Mid-level carriers advance WorldCom transition plan

Sep 30, 2002 12:00 PM, Glenn Bischoff

BOCA RATON, Fla. – Thirteen mid-level carriers that are owed in excess of $100 million by WorldCom have banded together and hired a Washington, D.C.-based law firm specializing in bankruptcy proceedings to protect their interests. In the process, the firm has submitted a plan to the FCC that would provide a framework for the transition of customers to other carriers should WorldCom be unable to emerge from its Chapter 11 proceeding.

Typically, bankruptcy courts require debtors to submit deposits to assure they can continue daily operations. That would be particularly important in the case of WorldCom, the nation’s second largest long-distance carrier. However, according to Jason Gold, attorney with Wiley Rein & Fielding, speaking at the U.S. Telecom Association conference last night, the size of WorldCom’s debt and burn rate – about $750 million per month – made deposits out of the question.

“WorldCom doesn’t have that kind of cash,” said Gold. “Since we couldn’t go for deposits, we focused on what we could get.”

According to Gold, the bankruptcy judge granted the mid-level carriers “super priority” status, which means they are third in line to get paid, right behind debtor-in-possession lenders and inter-company claimants.

“That was a major victory,” Gold said.

Another might be on the horizon, as the firm has advanced a transition plan designed to avoid widespread service disruptions in the event WorldCom “melts down,” said Gold. The idea is to avoid the mess that ensued after Winstar Communications filed for Chapter 11 protection. The carrier attempted to cease operations after it became clear no buyer would emerge for its assets and liquidation was its only option. However, a bankruptcy judge ordered Winstar to continue operations after the FCC said the carrier had failed to provide the obligatory 30-day notice required by telecom law.

“If a Winstar-like situation developed with WorldCom, the calamity would be just unbelievable,” said Gold.

The plan contains “objective default triggers,” a mechanism to smoothly and seamlessly migrate affected customers to other carriers, and a transitional fee – about seven cents per minute, with no monthly fee – that would be paid by migrated customers. After 30 days, customers would be free to choose another carrier.

Robert Butler, also an attorney with Wiley Rein & Fielding, acknowledged that the FCC has some concerns with the plan, but said the firm is hopeful it can work through those concerns.

“The objective default triggers seem to be the most controversial. The FCC is concerned that it could be a license to steal customers,” Butler said.