Rivals set to cash in on WorldCom debacle

Embattled service provider WorldCom was seeking to reassure its worldwide customers yesterday that, despite the huge $3.8bn accounting scandal, services will continue as normal.

However, industry analysts questioned whether the company could really follow through on that promise.

When announcing its staggering accounting discrepancy WorldCom said it would begin laying off 17,000 employees this Friday.

Although the cuts were announced weeks ago, analysts suspect that the job cull has been brought forward and that the size and the speed of the cuts will hit customers.

"Although WorldCom says its customers' service will not be interrupted, it is hard to see how it will be able to deal with customer problems as quickly as they may expect," said Kate Gerwig, principal analyst at CurrentAnalysis.

Although analysts are uncertain as to whether WorldCom will be able to avoid filing for bankruptcy protection, they do predict that many of its customers will quickly start to seek alternative carriers.

The carriers they turn to may be the very ones that WorldCom and others aimed to replace. "This is great news for the Deutsche Telekoms and BTs of the world," said Gerwig.

While established carriers may benefit, companies especially hard hit by WorldCom's problems are its equipment suppliers.

As WorldCom's announcement hit stocks across the US exchanges, Lucent Technologies saw its price drop 20 per cent and Nortel Networks closed down nine per cent on the day.

Juniper Networks, which attributed more than 10 per cent of its last quarter revenues to WorldCom sales, saw its stock drop 18.4 per cent.

WorldCom's auditing error stands as the biggest accounting debacle in US corporate history, and yesterday even President George Bush entered the fray indicating that he is "deeply concerned" about the news.

He called for a full investigation and for the prosecution of anyone responsible for misleading WorldCom investors and employees.

WorldCom is already under investigation by the US Securities and Exchange Commission, but the US Department of Justice is expected to begin its own inquiry.