The judge overseeing MCI's bankruptcy approved the company's plan to emerge from the biggest bankruptcy in US history, a financial reorganization that will pay back most creditors US$0.36 on the dollar and erase US$35 billion of debt.
The ruling Friday by US Bankruptcy Judge Arthur Gonzalez comes 16 months after the company formerly known as WorldCom slid into disgrace after revealing it had fabricated US$11 billion in profits.
It wasn't immediately clear when the plan and MCI's emergence from bankruptcy protection would officially take effect. Judges often set an effective date between one and three months after approval.
The reorganization plan is designed to give MCI a fighting chance at survival in an industry besieged by fierce price wars, sluggish business spending and competing technologies such as cell phones and Internet-based calling.
But a freshly cleaned financial slate and a new name will not, however, suddenly sanitize the company's sullied reputation or wipe away its legal troubles, including charges of securities fraud in the company's accounting deception and a federal investigation into the company's telephone call routing practices.
Still, MCI emphasized Friday that it is a much different company now.
"We have spent the past 10 months building a world-class board of directors, recruiting seven new key executives, including a CFO [chief financial officer], a COO [chief operating officer], a general counsel and a chief ethics officer, and instituting a standard-setting corporate governance structure," said Michael Capellas, MCI chairman and chief executive.
MCI remains the nation's second biggest provider of long-distance and other communications services for consumers and businesses.
But contrary to the conventional wisdom, a nearly debt-free MCI will not be free to start slashing away at its troubled rivals AT&T and Sprint by cutting prices.
"Their profit margins are so tight, much lower than others, that basically any price war will make further erosion on their top line revenues and will immediately get them into negative margins," said Muayyad Al-Chalabi, managing director for RHK, a telecommunications consulting and research firm.
On the cost side, 85 percent of MCI's revenues are eaten up by operating expenses that management would be hard-pressed to trim. The work force, for example, has already been reduced by more than a third to 55,000 employees, down from 85,000 before the bankruptcy.
In the meantime, analysts expect that MCI will need to ramp up its investment in technology to upgrade its network and services.
MCI estimates that this year's total investment in the company's huge voice and data networks and other technological upgrades will total US$1.2 billion. RHK estimates it at closer to US$700 million.
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