LACK OF BUYERS WILL SLOW WORLDCOM ASSET SALE

While most observers believe WorldCom will file for Chapter 11 protection, a dearth of buyers may not result in the asset sales many are expecting.

Verizon Communications has no interest in WorldCom or any interexchange carrier because of the debt and goodwill that would come with such an acquisition, Lawrence Babbio, vice chairman of Verizon, said last month at Supercomm 2002.

Nothing has changed in the wake of revelations that the company reclassified operating costs as capital expenses, said a Verizon spokesman. “There's plenty of capacity out there if you need to buy it,” he said.

Most carriers that logically would be interested in the parts of WorldCom's business have their own troubles, according to Dana Tardelli, analyst with Aberdeen Group.

“It's a buyers' market, but there are no buyers,” he said.

Of the WorldCom's assets, the UUNet backbone likely would be the most sought after element. BellSouth currently uses the network to backhaul traffic. However, BellSouth would consider acquiring UUNet only if it came at a price that simply couldn't be ignored, said a source close to the company.

“I would be surprised if they did anything right now,” the source said.

Cogent Communications CEO Dave Schaeffer doubted his company would be interested in its biggest competitor in part because of its architecture.

“UUNet was built at a time when it was thought to be best to place a data network on top of a voice network,” Schaeffer said.

Another problem: UUNet has never produced an operating profit. For that reason, it might make more sense for carriers to scavenge UUNet customers in the panic.

“In this economic climate, it's going to be difficult for people to step up and buy much,” said Schaeffer.

US LEC will take a hard look at WorldCom's network assets only if they would provide backbone support to the CLEC's current markets and were available at prices that wouldn't “put us in jeopardy,” said Aaron Cowell, president of US LEC.

“If we thought picking up their assets would help us reduce the cost of our network, we'd put ink to paper.

A more likely scenario would be UUNet being acquired by either an asset management firm or an employeeled operation.

“UUNet employees might pull something together,” Tardelli said. “Many of them have made a ton of money on UUNet, and they know what they would be getting themselves into.”