WCOM could be the catalyst for telecom recovery. Here's what could happen.
The company has so much debt that it cannot survive in any form and should be liquidated. Companies like Sprint and AT&T, plus a couple of the regional Bells would acquire the existing accounts, but would abandon duplicative, excess resources, if any. Bondholders would receive about 50 cents on the dollar, eventually, probably in the form of preferred stock.
The same solution might occur for Qwest, which is close to bankruptcy, with regional Bells and Touch America, and possibly AT&T picking up some customers and needed assets, with the remaining assets abandoned. Again, bondholders would get 50 to 70 cents on the dollar, eventually, and probably in the form of preferred stock.
Long distance operators provide the backbone for data communications, whether wireline or wireless. Demand for broadband capacity is NOT declining. The problem is that existing capacity is temporarily much greater than demand, causing low margins and/or inability to service debt, given the temporary lack of demand.
The administration has a record of favoring consolidation of small companies into big ones. It also faces the prospect of huge political losses in November unless it can straighten out this mess in a hurry. Even conservative bankers will turn against the adminsitration if the bankruptcies of these and other large companies cause a hit on their loan portfolios.
So, in the interest of self preservation, the adminsitration will likely take immediate action to keep the bankers happy and stave off any further collapse in the equities markets. Of course, I'm an optimist and assume that the administration is smart enough to see what's happening.
Art Bechhoefer |
