What WorldCom means for global telecom
Our Corporate
Bureau
26 July 2002
New York: It has already been established that WorldCom Incs bankruptcy will be leaving VSNL several hundred crore rupees poorer, while the impact on the Internet service provider (ISP) Satyam Infoway is unknown. The ISP offers dialup access to UUNet Technologies roaming international clients in India. UUNet Technologies is a unit of WorldCom for a fee.
But, at the global level, WorldComs failure highlights the weak state of the telecom industry. This means financial markets, which were already closed to all but the strongest service providers in the industry, will raise the risk premium for the remaining companies in the sector says Standard & Poors (S&P) ratings services.
Venture capital interest in the industry is also expected to wane further due to the WorldCom filing and related accounting improprieties. Any potential investment in telecom companies by private investors will take longer because more scrutiny of a companys accounting will be required.
In addition, the financial woes of WorldCom have exacerbated asset valuations to the downside, an area that was already reeling from the over-capacity of the 1990s. However, S&P expects that the Federal Communications Commission and state regulators would want WorldCom to continue operating, albeit in a reorganised structure, to provide appropriate customer service levels and also to preclude the dumping of more telecom assets at fire sale prices.
The fallout of WorldCom will also reverberate throughout the economy as the company continues to reduce staff, cut supplies from vendors, and require fewer access services from incumbent local exchange companies. These factors, in turn, will contribute to the cycle of lower telecom revenue growth for at least the next 12 months.
Over the past few days, second-quarter results reported by BellSouth Corp and SBC Communications Inc exemplified the weak environment for telecom services and continued slowdown in telecom spending by business customers.
