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Telecom Chiefs Defend Payouts To Executives

Jul 31, 2002 | Gannett News Service

Executives of some of the nation's troubled telecommunications firms swore Tuesday to continue services to their customers and defended stock options and other costly benefits bestowed on top management.

WorldCom President John Sidgmore, Global Crossing Chief Executive John Legere and Qwest Communications President Afshin Mohebbi, all heads of companies in financial trouble and under investigation, faced angry lawmakers who criticized the industry's excesses at a time companies were laying off thousands of employees and moving toward financial chaos.

Federal Communications Chairman Michael Powell also testified before the Senate Commerce Committee, saying he was confident WorldCom's bankruptcy would not result in a "crisis in the provision of services" the company provides. WorldCom subsidiary MCI has more than 20 million long-distance customers and another subsidiary, UUNet, helps provide most of the nation's Internet service.

"Clearly the telecommunications industry is riding on very stormy seas," Powell said, but added that "communications services remain vital to consumers around the globe."

Sidgmore vowed that the telecommunications giant would "continue to deliver world-class service to its customers."

At the hearing, Sen. Byron Dorgan, D-N.D., objected to a payout to ousted Qwest chief Joseph P. Nacchio, who resigned under pressure.

"When somebody runs a company into the ground, you don't give them a $10 million bonus," Dorgan said.

Mohebbi defended the bonus as legal.

Qwest disclosed Monday that it improperly booked more than $1 billion in sales from 1999 to last year and would restate its financial results. WorldCom and Global Crossing have filed for Chapter 11 bankruptcy protection.

Sen. John McCain, R-Ariz., decried Gary Winnick's sale of about $735 million in stock before Global Crossing collapsed. Winnick is the founder and chairman of Global Crossing, which operates a worldwide fiber-optics network.

Sen. Peter Fitzgerald, R-Ill., wanted to know why WorldCom was not calling in a $408 million loan to company founder Bernie Ebbers.

Sidgmore said the loan was made so Ebbers wouldn't depress the company's stock price with a big sale of his holdings. He also said that Ebbers, who resigned under a cloud in April, was not in default of the loan because the first payment isn't due until January.

If Ebbers defaults on his loan, "we will go after him to the fullest extent we can," Sidgmore vowed.

The executives said market conditions - a weakening economy, drop in customer demand and the drying up of capital - not their accounting misstatements, was to blame for their companies' dire financial straits.

But Powell said pressures born of too much capacity from an explosion of lines built during the telecom boom pushed companies toward bad accounting practices that caused "an implosion of the telecom industry."

"It was a gold rush mentality in the 1990s," Powell said. "Some companies felt unrelenting pressures and chose to cheat . . . to keep the party going."

The Justice Department and the Securities and Exchange Commission, which already has filed civil fraud charges against WorldCom, are investigating accounting irregularities. WorldCom disclosed it had disguised nearly $4 billion in expenses, thereby inflating its earnings.

Global Crossing, which operates a worldwide fiber-optics network, has acknowledged documents were shredded before and after its January bankruptcy filing and the disclosure of a federal investigation in February.

The SEC is investigating Qwest's swaps of fiber-optic capacity and the federal General Services Administration is reviewing its government contracts. The Justice Department also is investigating the company.

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