WorldCom Pulling Plug on Wireless

[General]

According to a story in Phonescoop.com, WorldCom is getting out of the wireless business. Here's the link:
Phonescoop

[KevinJames]

Confirming this, I received an email from a former WorldCom employee. It looks like he bailed just in time. Some of his former colleagues were not so fortunate.

[TNDan21]

Thank god is all I can say, the company has been known for shotty customer service and billing errors. Good Bye, MCI.

[dobby10]

Yes, I could of told you that 2 weeks ago. I have a relative at worldcom. He is not in the cell department. But told me they are planning to pull out of the market and sell whatever they have.

[Bird]

Ding-dong the witch is dead!


Here is the article:
=====================
WorldCom Inc., the telecommunications giant that is scrambling to pare back its operations to avoid bankruptcy, has quietly decided to pull the plug on its ailing wireless unit.

In a letter to some key sales agents obtained by The Chronicle, the company said it plans to stop signing up new customers in coming months. Based in Mississippi, WorldCom has roughly 1.7 million subscribers nationwide and operates several Bay Area stores. It also sells service through countless independent vendors.

"Unfortunately, the company has decided that the wireless resale business is not consistent with its core strategic business interests, and that WorldCom Wireless will not be playing a role in the company's long-term plans, " said the May 15 letter, signed by the firm's general counsel.

WorldCom spokeswoman Julie Moore declined to comment on the letter, but Chief Executive Officer John Sidgmore told Wall Street earlier this month that the company was considering selling the unit.

WorldCom's stock is down 90 percent this year amid mounting concerns about the company's ability to repay $30 billion in debt.

Though wireless has been a key growth spot for many telecommunications companies, analysts say it isn't as lucrative for WorldCom because the company doesn't own its own cellular network. Instead, it must pay rivals like Sprint PCS and Verizon Wireless to provide the underlying cell phone service, while WorldCom handles the billing and customer service. It also relies on outside vendors to sign up most of its customers.

"It is a noncore, low-margin business," said Vik Grover, an analyst with Kaufman Bros. in New York, who has a "buy" recommendation on WorldCom's stock. Grover estimates the business generates $1.3 billion in annual revenue, but loses about $200 million per year.

WorldCom Wireless has also been under fire for rampant billing errors and shoddy customer service. The company sparked more customer complaints in California last year than any other wireless company, according to a Chronicle analysis of data collected by the state Public Utilities Commission.

Indeed, the PUC recently threatened to bring enforcement action against the company unless it improves.

In addition, San Francisco lawyer Douglas Slain filed a lawsuit seeking class-action status against WorldCom in San Mateo Superior Court last fall, accusing the company of overcharging tens of thousands of customers statewide. He estimated between 30 to 40 percent of WorldCom Wireless bills are riddled with errors, far more than its rivals'. (For information on the suit, visit www.worldcomclassaction.com.)

The letter to sales agents, however, did not say whether WorldCom plans to sell its existing customer accounts or simply turn them over to the carriers that are already providing the underlying telephone service.

Telecom analyst Drake Johnstone said he doubts WorldCom will be able to raise much money by selling the accounts because he believes most WorldCom customers spend relatively little per month.

"Most of the major wireless carriers are paring back their exposure to lower-value customers," said Johnstone of Davenport & Co., an independent brokerage in Richmond, Va. He also noted that WorldCom Wireless' revenue has been flat or even declined in recent months.

Grover is more optimistic, figuring that WorldCom could reap roughly $200 million for the accounts. "In the short term, it is relatively significant," Grover said, noting that WorldCom would also eliminate a continuing source of red ink.

Either way, analysts don't expect existing customers' service to be interrupted. Instead, the accounts should simply be transferred to another wireless carrier. Although customers might have to sort through details of a new cell phone plan, customer service and billing could improve because most other wireless companies generate fewer gripes.

WorldCom's partners also played down the impact. "Their reseller business is a minuscule part of our overall business," Verizon spokesman Ken Muche said.

E-mail Todd Wallack at twallack@sfchronicle.com.