Although the company said it has seen no mass exodus of customers, competitors report huge increases in inquiries, while the federal government is considering a freeze on future government contracts with WorldCom.
"I know of at least half a dozen instances in the last month, where WorldCom was one of the carriers being seriously considered -- or had won the bid contract from a Fortune 500 company -- and the customer walked away," said Lisa Pierce, a telecom analyst of the Giga Group. "They're not winning new business."
But analysts say most of WorldCom's biggest current customers will probably stay with the carrier, because migrating to a competitor is a cumbersome, expensive operation.
Crumpling under $30 billion in debt and a federal investigation into its almost $4 billion in hidden expenses, WorldCom filed the largest bankruptcy in corporate history on Sunday.
Now, WorldCom could lose as much as $700 million in revenues per quarter, from corporate and government clients who flee to competitors -- mainly AT&T and Sprint -- and new clients who balk at hiring the troubled carrier, according to a recent report from J.P. Morgan analyst Marc Crossman.
Earlier this month, the FAA squelched a multiyear contract with WorldCom worth as much as $3.5 billion, handing the long-distance portion of the contract to Sprint.
Also this month, Georgia's state technology authority threw out WorldCom's bid for a $2 billion, 10-year telecommunications contract, after learning the company's finances had been misstated. The only other bidder on the project's long-distance portion was AT&T.
On July 1, the federal General Services Administration said it would examine whether WorldCom would be eligible for new business with the federal government. Similar GSA assessments have blocked government agencies from contracting with scandal-tarnished firms Enron and accountant Arthur Andersen.
That examination is still under way, said GSA spokeswoman Mary Alice Johnson.
Most large WorldCom clients are doing the same thing, analysts said.
"If customers have the chance to renew, they're not going to renew with WorldCom," said Pat Comack, an analyst with Guzman & Co., a Miami investment bank. "I expect this to be a big windfall for AT&T."
WorldCom chief executive John Sidgmore said any departure of the carrier's customers should be stanched by the government protection implied in Sunday's bankruptcy filing.
"We have not seen any kind of mass exodus," Sidgmore told reporters Monday.
Large WorldCom customers, such as ISP Earthlink and the Nasdaq stock market, said they had long ago contracted backup providers in case one failed.
Officials at AT&T and Sprint, the No. 1 and No. 3 U.S. long-distance carriers, said Monday that they have been fielding huge increases in inquiries from businesses looking for alternate carriers.
Neither said they had received enough new business to affect earnings anytime soon. Both long-distance carriers are seeing a drop in revenues from plummeting rates and customer use of cell phones and e-mail.
One factor in WorldCom's favor is the Herculean effort required by businesses to replace large carriers.
The task involves months of planning, testing and paperwork, said Pierce. The changeover won't happen unless companies get a much cheaper rate -- say 25 percent over the life of the contract -- or WorldCom's future looks scary enough to warrant the flight, she said.
"It's a nightmare," Pierce said.
More likely, companies will shift some nonessential lines to backup carriers, creating an alternate "shadow network" that can be opened if WorldCom fails. These precautions are prudent even in normal times, said Forrester's Carl Howe.
Scott Cleland, president of Precursor Group, estimated that any federal government contracting lockout of WorldCom would last less a year.
"The government wants to put WorldCom in a penalty box; it doesn't want to give it the death penalty," Cleland said.
Individual consumers have even fewer worries than large businesses, because single residential lines are easily switched and the choice of consumer long-distance providers is much greater, analysts said.
Still, industry observers say anecdotal evidence suggests many people are opting for competitors such as Sprint and SBC Communications.
The Telecommunications Research & Action Center, a consumer group, has this advice on its Web site for nervous customers of WorldCom's MCI long-distance carrier: "Relax. If you're an MCI customer, you do not have to do anything now."
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