Brain drain hits MCI WorldCom

Dozens of executives flee, rumors of layoffs fly.

By David Rohde and Denise Pappalardo
Network World, 12/07/98

Washington, D.C. - Eleven weeks into the mega-merger between MCI and WorldCom, the exit door is wide open and MCI executives are fleeing the premises.

The newly combined MCI WorldCom has lost dozens of key managers and specialists - virtually all of them from the MCI side - in network engineering, security services and product management. And last week, a wave of rumors swept through MCI WorldCom's rank and file that a layoff of about 7,000 people - close to one-tenth of the company's work force - is slated for this month.

MCI WorldCom spokesman Jim Monroe declined to comment on personnel issues except to acknowledge duplication between MCI and WorldCom staff. "Our approach there has been to redeploy people where there has been overlap," Monroe says.

But many top names from MCI have already left. Just last month, Stephen Von Rump, MCI's vice president of enterprise services and champion of the company's corporate data-services drive, left to join a videoconferencing firm in Austin, Texas.

That followed departures by MCI Chief Information Officer Lance Boxer and global engineering Senior Vice President Jack Norris, who moved to Lucent and emerging international carrier Teleglobe Communications, respectively.

Many analysts say MCI WorldCom could stand to trim some executives as part of its efforts to reduce expenses and ultimately cut prices. But, they add, some of the outflow could result in the loss of executives with expertise in technology areas of interest to users. The departures also could wreak havoc with account teams.

In a particularly stunning blow, a team of nine crack engineers in MCI's Internet security unit, headed by Dale Drew, last month left en bloc to join emerging national carrier Qwest Communications, which maintains a national network operations center in Arlington, Va. Other defections, including ones to Teleglobe and wireless carrier Nextel Communications, have also involved groups of key personnel moving together.

Company insiders and analysts cite a combination of factors causing the big brain drain. They include the inevitable merger-related turf fights, as well as MCI's earlier failure to merge with British Telecommunications (BT), debates over product priorities, corporate culture clash and sheer exhaustion.

"MCI went through a challenging and grueling two years," Von Rump says. "It took a lot out of the entire management team."

Uncertainty at the top

Questions were swirling last week around two top MCI executives who remain: John Gerdelman, who until recently was president of MCI's network-services division; and Tim Price, president of MCI WorldCom's U.S. operations and No. 3 under CEO Bernie Ebbers and Chairman Bert Roberts.

Gerdelman confirmed to Network World that he recently ceded the job as chief of MCI WorldCom's network to WorldCom veteran Ron Beaumont. Gerdelman was reassigned to work on the company's new technology-ventures fund and some regulatory matters.

"Am I as busy as I was before? Not exactly," Gerdelman says. But for now, he adds: "I'm not going anywhere. If there's not a place for me six months from now, I'll look and see where things are then."

"Everyone in D.C. has been very elusive about John's status," says one insider who asked not to be identified. "Suddenly, he wasn't showing up on org charts, and then he was assigned to Bert [Roberts] on a special project. The word is that he is in the process of exiting."

Meanwhile, Price was reportedly weighing his options. A favorite among MCI's business sales force, Price "has been adamant that he is absolutely committed to staying," says one source. But following mega-deals for former top AT&T executives with sales experience - such as Qwest CEO Joe Nacchio and Teligent CEO Alex Mandl - Price is widely considered to be capable of commanding a salary and bonus package in the tens of millions of dollars.

"He is a very valuable commodity, and he knows it," says Frank Dzubeck, president of Communications Network Architects, a Washington, D.C. consulting firm.

Should Price leave, what some sources describe as a dispirited MCI sales staff may seek new pastures. "MCI WorldCom is squeezing blood out of a turnip," says an e-mail sent by a global accounts representative to a Network World reporter. "I've been with MCI for 10.5 years and now that Bernie has moved in, the 'stuff' is hitting the fan all over."

Like several other insiders, this representative says that "to make our numbers, layoffs are around the corner." It was reported that Ebbers himself bluntly told representatives at a late-September sales meeting in St. Louis that the company's expense ratios would have to go down, sending several representatives fleeing for interviews with Qwest and other competitors.

With MCI WorldCom reportedly trying to eliminate $3 billion in expenses, "you can't make that on the top line," says Ian Dix, vice president of business-services marketing at Qwest. He adds: "We've been hiring furiously." Two other managers who recently left MCI WorldCom told Network World that layoffs of several thousand people could occur any time between today and Dec. 15.

Other observers caution that the exact timing of any reduction-in-force is in question. They say the rumors may be popping up because MCI itself has often dropped employees in December. "The specter of a layoff before year-end has been with this merger ever since last spring," says one of the recent ex-managers. And some units may not suffer at all: Ebbers last month committed to adding 2,000 employees at a new suburban Washington facility for Internet subsidiary UUNET.

But one financial analyst who requested anonymity says he has heard from "well-placed sources within MCIWorldCom" that layoffs within the company's traditional units are imminent. He puts the likely number at 6,000 based on cost reductions the company has laid out in the past.

Merger whiplash

Weighing even more heavily than possible layoffs on many of the outgoing MCI employees, especially in network operations, is MCI's earlier failed merger with BT.

"MCI had a plan of attack for globalizing," Dzubeck says. "All of the apple cart got upset." Besides, he says, "WorldCom had its own global engineering operation under MFS."

The BT deal would have left MCI as a stand-alone U.S. unit, adds Von Rump, while the WorldCom merger created large U.S. network overlap. Another aggravating factor is MCI WorldCom's apparent plan to move much of its net, including its core frame relay service, to Ascend Communications switches. Part of the reason for that move, according to Dzubeck, is that UUNET heavily uses Ascend gear.

Numerous observers also noted that WorldCom historically has not tried too hard to retain employees after a merger. "It's not their way," Dzubeck says.

Even if the company begs executives to stay, they might go anyway for another reason. When the merger closed in mid-September, MCI executives who had been granted unvested stock options for rank or performance suddenly saw all their options - except those granted earlier in 1998 - immediately vest. MCI's stock price nearly doubled since WorldCom announced its takeover bid in October 1997, so many longtime MCI executives were sitting on a pile of cash.

"There was a lot of vesting of stock," says Jim Collins, who headed public relations for network services before leaving last month for Frontier Communications, an emerging national carrier based in Rochester, N.Y. "A lot of the employees made out very well in the merger." Adds Von Rump: "The financial incentive was less to stay with the company."