WORLDCOM APPOINTS NEW CEO AND NEW BOARD OF

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WORLDCOM APPOINTS
NEW CEO AND NEW
BOARD OF DIRECTORS
On November 15th, Michael D. Capellas was named
the new Chairman and CEO of WorldCom, Inc. Mr.
Capellas is the former president of Hewlett-Packard
Company and prior to that, he was Chairman and CEO
of Compaq Computer Corporation.
“I took this job because I am convinced that WorldCom
has the assets, the customers and the
people to regain a leadership role in
this industry,” Capellas said. “In
order to do this, we must first regain
trust and win respect. Accordingly,
together we will rebuild WorldCom
into a model of good corporate
governance and management
integrity. Today we are launching a new company, one
that will reclaim the strengths of its past and focus on a
promising future,” Capellas added.
Capellas said he was also encouraged by the company’s
stabilized financial position, including more than $1.4
billion in cash, as well as the steps that current
management has taken to ensure the improper conduct
that occurred in the past cannot happen at the company
in the future.
In December, Capellas accepted the resignations of the
majority of WorldCom’s Board of Directors.
Departing Board members include Carl Aycock, Max
Bobbit, Francisco Galesi, Gordon Macklin, Bert
Roberts, Jr., John Sidgmore and Judith Areen.
Recently appointed Board members Nicholas deB
Katzenbach, former U.S. Attorney General, Dennis
Beresford, former chairman of the Financial
Accounting Standards Board and C.B. Rogers, Jr.,
former chairman and CEO of Equifax, will remain on
the WorldCom Board of Directors.
Winter 2003
“With the courts approval of Michael Capellas as
WorldCom’s new Chairman and CEO, it is now
appropriate for each of us to stand down as directors
and give him the opportunity to continue the process
we have started to put in place substantive reforms and
best governance practices,” said the departing Board
members.
At the hearing, U.S. District Court Judge Jed S.
Rakoff complimented the existing WorldCom Board of
Directors for making a series of positive reforms to the
Company’s governance, and for mandating strong and
consistent cooperation with all government
investigations and the District Court’s monitoring
process.
“I appreciate the Board’s hard work over the past
months in laying the groundwork for good corporate
governance going forward, including the appointment
of three new Board members,” said Capellas. “These
actions show that WorldCom is absolutely committed
to establishing the highest standards of ethics and
integrity at all levels throughout the organization.”
… And Improves
It’s Cash Position
WorldCom continues to improve its
cash position as demonstrated by its
recently filed financial statements
showing approximately $2.1 billion in
unrestricted cash. Since filing Chapter
11 protection in July, 2002, WorldCom
has increased its unrestricted cash on-hand by
approximately 400% through improved financial
management and its successful ongoing business
operations.
During the month of October, 2002, WorldCom
recorded $2.3 billion in revenue and $300 million in
earnings before interest, taxes, depreciation and
amortization (EBITDA). The company remains very
confident that it can reach profitability by continuing
this successful course.
WORLDCOM OUTLINES PLAN
FOR THE NEXT 100 DAYS
GLOBAL CROSSING
REMAINS ON TARGET
In a speech to his 60,000 employees and broadcast over
the Internet on January 14th, WorldCom Inc.’s new
Chairman and CEO Michael D. Capellas told the world
that WorldCom will file a reorganization plan by
April15th. In his speech, Capellas outlined his goals to
cut costs, boost sales to small and medium-sized
businesses and unveil within 100 days a plan for the
number 2 U.S. long distance company to emerge from
bankruptcy this year.
On January 23, Global Crossing
announced that it continued to
meet key performance targets
during November, 2002. The
performance targets were
established for Global Crossing in
the operating plan presented to its
creditors in March, 2002. In
November, Global Crossing
reported Service Revenue of $229 million,
$25 million above the monthly Service Revenue target
set forth in the operating plan.
Capellas told his employees to expect some employee
dismissals as a result of the internal investigations into
the company’s $9 billion accounting fraud and that they
would cut about 10 per cent of its overhead and
administrative expenses. He did not discuss the details
of any job cuts or asset sales, but said a cost cutting plan
would be drafted by February 1. He promised to
develop a 3-year business plan for the company by
March 1.
