WorldCom Inc. officials began laying off hundreds of Maryland employees yesterday as President Bush and Congress moved to hold the telecommunications giant responsible for misstating profits by billions of dollars over the past five quarters.
About 680 employees will be laid off at an MCI call center in Hunt Valley, while another 20 will be let go in Frederick and five in Baltimore. Virginia will also take a hit, with about 1,000 layoffs between offices in Arlington and Ashburn, the company confirmed yesterday.
The Hunt Valley call center will be closed along with a similar center in Memphis, Tenn., as part of WorldCom's previously announced plans to consolidate its call center operations, said company spokesman Tim Guillen. It was unclear yesterday whether there are any employees in Hunt Valley who are not associated with the call center.
The layoffs -- part of 17,000 job cuts throughout the company -- were scheduled to begin today. Guillen could not say when the call center is slated to close or whether managers have informed all affected employees.
"This reduction was planned weeks ago, and this is not related to the most recent events taking place at WorldCom," Guillen said, referring to this week's accounting disclosures.
WorldCom admitted this week that it wrongly recorded $3.8 billion in operating expenses as capital investments. The House Financial Services Committee issued subpoenas to compel testimony from three WorldCom officials and an influential Wall Street analyst who promoted the company's stock. The four, including former president and chief executive officer Bernard Ebbers and current chief executive John Sidgmore, will be summoned to appear at a July 8 hearing.
President Bush said that the Justice Department will "hold people accountable" for mismanaging companies through deceit and corruption.
Sidgmore said in a letter to President Bush that WorldCom's management is equally surprised and outraged by the accounting improprieties. He described steps that WorldCom is taking, including an internal investigation, firing its chief financial officer, selling businesses, cutting $1 billion of costs and continuing talks with its bankers.
WorldCom also agreed to a request by the U.S. Securities and Exchange Commission that a judge name a monitor to oversee executive compensation and ensure that the company doesn't destroy documents. The SEC is alleging in a federal lawsuit that WorldCom committed fraud by misreporting $3.8 billion in expenses as capital investments.
WorldCom may not be the only company affected by the accounting scandal.
Provident Bankshares Corp. said yesterday that it plans to write down a $10 million investment in WorldCom corporate bonds in the second quarter.
And Sam Greenholtz, a senior analyst for Communications Industry Researchers Inc., said other companies in the industry may feel a backlash from the WorldCom scandal as lenders become more cautious out of fear that companies may not be as solid as they appear.
"Everybody's looking right now at the telecom business with a jaundiced eye," Greenholtz said. "They're worried: 'Is this the next company that's going to go under? Have these guys been hiding numbers?' "
Greenholtz said sales are likely to drop for telecom equipment-makers because confidence in the industry has fallen.
The sector experienced an explosion in growth after the 1984 breakup of AT&T; Corp. and the Telecommunications Act of 1996 opened it up to competition, said Joseph Correnti, who follows the telecom industry for Wayne Hummer Investments in Chicago. Now, the industry is experiencing the kind of contraction that normally follows an explosion, he said.
Correnti believes WorldCom's business model was challenging even in the best of times.
"I think WorldCom was never, despite the great start it got off to, able to capture what their business was and who their customers were," he said.
And few foresaw that cell phone companies would rival traditional long-distance plans by offering free minutes on nights and weekends, he said.
"Everyone always assumed we'd have nighttime rates, weekend rates and holiday rates," Correnti said. "Now the competition has gotten so fierce, it's basically a one-price plan with all the minutes you could ever want."
Despite these struggles, Correnti believes that with new executives and a different business model, WorldCom could emerge a stronger company.
"If you've got a new management, a new board, Wall Street is always willing to give somebody a second chance," he said.
David Gross, a senior analyst at Communications Industry Researchers Inc., believes that WorldCom's problems are overstated in the media and that the company's situation is not dire.
"Everyone is assuming that the bankruptcy is imminent," he said. "If you factor in the accounting scandal, they are still generating cash."
Gross said the accounting woes surrounding WorldCom are not material to the well-being of the company. He believes there's a chance it can survive without having to file for Chapter 11 bankruptcy protection.
"WorldCom is not as sick as most of the other carriers that have gone bankrupt," he said.
Still, the mood at the MCI call center in Hunt Valley yesterday was described by one worker as "solemn" and "confused."
Employees streamed out of the building after 5 p.m. while a new shift of workers headed in. Dozens of employees declined to be interviewed and security guards did not allow media on company property. A man and a woman arriving for the late shift yesterday said they were unaware of imminent layoffs. Thirty minutes later, the two left the building, confirming they had just been laid off.
A number of workers said they hadn't heard about the layoffs, while others expressed relief that they were still employed.
Robert L. Hannon, executive director of the Baltimore County Department of Economic Development, said he will try to set up a meeting with MCI officials in Hunt Valley. He said the agency will try to match laid off WorldCom employees with other area employers.
Wire services and Sun staff writers Bill Atkinson and Gus G. Sentementes contributed to this article.