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3/27/2003
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Cost-Cutting Helps WorldCom Turn A Profit

The carrier's severe cost reductions enabled it to turn a profit in January, despite lower sales

CLINTON, Miss. (AP) - Telecommunications giant WorldCom Inc. reported its sales fell in January, but it also earned a profit--its first profitable month since filing the largest-ever U.S. bankruptcy in July.

Telecom industry analysts say WorldCom's January profit of $188 million from continuing operations reflects severe cost cutting before and after the hiring of WorldCom chairman and chief executive Michael Capellas in late November.

But at least one analyst said that Capellas - even while slashing costs in preparation for filling a reorganization plan in April - has also launched a behind-the-scenes search for new revenue sources. This contradicts earlier industry speculation that WorldCom would shed business lines and be offered for sale to a rival once it emerged from bankruptcy.

"Now, he's (Capellas) got representatives talking to major corporations about their bandwidth needs in the next few years and sending people to conferences to learn about key industry segments--not moves that indicate he's looking at a sale of the company," said Frank Dzubeck, strategy consultant to the telecom industry and president of Communications Network Architects in Washington.

WorldCom also publicly announced last week a major expansion of its bundled product offerings like its consumer Neighborhood plan.

Capellas said Wednesday in a statement, "We still have a lot of work to do, but we are delivering on our 100-day plan. We remain on track to emerge from Chapter 11 protection later this year."

Short-term, WorldCom's sales are still eroding, falling to $2.16 billion in January from $2.2 billion the month before.

WorldCom's MCI unit remains the largest U.S. long-distance carrier. But the telecom market is plagued by oversupply, and rivals like AT&T Corp. and Sprint Corp. have lured away some of WorldCom's biggest corporate clients.

WorldCom, which still faces federal investigations into its admitted $9 billion accounting fraud, began last year consolidating networks, laying off more than 20,000 workers and renegotiating or dumping supplier contracts with the approval of the bankruptcy court. Early in February, Capellas announced 5,000 more layoffs, more consolidations and more closings - with the aim of saving $2.5 billion a year.

The cost-cutting paid off in January. That month's profit compares to a $47 million loss from continuing operations in December.

"They're all about cost containment, and that's smart," said Mike Scheele, managing partner of San Francisco-based Telecom Asset Management Group, which brokers the buying and selling of strategic telecom assets. "They can't control demand for The Neighborhood; revenue growth is more uncertain."

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