WorldCom`s troubles won`t affect us, says UUNet

By Bronwen Kausch, Media strategist, Innovative Media Productions

Johannesburg, 27 Jun 2002

Local WorldCom subsidiary UUNet maintains it is not financially dependant on its US parent, and says it is "business as usual" for its local operations.

"This doesn`t have an impact on South African operations or customers. We have been in business for nine years, and are a sustainable and profitable business," says David Meintjies, UUNet financial director.

We haven`t relied on cash from WorldCom for the last three months and we don`t need the cash going forward.
David Meintjies, financial director, UUNet

Local Internet service provider UUNet is 100% owned by WorldCom after Datatec sold its 76% holding in the company back to WorldCom for around R900 million late in 2000.

WorldCom, UUNet`s parent and the world`s second largest telephone and data company, is facing fraud charges after hiding $3.8 billion worth of costs through improper accounting.

US analysts are already speculating whether the scandal will lead to the company`s eventual bankruptcy, as WorldCom now has $30 billion in debt and may not be able to secure the $5 billion financing it was seeking.

Job cuts

In an interview with ITWeb in May, Meintjies predicted a R650 million turnover for the service provider in the current year.

"We haven`t relied on cash from WorldCom for the last three months and we don`t need the cash going forward," Meintjies said today.

He is also adamant that the 17 000 job cuts planned by its embattled parent, equating to 20% of its global workforce, will have no impact on local operations.

"There will be around 600 jobs cut throughout the European, Middle East and Asian regions, but we have always run a lean operation in SA and I don`t see any job cuts coming our way. We may not fill vacant positions, but I don`t see us laying anyone off."

Meintjies says UUNet supplies around 500Mb of bandwidth to the South African market per month and one of its biggest clients, M-Web, itself an ISP, relies on UUNet for its Internet connectivity.

According to Meintjies, UUNet has already spoken with M-Web and assured the company it will be in a position to continue to provide support.

M-Web is tied into a five-year UUNet contract, which is only up for review in November next year. He says M-Web has indicated it is happy with UUNet`s future security.

Meintjies says the local operation`s books have been prepared under local generally accepted accounting practices and the 2001 statements have already been audited by KPMG.

A competitor speaks out

Mike Brierly, CEO of UUNet competitor and fellow ISP, MTN Network Solutions (formerly Citec), says a potential buyer could be looking to acquire UUNet clients rather than its infrastructure.

According to Brierly, Internet Solutions and Telkom would both be excluded from a possible purchase as it would contravene competition regulations.

However, Johnnic is one of the companies that could be in the running should the company come under the hammer, although Brierly points out that the holding company would be wary of financing such a purchase.

Systems integrators such as AST, CS Holdings and Comparex may also look at the venture, although it wouldn`t necessarily fit with their core focus.

Meintjies says there has been speculation within the local market for some time over a possible acquisition of UUNet.

"There have been a number of companies interested in UUNet, but WorldCom is not a seller and UUNet has always been a healthy operation within the WorldCom stable," says Meintjies, adding that should a sale come about, a possible management buy-out should not be ruled out.

Other WorldCom fallout

As international markets tumbled on the news of WorldCom`s financial situation, local markets began to look closely at which South African companies may be exposed to the giant`s collapse.

Banking group Firstrand has a $12 million exposure to WorldCom via a R3 million loan from Firstrand subsidiary Rand Merchant Bank, while its London-based Henry Ansbacher Holdings lent WorldCom $9 million.

Local markets were also hit by WorldCom`s woes, with most indices falling heavily as investors scurried for cover.

IT bellwether stock Dimension Data went below the R6 level yesterday to trade as low as R5.90, but rallied in late trade, closing at R6.21, down 39c on the day.