By Network World Staff
Network World, 12/25/00

While WorldCom maintains its position as the second largest carrier in the U.S., the company is suffering the burdens of a big merger gone bad and a declining voice market.

The time WorldCom spent in 2000 trying to get approval for its fruitless merger with Sprint has cost the carrier. Services development played second fiddle to regulatory and negotiation strategies. As a result, WorldCom is behind in the key areas of integrated access service, data center build-out and Web hosting. Compounded by the same voice revenue decline ripping AT&T inside out, WorldCom was forced to take drastic measures.

In November, WorldCom followed AT&T onto the restructuring path. It announced plans to split into business services and consumer services units, and to issue a tracking stock for the latter, to be called MCI. Voice revenue for WorldCom was down 3% in third quarter 2000, which ended Sept. 30, compared to the same quarter in 1999. CEO Bernie Ebbers told financial analysts to expect only 12% to 15% revenue growth for WorldCom for the fourth quarter, with little to no growth on the MCI side.

Some analysts say WorldCom's restructuring plan was a sign of desperation, but WorldCom has some undeniably strong assets. UUNET, WorldCom's Internet subsidiary, is clearly the company's crown jewel. In the third quarter, it posted the highest revenue growth -- up 51% over third quarter 1999 -- of all WorldCom subsidiaries. But UUNET is not enough to sustain WorldCom. The company is in the process of acquiring Intermedia for $6 billion to gain control of Web hosting service provider Digex, well known for its focus on managed services for large and midsize businesses. The deal should close early in 2001.

Buying companies to fill in product holes may not be a viable option for WorldCom any longer. In November, WorldCom's stock plummeted to $16 per share, down from a high of $52 per share in July.

Keeping its No. 2 carrier spot will require WorldCom to integrate Digex's business quickly and painlessly, and to roll out an integrated access services for business users.

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