The next chapter in the tale of Cable & Wireless' acquisition of MCI's Internet business is beginning with a lawsuit.
Cable & Wireless last week filed suit against MCI, claiming breach of contract seven months after it acquired MCI's Internet business for $1.75 billion.
Cable & Wireless is claiming that much of its publicized problems in integrating MCI's Internet business were due to the fact that MCI violated the companies' agreement in more ways than one.
In Cable & Wireless' 23-page civil action, the service provider claims that MCI:
- did not send over pertinent customer records
- did not send over enough sales, engineering or customer support staff
- did not refrain from soliciting MCI Internet customers to move over to UUNET
- did not provide proper billing systems
One former MCI engineer that left the company soon after Cable & Wireless acquired MCI's Internet business says he witnessed some creative job shuffling prior to the close of the deal. "Engineers and those responsible for monitoring the Internet backbone were given more responsibilities in data services so that they wouldn't get transferred over to Cable & Wireless," says the former MCI engineer who asked not to be identified.
He says that once those employees were given additional tasks, such as monitoring MCI's frame relay or ATM networks, then they weren't transferred because they weren't key to the Internet operations. "These were some of the brightest folks on staff, and MCI didn't want to lose them," he says.
Another former MCI staff member who was transferred to Cable & Wireless says MCI did not send over pertinent customer information, which made it difficult for Cable & Wireless to contact customers. He also says there were not enough salespeople to even begin to deal with the thousands of customers. He also asked to remain anonymous.
More than 3,300 dedicated Internet access, 60,000 dial-up business, 250,000 dial-up consumers customers and more than 1,300 wholesale ISP customers came over to Cable & Wireless.
While one former MCI sales representative says that complete customer records may not have been sent to Cable & Wireless it was not because MCI was holding anything back. It was because complete records didn't exist in all cases. "When MCI first started offering dedicated Internet access services we weren't required to have a full-fledged contract. In the case of longtime customers it's not surprising they didn't have appropriate contact information," he says.
And this former salesperson says he's surprised that Cable & Wireless is claiming they only received 41 sales representatives. "From our small office alone two people were transferred and one of them was a top performing sales person," he says.
According to Cable & Wireless' estimates they say they should have received more than 300 sales representatives, but only received 41. But determining which folks should have been sent over will probably be difficult because MCI's Internet business was not a stand alone entity. But some point out that key, high-profile personnel such as Vinton Cerf, who was often called "the father of the Internet," and other marketing folks such as John Scarborough and Stephen Von Rump should have clearly been sent over in the deal because of their focus on Internet services. But they weren't.
The suit specifically cites nine departments where MCI did not send over any or not enough personnel to support the Internet business.
Yet, from a legal standpoint, Cable & Wireless may have an uphill battle proving its case. Ordinarily, when one company promises another company a set of employees - in either a purchase or outsourcing deal -the seller is not considered liable if those employees happen to walk before the deal is done.
"That does not normally constitute a breach of contract," says Hank Levine, a partner in the Washington, D.C. law firm of Levine, Blaszak, Block & Boothby. In fact, usually it's the seller who's more concerned than the buyer about what happens to the employees because the selling company doesn't want to get stuck with any wrongful termination or other lawsuits from those employees if the buyer doesn't offer to take them on.
However, Cable & Wireless will have a stronger case if it can prove that MCI WorldCom itself - rather than outside companies - made the affected employees new job offers, Levine says. Or if it can prove that MCI WorldCom specifically named the employees that would join Cable & Wireless through the transition.
While Cable & Wireless takes the opportunity to complain about the fact that it had to add more than 50 positions at some of its dial-up Internet access facilities, the fact is every ISP is having trouble keeping up with user demands.
AT&T WorldNet's dial-up Internet access services users have been the latest to experience performance problems because AT&T's capacity planning was not in line with user demand. So the fact that Cable & Wireless needed to add 50 jobs in seven months is not the most compelling part of the company's case.
What is compelling is the apparent evidence Cable & Wireless has in hand that shows MCI persuaded customers to move to UUNET prior to the close of the deal. And the fact that Cable & Wireless says that it was not able to fulfill two customers, Tulane University and Quantum Connections, requests for more bandwidth because MCI "unduly delayed provisioning" of additional bandwidth. And then, Cable & Wireless claims, that MCI WorldCom turned around and offered these customers direct provisioning from its network.
Cable & Wireless says that the damages well exceed $75,000 and in some parts of the suit they claim losses in customer revenue in the millions. The service provider is seeking to enforce the contract, damages to be determined, and any other "relief as may be just and proper."
Neither MCI WorldCom or Cable & Wireless would comment further on the case.
Senior Editor David Rohde contributed to this story.
