The Failure of Good Intentions: The WorldCom Fraud and the Collapse of American Telecommunications After Deregulation

IF 1.2 1区 社会学 Q1 LAW Yale Journal on Regulation Pub Date : 2002-01-01 DOI:10.2139/SSRN.335180
J., Gregory Sidakt
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The first, addressed in Part I, is the administrative cost of deregulation, which has grown substantially under the Telecommunications Act of 1996.Part II addresses the consequences of the FCC's use of a competitor-welfare standard when formulating its policies for local competition, rather than a consumer-welfare standard. I evaluate the reported features of the FCC's decision in its Triennial Review. Press releases and statements concerning that decision suggest that the FCC may have finally embraced a consumer-welfare approach to mandatory unbundling at TELRIC prices. The haphazard administrative process surrounding the FCC's decision, however, increases the likelihood of reversal on appeal.Beginning in Part III, I address at greater length the WorldCom fraud and bankruptcy. I offer an early assessment of the harm to the telecommunications industry from WorldCom's fraud and bankruptcy. I explain how WorldCom's misconduct caused collateral damage to other telecommunications firms, government, workers, and the capital markets. WorldCom's false Internet traffic reports and accounting fraud encouraged overinvestment in long-distance capacity and Internet backbone capacity. Because Internet traffic data are proprietary and WorldCom dominated Internet backbone services, and because WorldCom was subject to regulatory oversight, it was reasonable for rival carriers to believe WorldCom's misrepresentation of Internet traffic growth. Event study analysis suggests that the harm to rival carriers and telecommunications equipment manufacturers from WorldCom's restatement of earnings was $7.8 billion. WorldCom's false or fraudulent statements also supplied state and federal governments with incorrect information essential to the formulation of telecommunication policy. State and federal governments, courts, and regulatory commissions would thus be justified in applying extreme skepticism to future representations made by WorldCom.Part IV explains how WorldCom's fraud and bankruptcy may have been intended to harm competition, and in the future may do so, by inducing exit (or forfeiture of market share) by the company's rivals. WorldCom repeatedly deceived investors, competitors, and regulators with false statements about its Internet traffic projections and financial performance. At a minimum, WorldCom's fraudulent or false statements may have raised rivals' costs by inducing inefficient investment in capacity or inefficient expenditures for customer acquisition and may have artificially reduced WorldCom's cost of capital and thus facilitated its long string of acquisitions.During the prebankruptcy period, WorldCom's business strategy may have been designed to harm rival providers of Internet backbone or long-distance services. 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After Chapter 11 reorganization, WorldCom's freedom from debt would enable the firm to underprice rivals that are as, or more, efficient than WorldCom. Economic efficiency would suffer because consumers would pay less than the true social cost required to supply the services offered by WorldCom. Moreover, the competitive advantage conferred upon WorldCom by the U.S. bankruptcy court's elimination of WorldCom's debt (in whole or in part) could constitute state aid in violation of Article 87 of the European Community Treaty.In Part VI, I argue that WorldCom's exit from the market would not carry significant social costs. WorldCom's value as a going concern is dubious, and other carriers could readily absorb WorldCom's Internet and long-distance customers. The FCC should investigate the ramifications of WorldCom's fraud for telecommunications policy. The outcome of that investigation may include the finding that WorldCom is unqualified to hold its FCC licenses and authorizations. 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引用次数: 89

Abstract

This paper was substantially revised in March 2003 to analyze WorldCom's fraud and bankruptcy and the FCC's February 20, 2003 decision its Triennial Review of mandatory unbundling. To date, policymakers and scholars have failed to recognize how those topics are interrelated. The United States has spent seven years trying to deregulate telecommunications. We are not in the transition any longer. It is time to take stock. In this essay, I address three topics. The first, addressed in Part I, is the administrative cost of deregulation, which has grown substantially under the Telecommunications Act of 1996.Part II addresses the consequences of the FCC's use of a competitor-welfare standard when formulating its policies for local competition, rather than a consumer-welfare standard. I evaluate the reported features of the FCC's decision in its Triennial Review. Press releases and statements concerning that decision suggest that the FCC may have finally embraced a consumer-welfare approach to mandatory unbundling at TELRIC prices. The haphazard administrative process surrounding the FCC's decision, however, increases the likelihood of reversal on appeal.Beginning in Part III, I address at greater length the WorldCom fraud and bankruptcy. I offer an early assessment of the harm to the telecommunications industry from WorldCom's fraud and bankruptcy. I explain how WorldCom's misconduct caused collateral damage to other telecommunications firms, government, workers, and the capital markets. WorldCom's false Internet traffic reports and accounting fraud encouraged overinvestment in long-distance capacity and Internet backbone capacity. Because Internet traffic data are proprietary and WorldCom dominated Internet backbone services, and because WorldCom was subject to regulatory oversight, it was reasonable for rival carriers to believe WorldCom's misrepresentation of Internet traffic growth. Event study analysis suggests that the harm to rival carriers and telecommunications equipment manufacturers from WorldCom's restatement of earnings was $7.8 billion. WorldCom's false or fraudulent statements also supplied state and federal governments with incorrect information essential to the formulation of telecommunication policy. State and federal governments, courts, and regulatory commissions would thus be justified in applying extreme skepticism to future representations made by WorldCom.Part IV explains how WorldCom's fraud and bankruptcy may have been intended to harm competition, and in the future may do so, by inducing exit (or forfeiture of market share) by the company's rivals. WorldCom repeatedly deceived investors, competitors, and regulators with false statements about its Internet traffic projections and financial performance. At a minimum, WorldCom's fraudulent or false statements may have raised rivals' costs by inducing inefficient investment in capacity or inefficient expenditures for customer acquisition and may have artificially reduced WorldCom's cost of capital and thus facilitated its long string of acquisitions.During the prebankruptcy period, WorldCom's business strategy may have been designed to harm rival providers of Internet backbone or long-distance services. Because WorldCom's real costs were unknown, its pricing of Internet backbone services bore no relation to cost. Recoupment of losses was unnecessary as a condition for plausible predation by WorldCom because its management had other ways to profit personally. The coordinated actions of WorldCom's management, its investment bankers, and its auditors may have injured competition in the telecommunications industry. Part V argues that the FCC has a unique obligation-distinct from the mandate of the bankruptcy court or the Securities and Exchange Commission-to investigate the effect of WorldCom's misconduct on the telecommunications industry. For WorldCom, Chapter 11 bankruptcy can be a means to distort competition in the long-distance and Internet backbone markets. Because Chapter 11 bankruptcy is not designed to eradicate anticompetitive business models or to establish policy for the telecommunications infrastructure, the FCC is uniquely empowered to defend the competitive process. After Chapter 11 reorganization, WorldCom's freedom from debt would enable the firm to underprice rivals that are as, or more, efficient than WorldCom. Economic efficiency would suffer because consumers would pay less than the true social cost required to supply the services offered by WorldCom. Moreover, the competitive advantage conferred upon WorldCom by the U.S. bankruptcy court's elimination of WorldCom's debt (in whole or in part) could constitute state aid in violation of Article 87 of the European Community Treaty.In Part VI, I argue that WorldCom's exit from the market would not carry significant social costs. WorldCom's value as a going concern is dubious, and other carriers could readily absorb WorldCom's Internet and long-distance customers. The FCC should investigate the ramifications of WorldCom's fraud for telecommunications policy. The outcome of that investigation may include the finding that WorldCom is unqualified to hold its FCC licenses and authorizations. That legal conclusion would promptly, and properly, propel WorldCom toward liquidation.
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善意的失败:世界通信诈骗和美国电信在放松管制后的崩溃
这篇论文在2003年3月进行了实质性的修订,以分析世界通信公司的欺诈和破产,以及美国联邦通信委员会2003年2月20日决定对强制分拆进行三年一次的审查。迄今为止,政策制定者和学者们未能认识到这些主题是如何相互关联的。美国花了7年时间试图解除对电信业的管制。我们不再处于过渡时期。是时候进行评估了。在这篇文章中,我将讨论三个主题。第一部分讨论的第一个问题是放松管制的行政成本,根据1996年的《电信法》,这一成本大幅增长。第二部分阐述了FCC在制定当地竞争政策时使用竞争者福利标准而不是消费者福利标准的后果。我在其三年期审查中评估了FCC决定的报道特征。有关该决定的新闻稿和声明表明,联邦通信委员会可能最终接受了一种消费者福利的方式,以TELRIC价格强制分拆。然而,围绕FCC决定的杂乱无章的行政程序增加了上诉逆转的可能性。从第三部分开始,我更详细地讨论了世通的欺诈和破产。我对世通的欺诈和破产给电信业带来的危害进行了初步评估。我解释了世通的不当行为是如何给其他电信公司、政府、员工和资本市场造成附带损害的。世通虚假的互联网流量报告和会计欺诈鼓励了对长途容量和互联网骨干容量的过度投资。由于互联网流量数据是专有的,而WorldCom主导着互联网骨干服务,而且WorldCom受监管监督,竞争对手相信WorldCom对互联网流量增长的虚假陈述是合理的。事件研究分析表明,WorldCom的重报给竞争对手运营商和电信设备制造商造成的损失为78亿美元。世通的虚假或欺诈性陈述也为州和联邦政府提供了制定电信政策所必需的不正确信息。因此,州和联邦政府、法院和监管委员会有理由对世通未来的陈述持极端怀疑态度。第四部分解释了世通的欺诈和破产可能是为了损害竞争,并且在未来可能会这样做,通过诱导公司的竞争对手退出(或没收市场份额)。世通公司在互联网流量预测和财务表现方面一再欺骗投资者、竞争对手和监管机构。至少,WorldCom的欺诈性或虚假陈述可能通过诱导低效的产能投资或低效的客户获取支出来提高竞争对手的成本,并可能人为地降低WorldCom的资本成本,从而促进其长期的收购。在破产前的那段时间里,世通的商业策略可能旨在损害互联网主干或长途服务的竞争对手。由于世通的实际成本是未知的,其互联网骨干服务的定价与成本无关。作为世通貌似有理的掠夺行为的条件,弥补损失是不必要的,因为其管理层有其他的个人获利方式。世通管理层、投资银行家和审计人员的协调行动可能损害了电信业的竞争。第五部分认为,联邦通信委员会有一项独特的义务——不同于破产法庭或证券交易委员会的授权——调查世界通信公司的不当行为对电信业的影响。对世界通信公司来说,根据破产法第11章破产可能是扭曲长途和互联网主干市场竞争的一种手段。由于破产法第11章的目的不是根除反竞争的商业模式,也不是为电信基础设施制定政策,所以联邦通信委员会是唯一有权捍卫竞争过程的机构。根据破产法第11章进行重组后,世界通信摆脱了债务,这将使该公司能够以低于世界通信效率甚至更高的竞争对手的价格收购世界通信。经济效率将受到影响,因为消费者支付的费用将低于提供世通提供的服务所需的真实社会成本。此外,美国破产法院免除世通债务(全部或部分)所赋予世通的竞争优势可能构成违反欧洲共同体条约第87条的国家援助。在第六部分中,我认为世通退出市场不会带来重大的社会成本。作为一家持续经营的公司,世通的价值是值得怀疑的,而其他运营商可能很容易吸收世通的互联网和长途客户。 这篇论文在2003年3月进行了实质性的修订,以分析世界通信公司的欺诈和破产,以及美国联邦通信委员会2003年2月20日决定对强制分拆进行三年一次的审查。