Bankrupt WorldCom (MCI) plans PR and lobbying blitz [ to buy its way out]

[Dave Farber <dave () farber net>]

http://www.washingtonpost.com/wp-dyn/articles/A7086-2003Jul3.html?nav=hptoc_
tn




WorldCom Inc. has enlisted a team of lobbyists and consultants to lead a
more aggressive defense of the company in Washington, where it has come
under increasingly harsh scrutiny from members of Congress since its
accounting scandal.

The Senate has become particularly unfriendly territory for WorldCom.
Governmental Affairs Committee Chairman Susan Collins (R-Maine) launched an
investigation into its federal contracts. Sen. Rick Santorum (R-Pa.)
introduced legislation that would significantly increase WorldCom's tax bill
under its current reorganization plan. Judiciary Committee Chairman Orrin G.
Hatch (R-Utah) has scheduled a hearing for later this month to find out why
a company that admitted improper bookkeeping is being allowed to shed $35
billion in debt through the bankruptcy process.

WorldCom's creditors, who effectively control the company, have been
increasingly frustrated with its tepid response to critics. Some creditors
are urging WorldCom chief executive Michael D. Capellas to take a more
public role in defending the company, sources said.

One person close to the company said Capellas has been focused on steering
it out of bankruptcy but may now take a more active role in confronting
critics publicly.

WorldCom sought Chapter 11 bankruptcy protection last July after revealing
its accounting scandal. Several of its competitors have urged the federal
government to shut down WorldCom because of its wrongdoing.

In response to the criticism, WorldCom convened a meeting this week at its
Ashburn headquarters of representatives from several law firms and public
relations companies, including Patton, Boggs LLP, Hill & Knowlton and Wexler
& Walker Public Policy Associates.

The firms plan to begin a coordinated response beginning as early as Monday.
Representatives from the firms will join WorldCom staffers in a "war room"
on the same floor as Capellas's office at the company's Ashburn
headquarters, several sources confirmed.

Patton Boggs is a longtime client of MCI, WorldCom's long distance
subsidiary. Hill & Knowlton was brought in by Capellas, who used the public
relations firm when he was chief executive of Compaq. At the time, Compaq
was in the midst of a contentious, but ultimately successful, struggle to
merge with Hewlett Packard Co.

In addition, WorldCom is planning to mobilize its 55,000 employees to
contact members of Congress.

"As a normal course of business, we are doing everything we can to protect
the interests of our customers, creditors and employees," said WorldCom
spokesman Brad Burns. The company may also take out advertisements to
counter some of its critics.

Burns said much of the anger in Congress toward WorldCom is being stoked by
competitors, such as Verizon Communications Inc., that have called for the
federal government to block the company's emergence from Chapter 11.

"Due to the misinformation spread by our competitors it is important that we
have a voice in setting the record straight," Burns said.

WorldCom's use of outside firms to bolster its defense is a sign that the
company is concerned about losing momentum in its effort to put the scandal
and bankruptcy behind it, Verizon spokesman Eric Rabe said.

"They sense the tide is turning against them and they are trying to buy
their way out of this," Rabe said.

WorldCom has said that it expects to emerge from bankruptcy this fall. This
week it announced that it sweetened the terms of a settlement with the
Securities and Exchange Commission, hoping to resolve legal issues with that
agency. The terms would have to be approved by a federal judge. The Justice
Department continues to investigate WorldCom.

WorldCom is outgunned on Capitol Hill. where it faces a small army of
lobbyists working for the local telephone companies and rival long-distance
firms, including AT&T Corp.

It faces a further disadvantage because many members of Congress have
returned or declined to accept contributions from WorldCom's political
action committee. During the most recent quarter AT&T gave $93,000 to the
campaigns of members of Congress. During the same period, WorldCom gave
$36,750, according to the Center for Responsive Politics, a nonprofit
organization firm that tracks campaign donations.

WorldCom faces other barriers as well. Akin Gump Strauss Hauer Feld LLP, a
Washington law firm with a lobbying practice, represents a faction of the
company's creditors but is limited to legal work directly related to
bankruptcy issues.

U.S Bankruptcy Judge Arthur J. Gonzalez ruled that the firm could not be
paid for lobbying work. Gonzalez must approve all fees paid by WorldCom
while it is in bankruptcy. 

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