WorldCom Tells A Tale Of Stunning Stupidity

from the not-looking-good dept

I didn’t post the news of Worldcom’s stupendous $80 billion writedown last week, because any news coming out of Worldcom these days just seems to ridiculous to bother with. However, this article looks more closely at the news to suggest it’s a sign of further problems for the whole telecom industry. Much of the writedown was expected, but the fact that Worldcom wrote down their hard assets – stuff they paid cash for. People expected the writedown on their stock purchases and other intangibles. However, they weren’t expecting to find out that all their equipment was worth a fraction of what they paid for it. That’s likely to be true for everyone in the industry, and the article suggests we should expect similar writedowns from all the other major telecom players. Basically, everyone overbought during the bubble years, and now much of that equipment is sitting around useless. That’s bad news for telecom companies, and worse news for those that supply them with equipment.

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Comments on “WorldCom Tells A Tale Of Stunning Stupidity”

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August Jackson says:

Not just the value of the kit...

I will preface my comments by saying that I have not yet looked into which specific pieces of their infrastructure WorldCom have devalued. So, chalk this up to some healthy speculation for the moment.

WorldCom are not simply writing down the value of the money paid for their telecommunications kit. WorldCom are being forced to address the issue of the potential rate of return for overlapping networks of the companies they acquired during the boom years. For example, WorldCom have five seperate domestic US frame relay networks, three ATM networks and so on and so on. Overlapping infrastructure at the physical layer from the acquisition of MFS and Brooks Fibre would also need to be devalued.

Finally, what is also the possibility that the devaluation of physical assets is addressing a revised rate of return on the assets WorldCom have deployed? It has become fairly clear that the demand telecommunications carriers expected during the boom years simply are not going to materialize. Prior to their current troubles, WorldCom were loathe to face the realities of their situation and remained insanely optimistic. The face that WorldCom have taken so long to write down the goodwill of their acquired companies is ample evidence of this blindness.


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