WorldCom scandal could sink support for school tech programs

In the wake of the accounting scandal that threatens to push telecommunications giant WorldCom Inc. into bankruptcy, educators are bracing for a ripple effect that is sure to be felt by their schools.

Besides shaking the faith of school customers in WorldCom, the nation’s No. 2 long-distance provider, as well as investors’ faith in corporate America at large, the scandal also threatens to derail WorldCom’s considerable support for school technology programsincluding an initiative that reportedly trains some 10,000 teachers per month how to use the internet in their classrooms.

The company operates a free, standards-based web site called MarcoPolo, which it created in conjunction with leading content experts such as National Geographic and the Kennedy Center’s ArtsEdge project. MarcoPolo’s online resources now include panel-reviewed links to top internet sites in many disciplines, professionally developed lesson plans, classroom activities, materials to help with daily classroom planning, and powerful search engines.

WorldCom also offers free professional development to introduce educators at all grade levels to MarcoPolo and how it can be integrated into the curriculum. The training sessions are led by internet education specialists, and all participants receive copies of a teacher training kit.

The content on the MarcoPolo web site doubles every year, and the site enjoys more than one million user sessions a month, said Caleb Schutz, a WorldCom vice president and president of the company’s foundation. All 50 states have signed up to use the site’s content, Schutz added.

But if WorldCom files for bankruptcy as many analysts predict, the fate of these and other education initiatives is unclear.

Schutz told eSchool News it was business as usual for the WorldCom Foundation right now, but he acknowledged that “it’s hard to predict” what will happen as a result of the scandal.

“This is an extremely important, compelling program for the country,” he said. “It would be a huge loss to pull the plug on all this content.”

Educators familiar with the program agreed.

“MarcoPolo is an incredible program,” said Bob Moore, director of information technology services for the Blue Valley School District in Overland Park, Kansas. “It really is standards-based, and you’d hate to lose something like that. If WorldCom is unable to sustain programs like MarcoPolo, one would hope that some other company or foundation would be willing to help it continue.”

From a broader perspective, Moore added, “It would be terrible to lose the WorldCom Foundation. It has been such a tremendous supporter of quality, innovative educational programs.”

WorldCom slid toward bankruptcy June 26 after disclosing what is alleged to be the biggest case of crooked accounting in U.S. history. The news sent telecommunications stocks and other shares plunging on Wall Street.

President Bush said he was “deeply concerned” about some of the accounting practices in corporate America and called “outrageous” the disclosure that WorldCom had hidden $3.8 billion in expenses.

“We will fully investigate and hold people accountable for misleading not only shareholders but also employees as well,” Bush said at an economic summit in Alberta, Canada.

Bush said the Securities Exchange Commission would investigate, and the Justice Department could step in. The SEC had already been looking into lending and accounting practices at WorldCom, which owns the MCI telephone company.

Analysts said the former Wall Street darling could declare bankruptcy within the week as lenders call in millions in loans. WorldCom said it would start laying off 17,000 peopleabout 20 percent of its global work forceon June 28.

“If loans are called, in order to avoid an immediate shutdown, leaving lots of customers in the lurch, they’d have to file for bankruptcy,” said Alec Ostrow, a partner in the bankruptcy law firm of Salomon, Green & Ostrow in New York.

The Dow Jones average fell as much as 200 points and slipped below 9,000 for the first time since Octobor before recovering to post only a slim loss. The Nasdaq traded below its post-Sept. 11 closing low but also rebounded to record a small gain.

Trading was halted in the two stocks representing WorldCom’s business. WorldCom Group, which represent the company’s data and commercial telecommunications services, last traded at 83 cents, down from a 52-week high of $16.06. MCI Group stock, which tracks its consumer long-distance business, last traded at $1.68, down from a high of $17.33 in the last year.

In a statement issued June 25, WorldCom said its board of directors had found $3.8 billion was wrongly listed on its books as capital expenses in 2001 and 2002. That means WorldCom may have actually lost millions of dollars when it reported profits.

John Sidgmore, who was appointed WorldCom’s chief executive on April 29, said the board was “shocked” by what it found. The company said it had fired Scott Sullivan, its chief financial officer.

Arthur Andersen, which was WorldCom’s accountant during the period in question, said its work was in compliance with SEC standards, and it suggested Sullivan was to blame.

“Important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom,” Andersen said in a statement.

Andersen is already considered doomed. The accounting firm was convicted earlier this month of obstruction in the Enron debacle and has lost scores of clients.

WorldCom’s sudden fall comes at a time when the nation is dealing with a rash of corporate scandals, from Enron to Tyco International, Global Crossing, and Adelphia Communications, which filed for bankruptcy June 25.

The SEC said in a statement that WorldCom’s disclosures merely confirm the existence of “accounting improprieties of unprecedented magnitude.”

WorldCom, second only to AT&T in the long-distance market, started as a small long-distance company but grew into a giant through acquisitions over the past 15 years. Two years ago, that growth stopped when regulators blocked WorldCom’s proposed $129 billion merger with Sprint Corp.

In April, chief executive Bernard Ebbers, the man who built WorldCom, resigned under pressure amid mounting debt at WorldCom and questions about $408 million in loans the company gave him.

Rick Black, analyst for Blaylock & Partners in New York, said the latest disclosures raise further suspicions about Ebbers.

“The people who were running the company prior to this should know what’s going on,” he said. “If the CFO knows, the next question people are going to ask is what did Bernie Ebbers know, and of course they’re going to ask what did the board know.”

Rick Bauer, chief information officer for the Hill School in Pottstown, Pa., was blunt in his criticism of Ebbers.

“It is indeed sad to see companies like … MCI tarred with the same deceitful brush that has characterized Bernie Ebbers’ reign at WorldCom,” Bauer said. “To me, MCI was all about the internet, connectivity, and discovering the power of technology and learning. MCI [executives] paved the way for internet access for teachers and schools around the country. They ran a good company, sold good products, and had a soft spot for schools and teachers. I know MCI leaders like Todd Brekhus, a former teacher and technology coordinator, invested years of his life into creating and training thousands of teachers using MarcoPolo, and I fear that the auctioneer’s gavel may spell the death of this wonderful resource.”

In a report, J.P. Morgan analyst Marc Grossman offered some possibilities if WorldCom is forced to file for bankruptcy. In the short term, Grossman predicts WorldCom’s business and education customers will turn to “secure alternatives” such as AT&T and Sprint.

Grossman said WorldCom may make an attractive acquisition candidate for a Baby Bell looking to offer long-distance service to its customers. If such a combination occurred, it would pose a threat to AT&T. But a combination like that would not happen overnight, he said.


WorldCom Inc.


Securities Exchange Commission


Want to share a great resource? Let us know at