“Bad things have happened to us” said Capellas. “I
know it will be tough, but we have the will to win” he
continued. Capellas also promised that WorldCom
would act with “an outrageous sense of urgency” as he
stressed WorldCom’s need to
have strong marketing
partnerships. Capellas
specifically made a point to
say that WorldCom would
remain in the Wholesaling
(Reselling) business and
would put more emphasis in
that business unit.
Some analysts expect WorldCom will try to shed its
negative image by assuming the name of its long
distance unit, MCI. Several noted that Capellas’
reshuffling of executive assignments favors executives
from WorldCom’s MCI Group.
“Today was his coming out party” said Jeff Kagan, an
independent telecommunications analyst. Other
analysts said the presentation, though light on details,
provided much needed motivation for the employees.
“This was a chance to get everyone on the same page
and everyone’s efforts in the same direction.
WorldCom has been understandably distracted over the
last year and this was the first tangible evidence that the
worst might be over and the long road of healing and
rebuilding can begin” continued Kagan.
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“Global Crossing continues to fulfill the goals we set in
our operating plan last March,” said John Legere, CEO
of Global Crossing. “We have posted solid results and
look forward to closing the 2002 books with a positive
trend - one of financial and operational strength and
viability.” Dan Cohrs, Global Crossing’s CFO added,
“our cash in bank accounts has increased and stands at
$745 million - the highest month end balance since July
2002. In fact, throughout the past year we have
maintained a secure cash position and stable revenues,
while exercising tight control over our operating
expenses.”
Qwest Claims Documents
Are Private and Protected
Qwest Communications, whose accounting practices
are under scrutiny by the Securities and Exchange
Commission, is contending that some documents the
SEC wants to review should remain private. The SEC
is seeking documents from one of Qwest’s outside law
firms, Boies, Schiller & Flexner, but Qwest says the
documents are covered by attorney-client privilege, the
Denver Post reported.
Qwest hired Schiller’s firm last February to participate
in the company’s internal investigation of its
accounting. Since the SEC investigation began last
spring, the company has said it would revise more than
$1.6 billion in revenue and costs. The U.S. Attorney’s
office in Denver is also investigating Qwest. A
settlement between the SEC and Qwest is expected
within the next few months.
Information Quarterly
For AT&T, A Bleak Year
And A Weak Outlook . .
A big gain from the sale of its cable unit helped AT&T
post a profit in the fourth quarter, but couldn’t shore up
a $13 billion loss for the year. Excluding the gain of
the sale of the cable unit, AT&T lost $611 million,
compared to the $216 million loss in the same quarter a
year ago.
In a conference call with analysts,
AT&T executives remained
upbeat about their battered
company. “Despite significant
market and industry challenges
and a very weak spending
environment, AT&T continues to
drive financial, operational and
process improvements needed to drive a tangible
competitive wedge between us and the competition,”
said Chairman and CEO David Dorman.
Management also said it will no longer predict its
earnings per share each quarter, a practice that helps
investors gauge a company’s health. This
announcement did not go over well with analysts. “A
company that doesn’t offer EPS (earnings per share)
Page 3
guidance makes the market nervous,” said Patrick
Comack, an equity analyst for Guzman & Co. who has
a “sell” rating on AT&T. Merrill Lynch downgraded
AT&T stock to “neutral” from “buy.”
This announcement comes just weeks after the
company said it will trim 3,500 jobs and will delay
merit raises for top management. The cuts represent
about 5% of AT&T’s workforce and will take place in
the company’s Business Services Division, which sells
telecommunications services to corporations. Over the
past two years, AT&T has cut its staff by about 10,000
as it continues to face declining revenues.
