WorldCom (WCOM) has fallen on hard times because of high debt, collapsing long-distance telecom prices, and slowing demand. Its stock has dropped 76% this year, to $3.41. Here are the problems and the company's turnaround plans:
Problem: Competition is driving down data-service fees, dropping WorldCom Group's revenue growth from 19% in 2000 to nothing in 2002. If WorldCom eliminates the tracking stock for MCI and combines its results with MCI, revenues could fall 5% this year.
Response: Focus on new products like Web hosting. The company also is expanding internationally, where revenue growth is more than 20%. And it has put new limits on customer discounts.
Problem: Fat profits are gone. After net income rose 18.1% in 2000, it fell 21.8% in 2001 and is expected to drop 30.1% this year. If the results are combined with those of MCI, earnings could decline 40% in 2002.
Response: Slash capital spending to about $4.5 billion in 2002, half the level of 2001. WorldCom also is expected to close its wireless resale business and cut 3,700 jobs.
Problem: WorldCom has $30 billion in debt. It must pay $172 million in interest and maturities in 2002, rising to $1.7 billion in 2003 and $2.6 billion in 2004. Investors fret about the company's ability to repay.
Response: Execs say they have plenty of cash to cover the debt. WorldCom burned through $871 million in 2001 but is expected to generate $564 million in cash in 2002, Merrill Lynch says.
Problem: The Securities & Exchange Commission has requested info on many issues, including how WorldCom accounted for goodwill from its 60 acquisitions and the $366 million the company loaned Ebbers.
Response: The company says it is cooperating fully. CFO Scott Sullivan notes the company has been reviewed repeatedly by the SEC in recent years and satisfactorily answered all questions.
Problem: By next year, the Bells will have nationwide access to WorldCom's long-distance voice and data market. The Bells have taken 30% of the consumer market where they now offer long distance. They aim to do as well in the business market.
Response: WorldCom, which has its own local networks, is going after the Bells. On Apr. 15, it started offering unlimited local and long-distance for $50 a month to consumers in 32 states.
Problem: WorldCom has had trouble holding on to talent at the companies it acquired. It has lost nearly a dozen marketing whizzes, including former MCI President Tim Price and former Chairman Bert Roberts Jr.
Response: After the MCI deal closed two years ago, the company offered key execs bonuses to stay through mid-2002. As that deadline approaches, it has yet to announce a new plan to bolster management.
Data: Lehman Brothers Inc., Credit Suisse First Boston