent of MCI long-distance telephone provider, rather than the other way around.

Many will likely defect in the months ahead to other telecoms to avoid any deterioration or breakdown in service if restructuring does not succeed. Industry analysts say the lay-offs of thousands of staff will make it impossible for the company to improve its consumer service, already plagued by billing complaints. On April 2nd WorldCom said it would lay off 10 per cent of its workforce.

The bankruptcy court also may not permit WorldCom to match price cuts offered by rival telephone services like the "baby Bells" or by AOL, the only company that can match WorldCom in the scope of its services.

The knock-on effect of the collapse of WorldCom, however, could hit other telephone carriers.

In the communications network in the US, big companies pay smaller rivals connection services amounting to many millions of dollars a month.

WorldCom was founded in 1983 as LDDS Communications to provide discounted long-distance telephone services after the break up of AT&T and grew through acquisitions into one of the US's largest telecoms giants. It is the only company that integrates local and long-distance services. Companies such as Verizon and SBC Communications, two of the regional Bells formed after the AT&T break-up, are owed more than $200 million by WorldCom. Other companies that collect fees for WorldCom may not pass them on while big debts are outstanding.

The bankruptcy was believed inevitable but the demand for payment from suppliers accelerated the rate at which it lost cash, forcing it to file for Chapter 11 protection on Sunday evening. WorldCom has $35 billion in annual revenue but is nearly out of cash reserves.

It plans to sell off non-essential assets and decide what its core business should be so that it can emerge as a viable company. It lists assets valued at $107 billion but many analysts put their value as low as $15 billion.