U.S. government renews major WorldCom contract

One of WorldCom's largest customers, the U.S. government, announced that it will renew a major telecommunications contract with the bankrupt company.

WorldCom, which supplies telecommunications services, including voice, data, wireless, video and Web hosting services, to about 75 federal agencies, is estimated to have received about US$331 million from the federal government in the federal fiscal year that ended in September. U.S. General Services Administration (GSA) officials Wednesday were unable to estimate the contract's value in the next year.

In renewing the contract, the GSA said it has not had problems with WorldCom since the company filed for bankruptcy this summer. WorldCom's service performance "has been consistent with the terms of the contract" since its bankruptcy filing, the GSA said in its announcement.

The contract, which is with WorldCom operating unit MCI WorldCom Communications Inc., was originally awarded in January 1999. This renewal is the first of four one-year options available under the initial contract, and it means that WorldCom will continue to provide its services until at least Jan. 10, 2004, according to the GSA, which administers the contract.

The GSA also said that it has suspended former WorldCom officials Scott D. Sullivan and David F. Myers from conducting business with the federal government.

The federal government had been under pressure from some groups to suspend service with WorldCom for overstating its earnings by some US$4 billion. The GSA earlier this year suspended Enron Corp. and Arthur Andersen LLP from government business.

Typically, companies are suspended from government business after indictments. But in WorldCom's case, the GSA is limiting its action to individuals facing criminal sanctions. Sullivan has been indicted on seven criminal counts, including securities fraud; Myers has pleaded guilty to related charges.

Ray Bjorklund, an analyst at Federal Sources Inc. in McLean, Va., said it would have been difficult for the government to switch service providers midstream, and as long as a company meets its service commitment, "you can do business with companies in bankruptcy." A change might have also raised national and economic security issues, he said.

Bjorklund said the GSA action is a vote of confidence in the company that may help it in its dealings with the private sector.

In a statement, Jerry Edgerton, senior vice president of WorldCom Government Markets, said the renewal demonstrates "that WorldCom and WorldCom's ability to provide services of the highest quality remain rock solid."

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