迄今为止,政策制定者和学者们未能认识到这些主题是如何相互关联的。美国花了7年时间试图解除对电信业的管制。我们不再处于过渡时期。是时候进行评估了。在这篇文章中,我将讨论三个主题。第一部分讨论的第一个问题是放松管制的行政成本,根据1996年的《电信法》,这一成本大幅增长。第二部分阐述了FCC在制定当地竞争政策时使用竞争者福利标准而不是消费者福利标准的后果。我在其三年期审查中评估了FCC决定的报道特征。有关该决定的新闻稿和声明表明,联邦通信委员会可能最终接受了一种消费者福利的方式,以TELRIC价格强制分拆。然而,围绕FCC决定的杂乱无章的行政程序增加了上诉逆转的可能性。从第三部分开始,我更详细地讨论了世通的欺诈和破产。我对世通的欺诈和破产给电信业带来的危害进行了初步评估。我解释了世通的不当行为是如何给其他电信公司、政府、员工和资本市场造成附带损害的。世通虚假的互联网流量报告和会计欺诈鼓励了对长途容量和互联网骨干容量的过度投资。由于互联网流量数据是专有的,而WorldCom主导着互联网骨干服务,而且WorldCom受监管监督,竞争对手相信WorldCom对互联网流量增长的虚假陈述是合理的。事件研究分析表明,WorldCom的重报给竞争对手运营商和电信设备制造商造成的损失为78亿美元。世通的虚假或欺诈性陈述也为州和联邦政府提供了制定电信政策所必需的不正确信息。因此,州和联邦政府、法院和监管委员会有理由对世通未来的陈述持极端怀疑态度。第四部分解释了世通的欺诈和破产可能是为了损害竞争,并且在未来可能会这样做,通过诱导公司的竞争对手退出(或没收市场份额)。世通公司在互联网流量预测和财务表现方面一再欺骗投资者、竞争对手和监管机构。至少,WorldCom的欺诈性或虚假陈述可能通过诱导低效的产能投资或低效的客户获取支出来提高竞争对手的成本,并可能人为地降低WorldCom的资本成本,从而促进其长期的收购。在破产前的那段时间里,世通的商业策略可能旨在损害互联网主干或长途服务的竞争对手。由于世通的实际成本是未知的,其互联网骨干服务的定价与成本无关。作为世通貌似有理的掠夺行为的条件,弥补损失是不必要的,因为其管理层有其他的个人获利方式。世通管理层、投资银行家和审计人员的协调行动可能损害了电信业的竞争。第五部分认为,联邦通信委员会有一项独特的义务——不同于破产法庭或证券交易委员会的授权——调查世界通信公司的不当行为对电信业的影响。对世界通信公司来说,根据破产法第11章破产可能是扭曲长途和互联网主干市场竞争的一种手段。由于破产法第11章的目的不是根除反竞争的商业模式,也不是为电信基础设施制定政策,所以联邦通信委员会是唯一有权捍卫竞争过程的机构。根据破产法第11章进行重组后,世界通信摆脱了债务,这将使该公司能够以低于世界通信效率甚至更高的竞争对手的价格收购世界通信。经济效率将受到影响,因为消费者支付的费用将低于提供世通提供的服务所需的真实社会成本。此外,美国破产法院免除世通债务(全部或部分)所赋予世通的竞争优势可能构成违反欧洲共同体条约第87条的国家援助。在第六部分中,我认为世通退出市场不会带来重大的社会成本。作为一家持续经营的公司,世通的价值是值得怀疑的,而其他运营商可能很容易吸收世通的互联网和长途客户。 美国联邦通信委员会应该调查世通欺诈对电信政策的影响。调查结果可能包括发现世通没有资格持有其FCC许可证和授权。这一法律结论将迅速而恰当地推动世通走向清算。 美国联邦通信委员会应该调查世通欺诈对电信政策的影响。调查结果可能包括发现世通没有资格持有其FCC许可证和授权。这一法律结论将迅速而恰当地推动世通走向清算。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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