Verizon Service Levels
Continue to Worsen in 2002
Percentage of Verizon service problems that lasted
more than 48 hours:
First Quarter 2002
Second Quarter 2002
Third Quarter 2002
11.7%
15.6%
21.6%
Customer trouble reports per 100 access lines:
First Quarter 2002
Second Quarter 2002
Third Quarter 2002
1.86
2.18
2.37
Information Quarterly
SQL ‘SLAMMER’ WORM
ATTACKS THE INTERNET
On Friday night, January 24th, the “SQL Slammer”
worm wreaked havoc on the Internet, slowing Web
traffic to a crawl globally as it generated billions of
attacks, primarily in Asia and the northeastern U.S. The
bug was the most damaging Web attack in 18 months as
it nearly shut down web access in South Korea, brought
many U.S. automatic teller machines to a standstill and
paralyzed corporate networks. Internet slowdowns were
still in existence on Monday, but they were scattered and
seemed to tail off by the end of the day.
A U.S. Internet executive said that
disruptions appeared first in Hong
Kong before spreading to other
Pacific Rim nations and then onto
the U.S. and Europe. Authorities in
South Korea and the United States
said they have launched
investigations, but it is extremely
difficult to determine the origin of
such an attack. “Checking the origin of this worm is like
finding which part of a river a drop of water comes
from,” said S.C. Leung, senior consultant with the Hong
Kong computer team. Experts who studied the worm
have found references in its coding to ‘Honker,’ a
Chinese hacker group believed to operate in mainland
China and possibly Hong Kong.
The malicious code exploits a weakness in Microsoft’s
Windows 2000 SQL server database software, although
it does not delete or otherwise touch data. It causes
servers to crash and congested traffic on the global
network. The worm spreads through network
connections rather than e-mail, the medium for previous
high-profile virus attacks. The attacking software
scanned victim computers so randomly and aggressively
that it saturated many of the Internet’s largest data
pipelines, slowing e-mail and Web surfing globally.
Disruptions from the weekend attack have shaken
popular perceptions that vital national services,
including banking operations and 911 centers are largely
immune to such attacks. Damage in some of these areas
was worse than many experts had believed possible. The
nation’s largest residential mortgage firm told customers
on Monday that its systems were still suffering as its
Web site, where customers can make payments and
Page 4
check their loans, was closed most of the day. Police
and fire dispatchers outside Seattle resorted to paper
and pencil for hours after the attack disrupted
operations for its 911 Emergency center that serves two
police departments and 14 fire departments.
Microsoft has developed a patch for this vulnerability
which can be downloaded at its website,
www.microsoft.com. Microsoft has been reaching out
to its SQL customers to urge them to download the
patch. Microsoft’s top security strategist Scott Chaney
stated, “The single largest message is to keep your
system up to date with patches.”
Performance Evaluations
From actual federal employee performance evaluations.
1. Since my last report, this employee has reached rock
bottom and has started to dig.
2. I would not allow this employee to breed.
3. Works well when under constant supervision and
cornered like a rat in a trap.
4. When she opens her mouth, it seems that it is only
to change her feet.
5. He would be out of his depth in a parking lot
puddle.
6. This young lady has delusions of adequacy.
7. He sets low personal standards and then consistently
fails to achieve them.
8. This employee is depriving a village somewhere of
an idiot.
9. This employee should go far, and the sooner he
starts, the better.
10. Got a full six-pack but lacks the plastic thing to
hold it all together.
11. He does not have ulcers, but he is a carrier.
12. I would like to go hunting with him sometime.
13. He has been working with glue too much.
14. He would argue with a signpost.
Information Quarterly
Phone Bill ‘Cramming’
Spikes Again
They call and offer a “free” service, such as a no-cost
Web site or Internet yellow pages listing. They trick
you into saying “yes” - to just about anything.
Sometimes, they don’t even bother calling. And
suddenly, there’s an extra $30 charge on your phone
bill. It’s an old scam, known as “cramming,” but there
appears to be a fresh epidemic of it.
The company at the center of the accusations, ILD
Teleservices, says it’s an innocent third-party billing
firm. But either way, scores of customers are hopping
mad about $30, $50, even $80 charges that are
peppering phone bills all around the country.
Cramming is one byproduct of the deregulation of the
telephone industry. To open the system to increased
competition, local phone companies have to lease their
phone lines to outside firms who want to sell
competitive services. It’s perfectly legal for a third
party company to sell a home voice mail service to
you, billed through your home phone bill.
