WorldCom

Introduction:
WorldCom was an U.S.-based telecommunications company which is
now known as MCI Inc. Once it was the second largest long distance phone
company in the United States. But now it is best known or its accounting
rauds and bankruptcy. WorldCom!s bankruptcy iling in "##" was the
largest in the history o U.S. WorldCom Scandal is considered one o the
worst corporate crimes in the history ater $nron. Its e%ecuti&es were
accused o doing rauds and many o them were sentenced to se&eral years
in 'ail. (hey eecti&ely udged the company!s accounting numbers and
enhanced the assets by about )" million dollars. *s a result o bankruptcy
the in&estors aced huge losses.
History of WorldCom:
Because WorldCom has a big relation with MCI and these two
organi+ations are interrelated, irst o all it is necessary to ha&e a look at the
history o MCI.
(he history o MCI is &ery long and e&ent ull. (he process o
establishing the organi+ation was began in )-./ when 0ohn 1oeken, the
owner o a mobile phone company, wanted permission rom the 2ederal
Communications Commission 32CC4 to pro&ide telephone ser&ice between
Chicago, Illinois, and St. 5ouis, Missouri. (hen the 1oeken!s company was
known as Microwa&e Communications Inc. (he co. planned to use new
microwa&e technology to transmit phone calls. (hey wanted to use the air
like radio signals rather than the commonly used copper wires. *t the time
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*(7( Corp. was only one company 3operating as a go&ernment-regulated
monopoly4 controlled all long-distance telephone ser&ice within the United
States. *(7( used the proits rom long-distance ser&ices between ma'or
cities to inance in de&eloping rural communication system. (hat!s why
*(7( strongly opposed to the 1oeken!s plan.
Microwa&e Communications, Inc., was renamed MCI Communications
Corporation ater the issue was being decided by the courts in )-.8. 5ater
that year, William Mc1owan replaced 1oeken as head o MCI. Under
Mc1owan!s leadership MCI then iled a lawsuit claiming that *(7(
constituted an illegal monopoly, or trust, which is about to eliminate
competition in the telecommunications industry. (he company also began
lobbying the 2CC and the Congress o the United States. MCI!s eorts
e&entually succeeded. In )-9) MCI became the irst company authori+ed by
the 2CC to compete with *(7( in the *merican long-distance market. In
)-8", under the threat o a U.S. :epartment o 0ustice antitrust suit, *(7(
agreed to gi&e up control o its "" regional subsidiaries, which pro&ided
local telephone ser&ice.
In the atermath o the breakup, *(7( cut prices drastically and
compelled MCI to do the same as they are doing. *lthough MCI now had
the second largest share o the U.S. long-distance market, the company lost
;;8 million dollars in )-8.. MCI soon 'oined *(7( in calling or
deregulation that would allow long-distance companies to compete in local
markets.
(o cope with the growing competition in the telecommunications
industry, MCI began to ocus on marketing and di&ersiication. In )--" the
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company launched a highly successul long-distance ser&ice which was
known as 2riends and 2amily. (his ser&ice ensured reduced rates or
residential customers. In )--/ MCI and British (elecommunications 3B(4
which was the United <ingdom!s largest pro&ider o local and long-distance
telephone ser&ices, announced a worldwide strategic alliance. *s part o the
alliance, B( in&ested ;./ billion dollars to ac=uire a "# percent stake in
MCI. In )--; MCI and 1rupo 2inanciero Baname%-*cci&al, Me%ico!s
largest inancial group, ormed a 'oint &enture known as *&antel to oer
long-distance ser&ice in Me%ico.
*s competition in the telecommunications industry intensiied, MCI lost
more than a million customers to *(7( in )--;. (o compensate, MCI
increasingly ocused on orming partnerships with other large companies. In
)--> MCI ac=uired ?ationwide Cellular, an *merican cellular telephone
company, and a Canadian irm named S@5 Systemhouse speciali+ing in
corporate computer networking systems. In )--. MCI and ?ews
Corporation ormed a 'oint &enture to oer consumers inormation and
entertainment through a satellite system known as *SkyB *merican Sky
Broadcasting 3*SkyB4. Similar satellite ser&ices were oered to businesses
through the SkyMCI program. MCI also ormed strategic alliances with
Microsot Corporation, :igital $=uipment Corporation, and Intel
Corporation.
(he )--. (elecommunications *ct deregulated the U.S. telephone
market. MCI became the irst long-distance company which oered local
telephone ser&ice, but it also aced new competition in the long-distance
market rom regional telephone companies. In )--. British
(elecommunications announced plans to purchase Washington :.C.-based
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MCI. @owe&er, when B( lowered its oering price by nearly "# A, in )--9
MCI accepted a purchase oer o /9 billion dollars rom
telecommunications irm named WorldCom.
(he initial name o WorldCom was 5ong :istance :iscount Ser&ices, Inc.
35::S4 ounded in )-8/ in @attiesburg, Mississippi and rom then it had
used its own iber-optic cable network to become one o the leading U.S.
telephone and Internet ser&ice pro&iders. In )-8> 5::S selected Bernard
$bbers to be its C$O. (he company went public in *ugust "" )--) when it
merged with Busch Companies Inc. (he company name was changed to
5::S WorldCom in )-->, and later 'ust WorldCom. WorldCom, based in
0ackson, Mississippi, also owned Internet access company UU?$(
(echnologies, one o the world!s leading Internet ser&ice pro&iders.
