WorldCom's contract in Iraq raises hackles

Posted: Thursday, May 22, 2003

NEW YORK The Penta-gon made an interesting choice when it hired a U.S. company to build a small wireless phone network in Iraq: MCI, aka WorldCom Inc., perpetrator of the biggest accounting fraud in American business and not exactly a big name in cellular service.

The Iraq contract incensed WorldCom rivals and government watchdogs who say Washington has been too kind to the company since WorldCom revealed its $11 billion accounting fraud and plunged into bankruptcy last year.

''We don't understand why MCI would be awarded this business given its status as having committed the largest corporate fraud in history,'' said AT&T Corp. spokesperson Jim McGann. ''There are many qualified, financially stable companies that could have been awarded that business, including us.''

''I was curious about it, because the last time I looked, MCI's never built out a wireless network,'' said Len Lauer, head of Sprint Corp.'s wireless division.

The contract in Iraq is part of a short-term communications plan costing the Defense Department about $45 million, said Lt. Col. Ken McClellan.

The Pentagon also plans to have Motorola Corp. establish radio communications for security forces in Baghdad, a deal worth $10 million to $25 million depending on the options exercised, said McClellan, a Pentagon spokesperson.

The contract with WorldCom which plans to adopt the name of its MCI long distance unit when it emerges from bankruptcy has prompted grumbling in the telecommunications industry from people who say it was not put up for bids.

''We were not aware of it until it showed up in some news reports,'' Motorola spokesperson Norm Sandler said.

McClellan said he had no details on the process that led to the deal, which he said was signed early this month. WorldCom spokesperson Natasha Haubold declined to comment on details of the contract.

The company is to build a small wireless network with 19 cell towers that can serve 5,000 to 10,000 mobile phones used by reconstruction officials and aid workers in the Baghdad area.

The network, using the GSM wireless standard dominant in Europe and the Middle East, is expected to be running by July.

''This is an interim, quick government solution this is not the basis for some national long-term solution for Iraq,'' McClellan said.

''That will probably have to be undertaken by the Iraqis.''

WorldCom is not a commercial wireless carrier. It once resold other wireless carriers' service in the United States but dropped that approach recently.

However, Haubold said her company is fully qualified to perform the Iraq work.

She pointed to the company's work on a wireless system in Haiti in the 1990s and a 2002 contract, in which it served as a subcontractor, to provide long-distance connections for a wireless network in Afghanistan.

McClellan agreed that WorldCom's experience in Haiti and Afghanistan is ''analogous work'' to what is needed in Iraq.

Haubold also stressed the company's overall deep relationship with the U.S. military and government.

In fact, a recent review by Washington Technology, a trade newspaper that follows computing-related sales to the government, found that WorldCom jumped to eighth among all federal technology contractors in 2002, with $772 million in sales.

It was the first time WorldCom cracked the top 10.

That $772 million figure refers only to deals in which WorldCom is the prime contractor to federal agencies. The company gets much more taxpayer money exactly how much is not disclosed from state contracts and from federal deals in which it is a subcontractor.

That infuriates WorldCom critics, who say the government has kept the company afloat while the General Services Administration barred Enron and Arthur Andersen from getting contracts after their scandals emerged.

They also say it shows how little WorldCom would be hurt by the proposed $500 million fine the company has agreed to pay to settle Securities and Exchange Commission fraud charges.

''The $500 million is in a sense, laundered by the taxpayers,'' said Tom Schatz, president of Citizens Against Government Waste.

Although the Iraq wireless deal is minor compared to other government contracts WorldCom has won including a satellite data pact announced Tuesday with the National Oceanic & Atmospheric Administration Schatz found it questionable.

''Why would you have a company that is not really in that line of business providing that service for another country?'' he said. ''Given the circumstances and the bailout the government seems to be engaged in, that is certainly is not fair to their competitors or the taxpayers.''

McClellan declined to comment on whether the WorldCom fraud made the company a bad choice for the Iraq contract.

''That would probably be a question for the lawyers,'' he said.

Last year, Sprint and Global Crossing Ltd., another WorldCom rival, complained to the General Accounting Office about a $450 million contract awarded by the Defense Information Systems Agency to WorldCom for a computer network used by Pentagon scientists.

The GAO, the investigative arm of Congress, said the Defense agency ''relied on grossly inaccurate financial information in making a determination that WorldCom was a responsible contractor.''

But the GAO said it lacked the jurisdiction to rule on the complaint.



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