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MCI customers on hold
WorldCom's woes unlikely to disrupt MCI service but could lead to higher prices for all of us
June 27, 2002: 2:46 PM EDT
By Sarah Max, CNN/Money Staff Writer

NEW YORK (CNN/Money) - MCI customers need not worry about losing their dial tone overnight in the event its parent company, WorldCom, files for bankruptcy as some predict.

But they might pay more for the privilege. So might the rest of us.

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"I think we're going to feel this [WorldCom's financial problems] in three or four different ways," said Samuel Simon, chairman of consumer group TRAC, the Telecommunications Research & Action Center. "The ripple effect is enormous."

Not only might MCI, the nation's second-largest long-distance provider, raise its own rates to try to speed its recovery, he said, but it could be responsible for the rising rates of local carriers as well. Simon notes that long-distance providers pay local carriers a percentage of all their long-distance tolls. "If MCI can't afford to pay Verizon or BellSouth or Qwest, these companies may have to raise their rates."

WorldCom late Tuesday said it would restate earnings by more than $3.8 billion and slash 17,000 jobs by the end of the week -- a result of what the Security and Exchange Commission has dubbed "accounting improprieties of unprecedented magnitude." The company's shares, which traded near $64 in 1999, are now trading at less than a dollar (WCOM: Research, Estimates) and its downgraded debt has raised the cost of borrowing. Some Wall Street analysts say Chapter 11 bankruptcy protection, which would allow the company to reorganize free from threats of creditors, is the next likely move.

Either way, WorldCom's financial woes could put a damper on competition. MCI has been an aggressive competitor in the long-distance market for years and has recently made a big push to provide local service in more than 30 states.

"The FCC needs to step in and make sure that consumers don't pay the cost of this criminal conduct; there's not much left that shareholders can pay," said Simon, adding that he plans to write a letter to the FCC chairman asking the organization "to step up now and reassert its regulatory authority."

The good news is, customers of MCI's long-distance, wireless and Internet service plans won't likely get hit with service disruptions.

"Assuming they [WorldCom] do file for bankruptcy, that doesn't mean they have to discontinue service," said Michael Balmoris, spokesman for the Federal Communications Commission.

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Adds Bob Johnson, who is president of the telecom advocacy organization Consumers' Voice, but is also an attorney representing WorldCom in Indiana: "MCI still has a solid customer base and operations. There is no risk of customers being abandoned in the short run."

He notes that if WorldCom files for bankruptcy, it's likely the company will operate under the protection of bankruptcy laws while it reorganizes its operations or is turned over to another entity.

And, if MCI were to go out of business, customers could expect to get a heads-up beforehand. Under section 214 of the 1996 Telecommunications Act, the company is required to file with the FCC before it shuts down, notify customers and help provide reasonable service alternatives within 30 days.

"If you're an MCI customer, you really don't need to do anything," said Simon. "In the incredible event that something happens to your service, you can always dial around."  Top of page