WorldCom calculates loss of U.S. business


WASHINGTON -- WorldCom Inc., which filed the largest U.S. bankruptcy, said yesterday that its earnings may be reduced by $250 million through 2005 by the federal government's plan to bar the company from new phone-and-data contracts.

The forecast amounts to an 8.9 percent cut in expected profit and assumes that WorldCom will be excluded from federal work until July 1. Assuming the company is excluded only until Nov. 1, the reduction in earnings would be $38 million, WorldCom said in a Securities and Exchange Commission filing.

WorldCom, sent into bankruptcy by an $11 billion accounting fraud, was suspended last month from winning new federal orders for up to three years. The U.S. government is WorldCom's biggest customer, generating about $1 billion in annual sales, or 6.3 percent of its total revenue.

WorldCom has said it would lose $1.02 billion in sales through 2005 if it's banned from winning or renewing contracts until July 1. The second-biggest U.S. long-distance phone provider is changing its name to MCI.

The General Services Administration, which awards government contracts, faced increasing pressure to suspend WorldCom after allegations emerged last month that the company had illegally evaded access charges owed to local-phone network operators such as Verizon Communications Inc., analysts say. The U.S. Justice Department and Federal Communications Commission are investigating the allegations, made by WorldCom's competitors and a former employee of the company.

WorldCom said in its filing yesterday that it has found no wrongdoing after a preliminary review of the claims. The GSA cited a lack of sufficient internal controls and ethics at WorldCom when it announced the suspension July 31. WorldCom has until the end of this month to appeal. After that, the GSA will decide whether to bar WorldCom from winning U.S. contracts for up to three years.

WorldCom's reorganization plan calls for the company to emerge from Chapter 11 protection by October and be owned by its creditors. They were owed $41 billion at the time of the company's July 2002 bankruptcy filing.

Inability to compete for federal orders until July may reduce WorldCom's value by $425 million, or 3.7 percent, to $11 billion, the company estimated.

Sprint Corp., the nation's No. 3 long-distance provider, may also be suspended from winning new U.S. contracts because it overcharged the government for service, the company said last week. AT&T; Corp. is the biggest U.S. long-distance phone company.

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad