WorldCom

Most people consider aggression a negative trait. For WorldCom, it’s a way of doing business.

After last year’s failed merger attempt with Sprint, the company acquired Intermedia Communications. The main objective was to gain the assets of Digex, a Web company with strong data capabilities. Two months later, WorldCom restructured its business into the WorldCom Group, its business concern; and the MCI Group, its consumer unit.

WorldCom website Company profile from Yahoo

“Like AT&T, we fundamentally decided to change the way we were structured so that people would look at our growth business,” says John Sidgmore, vice chairman of WorldCom.

WorldCom now has identified several growth sectors: business markets, Internet and data, e-commerce and the global marketplace. “International markets are virgin markets for U.S. carriers,” he says. “As we expand over there, every dollar is new revenue.”

'One thing that is absolutely incorrect is that the data business is not lucrative, and that the Internet business hasn’t been proven profitable. That’s bullshit.' --John Sidgmore vice chairman WorldCom

One gaping hole for WorldCom is wireless, which isn’t one of the company’s targeted growth areas. Sidgmore says lack of a wireless business hasn’t hurt WorldCom so far, but wireless data will be increasingly important next year.

“I have been very vocal and very vehement about the fact that we need a wireless capability,” he says, adding that WorldCom is more likely to obtain a wireless footprint through partnerships than acquisition.

The company is also stepping up efforts to help corporations “Webify” their businesses, Sidgmore says. That allows it to offer higher-margin services. “We bought Digex for exactly that reason, but I think we’re going to add to that,” Sidgmore says.

Now WorldCom has the capital to do it. In May, WorldCom sold $11.9 billion in bonds, the third-largest bond sale in history. “We’re going to pay down our existing debt to make our financial portfolio more efficient, but we’ll also use some of the cash for expansion,” Sidgmore says. Defying its usually aggressive nature, however, WorldCom won’t go on an “acquisition binge,” he says.

Now is a good time to buy, he admits. “I do think there are a lot of properties that are bargains. And I would list Winstar and Teligent as two of them.”

One reason emerging carriers are such bargains is because they took on too much debt too quickly, allaying analysts’ concerns along the way by pointing to decreasing costs. It doesn’t work that way, Sidgmore says.

“You can’t make up for lost revenue by having reduced costs if you have too much debt,” he says. “Those companies that took on too much debt are going out of business. Period. EBITDA is neat. But you know what? You can run out of money paying interest.”

But the downhill slope of telecom stocks hasn’t bypassed WorldCom, whose share price has tumbled in the past year into the teens. “Of course the stock price worries me,” Sidgmore says. “Anybody who runs a large company needs to be concerned about that. Obviously I wish personally I sold more of my stock last year.”

The restructuring will help, Sidgmore says. Each group has its own tracking stock, though ultimately they feed into the same kitty.

”We now have two different businesses. One grows very fast and one is actually contracting,” he says. “It’s not misleading even if they are tracking stocks. I think people need to understand what the pieces of these businesses are.”

Though WorldCom’s data revenues are up, they haven’t met analysts’ expectations. Voice revenues, a minimal margin business, are more than expected. That puts WorldCom in a somewhat precarious position as it offsets a potentially high-growth business with a low-growth one.

Sidgmore is unfazed: “One thing that is absolutely incorrect is that the data business is not lucrative, and that the Internet business hasn’t been proven profitable. That’s bullshit.” 

Analysts base such projections on the data businesses of all providers, including emerging carriers that sell services below cost, he argues, so those projections don’t accurately reflect represent WorldCom’s data revenues. UUNet, he offers, has been profitable since Q1 1995, and the Internet business is growing at 35% per year.

However, Sidgmore admits that WorldCom’s data business is not growing as quickly as WorldCom hoped.

“I would love it to be growing five times as fast,” he says. And the Internet business is not growing revenue-wise as quickly as it has in the past. But in terms of dollar growth, we’re growing.”

Still, the plummeting market has taken its toll. In May, WorldCom announced it would cut jobs overseas in an attempt to reduce expenses for the rest of the year. That came on the heels of a February

job-slashing in the ballpark of 6000 employees.

”We didn’t disproportionately cut sales or service or engineering,” Sidgmore says. “We looked at all our operations and tried to pare back what we thought we could.”

  The flagging telecom sector and the economic downturn have presented challenges, Sidgmore says. “The economy scares us, there is no question about that. We used to deploy capital much faster and much further ahead of the revenue than we do today. That will ultimately impact our growth rate, which will not be as high as it used to be. “

But Sidgmore is quick to point out that “we still expect—big time—to have a higher growth rate than anybody else.” That includes WorldCom’s peers, which he defines as the RBOCs, AT&T, Sprint and Qwest. “When you measure us against the rest of the industry, WorldCom will show off very well,” he says. “We will not show off well compared to WorldCom three years ago.”

This carrier profile appears in the June 4 issue of Telephony.