Telecom company executives say service won’t be disrupted
WASHINGTON (AP) – Leaders of three big, troubled telecom companies and a top government regulator told Congress Tuesday they didn’t expect major phone or Internet disruptions as a result of the companies’ financial conditions. As the chairman of the Federal Communications Commission assured a Senate committee that services will continue without disruption, senators of both parties decried excesses of telecom company executives at a time when tens of thousands of employees were losing their jobs.
“This strikes many American citizens as patently criminal,” Sen. John McCain, R-Ariz., told FCC Chairman Michael Powell at a hearing of the Senate Commerce Committee.
McCain cited, for example, big telecom company Global Crossing’s founder and chairman, Gary Winnick, cashing out $734 million in stock before the company collapsed.
Senators also voiced concern about possible disruptions of service to consumers as a result of the financial turmoil in the industry and a potential danger, later on, of reduced competition bringing fewer choices for consumers.
“Protecting consumers from service disruption is our first and highest priority,” Powell testified. Despite the turmoil, he said, “I remain confident that we are not facing a crisis in the provision of services stemming from WorldCom’s bankruptcy.”
Rooting out corporate fraud is a top priority of the government, Powell said. Top executives of WorldCom Inc., which filed the biggest corporate bankruptcy in history on July 21; Global Crossing Ltd., also bankrupt; and Qwest Communications International Inc., which acknowledged major accounting errors on Sunday, also were testifying.
“We are intensely focused on ensuring that all of our customers – consumer, business and government – continue to receive the highest quality service without disruption,” WorldCom President and Chief Executive Officer John Sidgmore said in testimony prepared for the hearing.
The other executives – Global Crossing CEO John Legere and Qwest President Afshin Mohebbi – gave similar assurances.
The Justice Department and the Securities and Exchange Commission – which already has filed civil fraud charges against WorldCom – are investigating accounting irregularities at the telecom titan whose interests include No. 2 long-distance telephone company MCI. WorldCom disclosed it had disguised nearly $4 billion in expenses, thereby inflating its earnings.
Global Crossing, which operates a worldwide fiber-optics network, has acknowledged that documents were shredded before and after its January bankruptcy filing.
and the disclosure of a federal accounting investigation in February.
The SEC is investigating Qwest’s swaps of fiber-optic capacity, and the federal General Services Administration is reviewing government contracts with the Denver-based provider of regional phone service. The Justice Department also is investigating the company.
In reaction to a wave of business scandals that has rattled investor confidence, President Bush on Tuesday signed corporate accountability legislation in a White House ceremony.
Stocks of telecommunications companies hit dizzying heights in 1999. But their shares slid with the burst of the dot-com bubble and other market forces that caused an industrywide implosion.
The high-speed Internet infrastructure that telecom companies had been building through the late 1990s lost much of its value very quickly once it became apparent there was little consumer demand for the services being offered over the so-called broadband network.
The long-distance telephone sector, meanwhile, has been pounded by falling rates and growing competition from local Baby Bells, who have received federal permission to horn in on the market. Long-distance carriers like MCI are also losing business as customers grow fond of e-mail and cell phones.
The committee wants to know whether the three companies will be able to maintain essential operations. WorldCom, for example, which has laid off 17,000 of its 80,000 workers, is the largest operator of the Internet backbone.
Investigators with another Senate panel are examining now-bankrupt Enron Corp.’s ties with Merrill Lynch & Co., saying the nation’s biggest brokerage firm knowingly participated in deals that Enron used to mask its true financial condition.
The Justice Department is investigating one of the transactions in question, in which Enron sold an interest in barges in Nigeria to an offshore company established by Merrill Lynch, according to the brokerage and Senate sources. At issue is whether the transaction allowed Enron to artificially inflate its profits.
Merrill Lynch said in a statement that it agreed to the transaction “largely to build our relationship with Enron” and believed that a third party – an Asian trading company – would purchase the brokerage firm’s shares in the company. The shares were eventually purchased by LJM2, an Enron partnership. Merrill Lynch said it couldn’t explain why the transaction happened.