Telecommunications and Bankruptcy: Lessons From the Bust

Over the last four years, a number of previously high flying telecommunications companies – Global Crossing, Worldcom, and ICG, to name a few – entered into bankruptcy. This rush into bankruptcy followed a decline in the market value of the telecommunications sector that exceeded both that of their Internet counterparts and the thrift industry during the savings and loan debacle of the 1980s. Like the Internet startups of the same era, the telecommunications sector’s troubles in the early 2000s followed a period where capital was readily available and Wall Street placed a premium on ambitious plans. Once those plans emerged as elusive, however, the stock market punished its former darlings, forcing many firms to seek shelter under the protection of the bankruptcy laws. And for those firms that delayed their day of reckoning through fraud – such as Worldcom’s misstatement of earnings by over $11 billion – the ultimate consequences included a spate of lawsuits and governmental investigations.

This conference will explore three central questions related to the relationship of the bankruptcy system and the telecommunications industry: maintaining ethical conduct in the midst of pressures to meet financial targets; the opportunity for using the bankruptcy system to gain a “fresh start”; and the competitive implications of using Chapter 11 as a means of escaping crushing debt burdens.