Cable and Wireless files suit against MCI

Cable and Wireless didn't exactly set the world on fire after buying MCI's Internet backbone last year. But Cable and Wireless now has an explanation: It says MCI ripped it off. But the company may not be able to entirely pass the buck for its misfortunes.

In a complaint filed against MCI last week, Cable and Wireless detailed a litany of broken pacts, dirty tricks and unfulfilled promises it says it suffered after completing the deal with MCI. Under terms of the 1998 sale, valued at $US1.75 billion, MCI agreed that the whole of its iMCI division, as the unit up for sale was known, would be transferred to Cable and Wireless, "as an operating entity".

Instead, it claims MCI left the company with a skeleton staff and useless customer data that made it difficult for Cable and Wireless to satisfy customer demands. If the allegations are true, they would indicate a concerted effort by MCI to steal back the customers it had sold to Cable and Wireless. Unfortunately, it's hard to judge the truth of these claims, since MCI won't comment on pending litigation.

But don't weep for Cable and Wireless. The company did its fair share to mess up the new business after the acquisition. Cable and Wireless plc, the parent company, negotiated the deal and promptly dumped the business in the lap of another division, Cable and Wireless USA.

The US division, suffering shake-ups on the management side, was slow to decide what to do with it. Cable and Wireless USA's chief, Rich Yalen, stepped down soon after the deal, and was replaced by Dennis Matteucci, who also seemed reluctant to implement any bold new strategy. A marketing plan for a consumer service called Cwix was quietly shelved earlier this year.

A culture clash at the new company caused friction between former MCI employees and Cable and Wireless workers. Two top execs from MCI left -- assistant VP Howard Hempenius and Bruce Grudenberg, director of consumer Internet marketing -- contributing to the brain drain.

In addition, Cable and Wireless failed to buy the routing hardware needed to run the business. Under the terms of the deal, the company was able to run its services on MCI WorldCom's network for free, but that free ride is expiring. Analysts speculate that Cable and Wireless will use the lawsuit to bargain for an extension while they find a cheaper partner to provide routing. Cable and Wireless confirms that it wants to settle with MCI rather than take the case to court.

Either way, Cable and Wireless will have a lot of housecleaning to do. It needs to upgrade its network, develop new consumer and business products, such as a branded consumer dial-up and virtual private networks services, and do something to establish its brand in the US -- something litigation on its own is unlikely to do.

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