WorldCom woes raise price war fears for rivals

By Sinead Carew

NEW YORK: The financial woes of WorldCom Inc., the No. 2 U.S. long-distance

phone company, could become its rivals' worst nightmare, some analysts say. If

WorldCom eventually emerged from a bankruptcy proceeding without its massive $30

billion debt load, it could afford to start a price war and trigger enormous

difficulties for its rivals, some analysts predict.

Competitors brushed off the concerns, saying the disgraced company faces a

tough enough battle to keep its own customers.WorldCom's fate is still unclear

as it tries to claw its way out of a $3.85 billion accounting scandal, but

sources close to the situation have told Reuters that it could file for

protection under the bankruptcy code within days.

"If (WorldCom) gets rid of its debt, it's going to force competitors to

take charges and write-downs and possibly consider their own restructuring ... I

don't see how these companies could compete head-to-head with WorldCom,"

Kaufman Bros. analyst Vik Grover said.

Another analyst said all of WorldCom's competitors would be affected because

price is the biggest incentive in choosing a telecommunications company,

regardless of customer size.

"If WorldCom emerges from bankruptcy as a leaner, meaner healthier

organization than before, they would be a bigger threat than ever for the Baby

Bells, AT&T, Sprint and Equant," said Jeff Kagan, an independent

industry analyst. Kagan says those companies would find the scenario their worst

nightmare.

Competitors keep calm

At least in public, competitors are keeping calm. Executives from Sprint

Corp., argue that price has recently diminished in importance. "A year ago

it was price, price, price. But now it's integrity and finding a business

partner and solution that you can stand next to and be confident," said

Keith Laborde, a Sprint regional vice president of sales for the enterprise

business group.

WorldCom competes with AT&T Corp. and Sprint in the long-distance

telephony market, where the four regional Bell operators are also making

inroads. WorldCom also competes with Equant in the business data market.

Equant also discounted the price war concerns. "Having lost trust,

WorldCom might need to compensate with attractive prices, but price is just one

factor. Reliability and quality of service is more important to large

multinational companies," an Equant spokeswoman said.

AT&T would not comment. Baby Bell Verizon Communications, which is also

the No.4 long-distance provider in the United States, questioned whether any

company emerging from bankruptcy could remain debt-free for long.

"For any company that goes into bankruptcy, they have significant

restart-up costs to reacquire customers and update facilities. That's a cost

that would doubtlessly add new debt," Verizon spokesman Peter Thonis said.

Brand damage matters

Others say WorldCom's damaged reputation could be a bigger factor for

potential customers than its prices. For example, a WorldCom bankruptcy would

have the dubious cachet of being even bigger than that of failed energy company

Enron Corp.

In a recent report, J.P. Morgan analyst, Marc Crossman estimated that

WorldCom could lose as much as $700 million in quarterly revenues as corporate

and government clients defect to rivals and new customers hesitate to forge ties

with WorldCom.

Companies including Equant, Sprint and AT&T say they have seen a marked

increase in inquiries since WorldCom's troubles were first revealed last month.

Guzman & Co. analyst Patrick Comack argued that WorldCom competitors have

nothing to worry about.

"I don't think the other guys have to be worried about competing against

WorldCom. The other guys aren't going to have to restructure. Even if they come

out of bankruptcy with no debt -- who should be afraid of them? They're being

seen as criminals. WorldCom's brand has serious problems."

(Additional reporting by Jessica Hall)

©Reuters