Will WorldCom's Bankruptcy Choke the Internet?


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Will WorldCom's Bankruptcy Choke the Internet?

By Masha Zager

NewsFactor Network

August 2, 2002

http://www.newsfactor.com/perl/story/18843.html

Federal Communications Commission (FCC) chairman Michael Powell raised an alarming prospect when he told the Senate Commerce Committee that the FCC probably did not have regulatory authority to stop a bankrupt Internet backbone provider -- namely WorldCom (Nasdaq: WCOME) -- from shutting down its Internet services. Powell added, however, that he did not believe such a situation was imminent.

Powell explained to the committee that long-distance service providers were required to give enough notice before ending service to ensure an orderly transition. However, he stated, other carriers, including cable service providers and Internet backbone providers, were not covered under the same provision of the Communications Act.

"One source of tension is conflict between the bankruptcy laws and the communications laws," Powell told the committee. "It is not always entirely clear that the bankruptcy judge would necessarily accept our protestations of the need for discontinuance, and might nonetheless order a shutdown."

Senator Ernest Hollings (D-South Carolina) asked Powell to provide him with a request for expanded authority that Congress could act upon before the fall recess.

Backbone of the Internet

WorldCom, which filed for Chapter 11 bankruptcy protection earlier this month after revealing a major accounting fraud, owns, through its UUNET subsidiary, a significant portion of the Internet backbone.

According to Yankee Group senior analyst Seth Libby, although precise measurement of Internet traffic is virtually impossible, UUNET appears to account for between 30 and 50 percent of traffic at any time. In addition, WorldCom provides other Internet services such as Virtual Private Networks, Web hosting and broadband access.

Shutdown of WorldCom's network could pose serious problems for Internet users. Will Stofega, research analyst at IDC, told NewsFactor, "It would be just like if (interstate highway) I-95 shut down and everyone had to take the old Route 1. There would be traffic jams, service degradation -- real problems. You might not get your e-mail."

Yankee Group's Libby pointed out that many UUNET customers have made backup arrangements. Unless service was shut down suddenly, he said, service degradation would probably be inconvenient rather than disastrous. "It would be like trying to log onto an Internet news site after 9-11," he told NewsFactor.

Shutdown Unlikely

However, while a UUNET shutdown is possible, no one is predicting that it will happen. WorldCom CEO John Sidgmore told the Senate committee the company was not planning to cut services. Analysts were also skeptical that WorldCom would close down its data network. IDC's Stofega argued that the FCC, whatever its current statutory authority, is unlikely to allow massive disruption to Internet service.

"It would be a real disaster for Powell's career," Stofega told NewsFactor. He suggested that, if worse came to worst, the FCC might arrange a bailout package to keep WorldCom afloat until it got back on its feet. "It's not unheard-of," he noted.

In the past, the U.S. government has provided similar help to companies, including auto manufacturer Chrysler and hedge fund Long-Term Capital Management, both companies whose collapse would have had massive economic consequences.

Staying Alive

Melanie Posey, program manager for Web hosting at research firm IDC, doubted whether such FCC heroics would even be necessary. "If someone owes me money, I'm not going to kill them," she told NewsFactor. "That way, I'd never get my money back."

Pointing out that in a Chapter 11 scenario the creditors effectively own the company, Posey noted that it is in the creditors' interest to keep the network functional. "The business is the network," she stated.

Yankee Group analyst Libby agreed that UUNET is too valuable to be shut down. UUNET is likely to be the key asset around which WorldCom restructures its business, he said. Or, if the company decided it had to sell the network, it would have no trouble finding a buyer due to its customer base, its technology and its network reach. "Someone will find a way to keep it going," he told NewsFactor.

Even in a worst-case scenario, Libby said, a shutdown would likely be a protracted process, regardless of the FCC's statutory authority. Legal challenges, government intervention or the willingness of another investor to take over would keep the network going long enough to allow for an orderly transition.

WorldCom was not available to comment on this story at press time.

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Originally posted by BxBoy

if WorldCom is the main backbone that connects the US to other countries, then it's a possibility, but very unlikely.

It will have a high impact since WorldCom's UUnet which includes the Compuserve Backbone as well as ANS has about 60% of the US Internet traffic. UUnet, Cable & Wireless USA (formerly InternetMCI) and SprintLink handles about 85% of the US/Canada Internet traffic. That's the same reason that Savvis who has part of the Bridge IP backbone if it's down would impact the world financial markets because all the financial markets and institutions connect on the Savvis Financial IP backbone. One other thing to remember is that WorldCom was originally a Competitive Local Exchange Carrier (CLEC) who acquired many other companies and provide lots of the circuits and fiber worldwide. Even in Austrailia, OZEmail which is supposedly big is part of WorldCom.

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