SIDGMORE SEEKS TO ALLAY CONCERNS OVER FUTURE OF UUNET, SECURITY
Despite concerns expressed by homeland security officials and others in the U.S. govt. about the future of the company’s massive Internet infrastructure, WorldCom CEO John Sidgmore said Tues.: “I don’t think there’s much chance, if any, of any blip in the service.” At a Washington news briefing held an hour after he met with FCC Chmn. Michael Powell, Sidgmore said his company was by far the largest Internet carrier in the world, with 50% of the Internet’s total traffic, 70% of e-mail in the U.S. and 50% of e-mail in the world. “There is no significant chance of the UUNet infrastructure going dark,” he said.
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Govt. agencies, including Office of Homeland Security, have sought information “to make sure that we were going to stay in service,” Sidgmore said. Stressing that under wide array of financial scenarios there was little chance of any disruption of service on network, he said: “There are some people in the security segment of the U.S. government, and particularly in the homeland security group, that are very concerned about cybersecurity. They are very nervous that something will happen with UUNet.” Sidgmore was CEO of UUNet, WorldCom’s Internet backbone subsidiary, before taking over at WorldCom when former chief Bernard Ebbers was fired 2 months ago.
Sidgmore, in wide-ranging news conference in which he said he was being “brutally open and honest,” distanced himself from previous management team. “We have been in contact with various law enforcement agencies,” he said. “We have given them everything they have asked us for. Our whole posture is we want the bad guys exposed. We want the bad guys punished. This is a new management team. We want to find the guys that did wrong here and move along.” Asked what Ebbers knew about alleged fraud in WorldCom’s financial statements, Sidgmore said he didn’t know. Questioned about rumors that some govt. agencies were concerned about WorldCom’s continued ownership of UUNet and had considered applying pressure on company to sell that asset, Sidgmore tried to dampen such speculation. “I don’t think there’s any really serious move afoot now” to push company into selling unit, he said: “No one has suggested the asset be sold… They are just trying to make sure it is protected.”
Citing “critical” role of UUNet and other parts of WorldCom’s network, Sidgmore said former FCC Chmn. Reed Hundt and current chairman Powell had “expressed extreme support for the continuation of WorldCom and the continuation of its network services.” At the end of day, wide-ranging network role of WorldCom is more likely to build up support for company than to reinforce calls for its dismantlement, he said. Asked about his conversation with Powell, Sidgmore said Powell “made no commitments of any kind… He is very supportive and very concerned about the situation.” WorldCom has committed to have regular communications with FCC over next several weeks, he said.
In opening comments, Sidgmore emphasized important role WorldCom played in national economy in general and telecom sector in particular. “WorldCom ensures competition in the rapidly consolidating telecommunications industry,” he said. “We ensure that consumers and businesses have more than one or 2 options. WorldCom is one of the last hopes for America to realize the intended benefits of the Telecom Act of 1996.” Sidgmore said he had been fighting to keep company “operating at full speed” despite the maelstrom of investigations and accusations that now engulfed it.
Sidgmore expressed confidence that company could prove its viability as a govt. vendor. General Services Administration (GSA) said Mon. it was assessing WorldCom’s ability to sign contracts with the federal govt. in the future (CD July 2 p2). Following Enron revelations earlier this year, GSA revoked that company’s ability to sign federal contracts for 12-month period. “We can prove to them that we are a viable vendor and an ethical vendor,” Sidgmore said. “That is our challenge on both fronts.”
WorldCom’s federal govt. customers include Defense Dept., GSA, State Dept. Company remains “key component” of national economy, even after recent round of layoffs, Sidgmore said: “Commercial and national security interests rely on our operations continuing without disruption.” Sidgmore declined to commit to company never going bankrupt but said that it largely rests with banks. “We are working very, very hard with banks and others to try to find ways to accomplish our goals without going into bankruptcy,” he said. Company now has $2 billion in cash on hand and expect to get one if not 2 proposals this week to restructure its current financing. “We have not had a significant customer cancel yet, despite all the histrionics,” he said. “We have had some customers inform us they are very nervous and are demanding reviews,” including govt. agencies, he said.
Sidgmore also talked Tues. with SEC Chmn. Harvey Pitt, who raised concerns earlier this week that company’s initial filing to SEC on accounting irregularities wasn’t complete. Sidgmore said company had committed to “clarifying” filing. “In our filing we provide a complete chronology of events as we know them,” he said. “There remain many open questions and quite a bit of speculation as to what occurred. We will release everything we know when we know it.”
In other WorldCom-related developments Tues., Defense Secy. Donald Rumsfeld indicated in Pentagon briefing that he didn’t think WorldCom’s financial situation would put DoD communications systems at risk: “I think it’s not a problem.”
Senate Finance Committee ranking Republican Grassley (Ia.) wrote SEC Chmn. Harvey Pitt and WorldCom CEO John Sidgmore seeking more information about managers who received millions of dollars in bonuses before company’s collapse. Grassley requested list of senior managers who received more than $100,000 in bonuses since Jan. 1, 1999. “I think that managers who knew, or should have known, about the accounting gimmicks and deceptions should have to return that money to help keep WorldCom viable,” Grassley said. He said he wanted list in 2 weeks because Senate was scheduled to debate new accounting standards legislation. Grassley commended SEC for barring WorldCom from paying officers or employees more than $100,000 in severance. He also will consider amendment to accounting standards reform bill (S-2673) that Senate will address following July 4 holiday. That bill would create public company accounting oversight board and would require SEC or board to “spot-check” accounting of publicly traded corporations.
In July 1 letter to President Bush, Senate Majority Leader Daschle (D-S.D.) and Senate Judiciary Committee Chmn. Leahy (D-Vt.) urged Bush to support proposed Corporate & Criminal Fraud Accountability Act (S-2010), which passed Senate Judiciary Committee unanimously in May. That bill would make it felony, punishable by up to 10 years in prison, for any “scheme or artifice” to defraud shareholders in publicly traded company. Daschle didn’t say when the Senate might consider S-2010.