Filing won’t leave consumers in lurch

For years, the biggest challenge WorldCom Inc. and MCI faced was persuading consumers to switch long-distance companies.

Now, the toughest job may be persuading them to stay.

The bankruptcy filing on Sunday by WorldCom and its MCI subsidiary is sure to spook some customers, who number as many as 20 million. But consumer advocates say the filing alone doesn’t justify finding a new long-distance company.

For starters, WorldCom executives pledge that service will continue without interruption, saying they have lined up lenders to keep the business going while the company reorganizes under the protection of U.S. Bankruptcy Court.

Of course, just a few weeks ago WorldCom said it had enough money to last through the year. Then the company’s reserves evaporated as suppliers demanded to be paid upfront, putting the company in a cash crunch.

Even if WorldCom failed, though, state and federal policies should protect customers from an abrupt loss of phone service. The Federal Communications Commission requires phone companies to give 30 days’ notice before they terminate service, and FCC Chairman Michael K. Powell has said he won’t hesitate to stretch that period if needed.

Typically, residential and small-business customers use WorldCom’s MCI service only for toll calls. Switching to one of the many alternative long-distance carriers is a simple task that can be accomplished with a single phone call or online session.

About 600,000 customers have signed up for more extensive service from MCI in the last three months, a new “neighborhood” package that includes local service as well as long-distance calls.

“Consumers should be comfortable that if they sign up for MCI, they’re not going to be left in the lurch,” said Michael Shames, executive director of the Utility Consumers’ Action Network, an advocacy group based in San Diego.

Potentially the riskiest WorldCom product for consumers, he said, is prepaid calling cards. But if WorldCom couldn’t honor those cards, buyers might be able to collect refunds from the retailers that sold them, Shames said.

Several consumer advocates already have established Internet sites to dispense advice and information to worried MCI customers. Rich Sayers, known best for his extensive long-distance comparison charts, set up an MCI-related Internet site for residential customers: https://www.bye-bye-mci.com. The Telecommunications Research and Action Center also posted tips for MCI customers on its Internet site, https://www.trac.org.

WorldCom’s extensive network, which stretches across six continents, provides the electronic thoroughfare for more than 20 percent of the long-distance calls in the U.S. and half the world’s e-mail. Its lines carry more long-distance Internet traffic than those of any other company, and its network supports the world’s largest Internet provider, America Online.

The company’s network also provides high-capacity local lines to businesses in 84 metropolitan areas. Those business customers would face the most difficult transition if WorldCom’s network shut down, because their phone and computer systems would have to be connected physically to another company’s lines. Long-distance customers, by contrast, can switch to another provider by sending instructions electronically to their local phone network’s switches.

Still, WorldCom’s network and services are duplicated around the globe by competitors. That’s one of the problems for long-distance firms: Competition is so extensive and intense that their products have become commodities.

WorldCom’s financial troubles haven’t appeared to trigger an exodus from MCI’s service, Shames said. But one of the biggest question marks for WorldCom customers will be whether customer service deteriorates as the company slashes costs.

Last month, WorldCom started laying off 17,000 employees, or more than 20 percent of its global work force, with the cuts coming from divisions across the company.

Said analyst Lisa Pierce of Giga Information Group, a technology research firm: “With all the layoffs at WorldCom, there is real concern about the potential degradation in network quality, getting billing disputes resolved, service repairs. Those are quite legitimate concerns.”

Company executives insist that they will be able to maintain the quality of service, and they have extended more generous guarantees to assure business customers. Consumers and small businesses receive no such guarantees from MCI, however, and in California, Shames said, his group receives more complaints about MCI’s phone service than that of any other company.

Based on experience, those who drop their MCI service may have the most trouble with the company. One of the most common complaints, Shames said, is from former MCI customers who keep getting hit with monthly line charges and fees after they switch long-distance companies.

Gene Kimmelman, senior director of the Washington office of Consumers Union, another advocacy group, said WorldCom could survive even if it lost a significant number of customers.

The key, he said, is for WorldCom to hold on to its major business and institutional customers, including the federal government. Typically, such customers are tied to contracts of a year or more, but an online survey by Infoworld magazine shows early signs of restlessness.

Of the 106 companies that submitted answers by Saturday, nearly 30 percent identified themselves as WorldCom customers. Of that group, more than one-fourth said they were “looking for a new provider.”

Analyst Pascal Aguirre of Adventis, a Boston consulting firm, said the financial turmoil would prompt businesses to “start very precisely monitoring the service levels that they are getting from WorldCom.” If service deteriorated, he said, that would be “the major trigger to start defecting.”

But Aguirre and other analysts say it is no trivial matter for major businesses to switch telephone companies, even if their provider’s service degraded to the point of violating their contract.

“If you’ve got a big network, moving your traffic to another carrier is beyond nosebleed,” said Pierce of Giga. “You would sell off your children first to a slave trader, it’s that bad.”

More than any other telecommunications company, MCI taught the public what it means to find a new long-distance provider. Starting in the 1960s, when many policymakers considered the telephone business to be a natural monopoly, MCI battled before the FCC and in the courts to get into the long-distance market and win equal access to Ma Bell’s customers.

To overcome consumers’ reluctance to change providers, MCI and other upstarts waged a price war, offered cash and other bonuses, launched massive advertising campaigns and promiseddiscounts on lengthy calls. Although a significant percentage of AT&T’s customers stayed glued to expensive “basic rate” plans -- there were about 30 million such customers as of mid-2000 -- most consumers found their way to a new long-distance company.

WorldCom, which bought MCI in 1998, collected about 20 percent of U.S. long-distance and toll revenue in 2001, according to the FCC’s most recent estimates of the long-distance market. The company ranked second to AT&T, which collected an estimated 35 percent of such revenue.