(he company!s growth under WorldCom was ueled primarily through
ac=uisitions during the )--#s and reached its ape% with the ac=uisition o
MCI in )--8. *mong the companies that were bought or merged with
WorldCom were *d&anced Communications Corp. 3)--"4, Metromedia
Communication Corp.3)--/4, Besurgens Communications 1roup3)--/4,
I:B Communications 1roup, Inc 3)--;4, Williams (echnology 1roup, Inc.
3)-->4, and M2S Communications Company 3)--.4. (he ac=uisition o
M2S included UU?et (echnologies, Inc., which had been ac=uired by M2S
shortly beore the merger with WorldCom. In 2ebruary )--8, a comple%
transaction saw WorldCom purchase online pioneer CompuSer&e rom its
parent company @7B Block. WorldCom then retained the CompuSer&e
?etwork Ser&ices :i&ision, sold its online ser&ice to *merica Online, and
recei&ed *O5Cs network di&ision, *?S. (he ac=uisition o :ige% 3:I1D4 in
0une "##) was also comple%E Worldcom ac=uired :ige%Cs corporate parent,
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Intermedia Communications, and then sold all o IntermediaCs non-:ige%
assets to *llegiance (elecom.
On ?o&ember )#, )--9, WorldCom and MCI Communications
announced their /9 billion dollar merger to orm MCI WorldCom, making it
the largest merger in US history. On September )>, )--8 the new company,
MCI WorldCom, opened or business.
(he merger aced inspection rom antitrust oicials in the United States
and $urope. Begulators estimated that the proposed company!s Internet
business would ha&e an unair ad&antage in the market because both
WorldCom and MCI had substantial Internet holdings. In early )--8
WorldCom!s UU?$( di&ision had gained control o the network units o
CompuSer&e, a subsidiary o *merica Online, making UU?$( the world!s
leading pro&ider o Internet access. (o gain appro&al or the WorldCom-
MCI merger, MCI sold its Internet assets to a British telecommunications
irm named Cable 7 Wireless 65C, or ).9> billion dollars in )--8. (he
$uropean Commission and the U.S. 2ederal Communications Commission
appro&ed the merger later that year.
On October >, )--- Sprint Corporation and MCI WorldCom announced a
)"- billion dollars merger agreement between the two companies. @ad the
deal been completed, it would ha&e been the largest corporate merger in
history, ultimately putting WorldCom ahead o *(7( as the largest
communications company in the United States. @owe&er the deal did not go
through because o pressure rom the US :epartment o 0ustice and the $U
on concerns o it creating a monopoly. On 0uly )/, "###, the Board o
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:irectors o both companies acted to terminate the merger. 5ater, in "###,
MCI WorldCom renamed itsel CWorldComC without Sprint being part o the
company.
WorldCom Scandal:
In 0une "##" WorldCom admitted that it had alsely reported /.8> billion
dollars in e%penses o&er i&e =uarterly periods to make the company appear
proitable when it had actually lost )." billion dollars during that period.
$%perts said it was one o the biggest accounting rauds e&er. (he company
ired its chie inancial oicer and laid o about )9,### workers, more than
"# percent o its workorce. (he company!s stock price plummeted rom a
high o .;.># dollars in )--- to - cents in late 0uly "##" when it iled or
bankruptcy protection.
(he Securities and $%change Commission, the United States :epartment
o 0ustice, and the U.S. Congress all opened in&estigations into WorldCom!s
accounting scandal. (he admission o accounting raud ollowed similar
de&elopments at other ma'or companies, most notably the $nron
Corporation, and was blamed or helping send stock markets into a ma'or
decline during "##".
In 2ebruary "##; the U.S. 0ustice :epartment handed down indictments
against Bernard 0. $bbers, the ormer chie e%ecuti&e o WorldCom, and
Scott :. Sulli&an, the ormer chie accounting oicer. Sulli&an pleaded
guilty to the charges in a plea agreement in which he agreed to be the chie
witness against $bbers, who pleaded not guilty. * 'ury con&icted $bbers in
March "##> o securities raud, conspiracy, and iling alse reports with
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regulators. In 0uly $bbers was sentenced to "> years in prison. * number o
other lower-ranking WorldCom inancial e%ecuti&es were also indicted and
pleaded guilty.
In March "##;, in a ormal iling with the S$C, the company detailed the
ull e%tent o its raudulent accounting. (he new statement showed the actual
raud amounted to )) billion dollars and was accomplished mainly by
artiicially reducing e%penses to make earnings appear larger. *ter
restructuring its debt and meeting other re=uirements imposed by a ederal
court, the company emerged rom bankruptcy protection in *pril "##; and
ormally changed its name to MCI, Inc.
Bankruptcy and after math:
$&en as it emerged rom bankruptcy, industry obser&ers anticipated that
MCI would need to merge with another telecommunications irm in order to
compete against larger companies that oer a broader range o
telecommunications ser&ices. (he merger materiali+ed less than a year later,
in 2ebruary "##>, when Feri+on Communications Inc. announced its
ac=uisition o MCI or about ..9 billion dollars in cash, stocks, and di&idend
payments. I appro&ed by go&ernment regulators and shareholders, the deal
would make Feri+on the nation!s second largest telecommunications
company, ater SBC Communications Inc. MCI would cease to e%ist as an
independent company under the terms o the merger, although Feri+on
might continue to use MCI as a brand name. *bout 9,### 'obs were
e%pected to be cut as a result o the deal.
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Conclusion:
References:
). www.wikipedia.com
". www.in&estopedia.com
/. www.answer.com
;. www.scu.edu
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