Effect On Corporate Accounts

WorldCom's 20 million customers include many Wall Street powerhouses, large manufacturers and government agencies. It is likely that many companies will suffer one way or another from WorldCom's problems. Businesses which rely on data networks could be the ones hurt the most. Some of WorldCom Inc.'s big corporate customers are searching for new suppliers for systems that transmit company data internally and to business partners and customers. A full-scale switch can take months, depending on the complexity of a system.

So far, WorldCom claims that it has not seen an exodus of corporate clients. CEO John Sidgmore is personally contacting corporate clients and rallying the sales force. Going after new accounts will be extraordinarily difficult due to the massive problems plus layoffs that included the sales force. Competitors are taking advantage and subtly pursuing WorldCom customers.

Many corporate clients are locked into lengthy contracts with WorldCom that contain large penalties for switching, even if WorldCom files for bankruptcy reorganization. Many companies may be forced to choose between paying a steep fee for breaking the contract or let their vital communication networks deteriorate.
About 20 percent of the big corporate customers are fortunate to have escape clauses in their WorldCom contracts that allow them to discontinue service if WorldCom's financial condition slides past a certain point. However, many will likely to hang in for the length of the contract because penalties for breaking the contract can run as high as 50 percent of the cost of staying in the contract.

Corporate clients could be entangled if WorldCom does go to bankruptcy court, since legal rules could make moving to another service provider even more complicated. Therefore, those customers that could be looking for ways to get out as soon as possible.

Corporate customers are already experiencing a slowdown and drop in service from WorldCom, which is laying off 17,000 workers, analysts said. The company already laid off 3,700 workers earlier this year.