Shady telecommunications companies are
unfortunately taking advantage of the fact that local
phone companies have no stake in verifying that
consumers agreed to pay for such services, so they
“cram” charges on phone bills, hoping consumers
won’t notice.
These charges are coming from companies with names
like Liberty Online, Venus Voicemail, National Online
Services, Horizon and ILAB INET. But they all have
one thing in common; ILD Teleservices does their
billing. The Federal Trade Commission said it
received 170 cramming complaints against ILD
Teleservices between October - December of 2002.
Consumers are responsible for discovering cramming
charges on their own. So that means the only
safeguard against unwanted fees is detailed examination of the monthly bill. The best defense is to call
your local phone company and ask it to shut off “thirdparty billing.” That prevents companies from adding
charges onto local phone bills.
If you do find that you have been charged for services
in error, do not pay the charges. Phone service cannot
be disconnected for non-payment of the third-party
portion of a phone bill. However, the third-party
Page 5
provider can put their bill into collections, with the
possibility that non-payment could end up on a credit
report, so its important to follow-up with the billing
company to be sure the charge is permanently
removed.
LOCAL PHONE COMPANIES
STRUGGLING TO SURVIVE
Competitive Local Exchange Carriers(CLECs), the
new breed of local telephone companies who are
trying to win business away from the old Ma Bell
Local Phone Companies continue to struggle to make
a difference. Six years after passage of the
Telecommunications Act of 1996 set the groundwork
for their emergence, CLECs have failed to make the
significant impact on
telecom pricing for
business customers that
advocates had predicted.
Competition has helped
lower pricing in the long distance market, but the
effect has been much less noticeable on the local
services side. Pricing has come down since 1996, but
not any more dramatically than it declined before
passage of the Telecom Act. “The CLECs only won
very limited market share,” says Michael Lauricella,
an analyst with The Yankee Group. “So the
incumbents were never forced to really drive down
prices.”
The CLECs impact has been blunted by the fact that
droves of them were forced out of business when the
capital markets became less forgiving in 2000. About
50 CLECs have filed for bankruptcy or left the
market. One problem CLECs ran into was saturation
of the market as 200 CLECs each predicted they’d
capture 20% of the market.
Ultimately, the fate of the surviving CLECs could be
determined by regulators. The FCC is scheduled to
hold its triennial review of unbundled network
elements, which are the pieces of the local network
that CLECs lease at wholesale rates, early this year.
If the FCC cancels too many of these unbundled
elements available to CLECs, it could seriously hurt
the industry. “The big question really is whether the
FCC is going to let us survive,” said John
Windhausen, president of CLEC ALTS.
Information Quarterly
Custom Network Solutions
210 Route 4 East
Suite 102
Paramus, NJ 07652
Ph:
Fax:
(800) 809-0663
(201) 845-5005
CNS Provides Frame Relay
And Internet Utilization Reports
Sprint Increases
Earnings Forecast
Does your Internet connection speed seem a little slow?
Are you not getting data from your remote data center fast
enough? Do you think you may need to increase your
frame relay or Internet access speeds? Rather than
guessing as to whether or not your network is too
congested too often, CNS can assist by running network
utilization reports periodically to gauge network
performance.
Sprint Corp. boosted its fourth quarter
earnings forecast for its long distance
division, saying cost-cutting measures
were having an effect. The news came
a day after Sprint announced it would
cut 2,100 jobs over the next year as it
restructures operations and continues
to reduce costs.
Through the WorldCom and UUNet network reports, we
can provide Internet and frame port utilization reports
over a 30 day period showing Average Utilization and
Peak Utilization. We can also break out PVC/CIR
Utilization between two or more frame relay locations. If
you are interested in viewing a Utilization report, please
contact Jeff Thomas at (800)809-0663 ext. 507.
Last year, Sprint Chairman and CEO William T. Esrey
sold assets and secured financing to steer Sprint
through a hard market that had forced the company to
restucture. “After an extended period of price declines
and overcapacity, we are starting to see the supply and
demand equation rationalize” said Ersey.