Inside the Telecom Crash: Bankruptcies, Fallacies and Scandals - a Closer Look at the Worldcom Case

Abstract:     
Numerous telecommunication companies have entered bankruptcy proceedings in the United States lately, with 2002 being a record year. WorldCom, the second largest long-distance telephone carrier in the country, was one of them. The filing was the largest in the U.S. so far, as well as the accounting scandal in the company. WorldCom's rise and fall typifies the meltdown of the highly leveraged telecommunications sector over the last few years. An industry that historically has outpaced overall economic growth, crashed in the beginning of the new century. The overcapacity in the telecommunications sector, was perhaps the worst in the economy. As the telecom crisis still persists, although there are signals of recovery, here we show the predictability of Altman's Z-Score Model, a simple credit risk model, applying it to some of the major bankruptcy-protection telecom cases. Detailed discussion about WorldCom, as well as the telecommunications services sector in the United States is presented.

Number of Pages in PDF File: 23

Keywords: American Telecommunication Services Sector, Bankruptcy, Credit Risk, WorldCom

JEL Classification: G33, L96

working papers series