Bernard Ebbers, WorldCom's founder, president, and CEO, resigned earlier this month, a casualty of his company's financial and image woes. Among the problems cited by the media that contributed to his departure were the controversial $366 million personal loan that the company arranged for Ebbers, the SEC investigation of the company's finances, questions about the company's ability to pay back its $28 billion in loans, and its plummeting stock price, which is now at its lowest point in the past 10 years. The New York Times (May 1) quoted industry analyst Scott Cleland as saying, "This is the collapse of the single most successful telecom growth company ever."Company vice chairman John Sidgmore, Ebbers' replacement, faced the media to explain the changes the company is undergoing. In his first conference call with investors and the media, Sidgmore drove home the point that, despite Ebbers' resignation, the company will survive its current crisis and the economic downturn: "We don't see any way under any scenario that WorldCom is going to run out of cash. This is a real company with real profits, real customers.
(Newsday, May 1)
However, coverage frequently expressed skepticism about the ability of WorldCom to recover from its current state. Some said that while the change of CEO may be a step in the right direction, it does not automatically guarantee the survival of the company. Patrick Comack, an industry analyst from Guzman & Co., told the LA Times (May 1), "A lot of people are working under the belief that WorldCom is a doomed company."
In explaining how he would help lead a turnaround, Sidgmore often stated that WorldCom's problems were largely based on a poor image, a misconception that did not jibe with the facts. The Washington Post (May 1) quoted Sidgmore as saying, "We have a liquidity-perception crisis in some measure because Wall Street and the press do not believe Bernie. He has totally lost credibility in the last several months, for whatever reason.
The Post went on to note Sidgmore's announcement that WorldCom would begin a "a wide-ranging PR program."
A number of reports viewed the collapse of WorldCom and the resignation of Ebbers as symbolic of the whole state of the telecom industry. An editorial in The New York Times (May 1) said WorldCom "embodies the excesses of the 1990s stock market bubble and the unfulfilled aspirations of telecommunications deregulation,
while Ebbers is "perhaps the most celebrated telecom entrepreneur of the last quarter century."
Finally, a number of reports sought to trace the deeper causes of the company's troubles. First, several reports characterized Ebbers as a savvy dealmaker who built WorldCom by way of more than 70 mergers, but was less successful at managing or integrating the various pieces once he'd acquired them. Second, WorldCom's failed $129 billion bid for Sprint was seen as WorldCom's turning point, in that it "effectively put a cap on WorldCom's ability to grow further through mergers.
(The Washington Post, May 1)
In the short term, WorldCom's biggest challenge may be preventing credit agencies such as Moody's and Standard & Poor's from downgrading its credit to junk status, which would force the company to spend $2 billion of its precious $2.5 billion cash reserves within 90 days. WorldCom needs its PR strategy to effectively and immediately convince key target groups that the company can survive.
Evaluation and analysis by CARMA International. Media Watch can be found at www.carma.com.