GCI may feel reverberations from WorldCom

Posted: Sunday, June 30, 2002

ANCHORAGE (AP) -- Troubled WorldCom Inc. holds a 10 percent stake in Anchorage-based General Communications Inc. and provides 16 percent of the Alaska company's revenues. But it's not clear whether the huge company's financial woes will have a major impact on GCI.

Alaska's big investment accounts appear to have escaped any impact from the telecommunication giant's difficulties, however.

''We're still digesting what it means,'' said David Morris, a GCI spokesman. ''We have people trying to figure out the impact. A lot of people around the country are doing the same thing.''

WorldCom is the nation's second largest long distance company. On Tuesday it reported accounting errors that made it appear the company made millions of dollars in profits that did not exist.

For now, Mississippi-based WorldCom is still in business and, Morris notes, ''they have paying customers who need to make calls and receive calls. Even if those customers go to another carrier, there's a possibility we'd still be getting their business.

But if WorldCom had to unload its GCI stock quickly, it could have a significant impact on the Alaska company's stock price.

WorldCom announced in November that it planned to unload half of the GCI shares it held then. GCI's stock had been selling for more than $12 a share. It dropped sharply after the sale announcement and traded mostly in the $8-$10 range for the ensuing six months, as other telecommunications industry problems unfolded.

As late as Tuesday afternoon, GCI stock was selling for more than $9 a share.

Then news of WorldCom's accounting problems appeared, and GCI stock tumbled. It dropped below $8 a share Wednesday and slipped below $7 a share Thursday. The shares closed Friday at $6.67, down 28 cents. Volume was about double the 245,000 shares traded on an average day.

WorldCom completed its stock sales in April, Morris said. That cut WorldCom's stake to about 5 million shares, worth about $33 million at Friday's close and about 10 percent of the company's common stock.

GCI has had a long partnership with WorldCom, the nation's No. 2 long distance carrier, and its predecessor, MCI.

In 1993, the companies signed an agreement for GCI to handle all MCI's calls to and from Alaska, while MCI handled all of GCI's long-distance traffic to the Lower 48. MCI and WorldCom have been a substantial part of GCI's business ever since, bringing in $58.2 million, or 16.3 percent of GCI's revenues, last year. The contract between the two companies runs through March 2006.

GCI did diversify its customer base in the long-distance field shortly after the MCI deal by signing an agreement with Sprint, which got GCI's international traffic in exchange for using GCI for its Alaska-bound calls. Under that contract, which runs through 2007, GCI received about $37 million in revenues last year.

When GCI bought into the cable TV business in 1996, MCI bought an additional $13 million in GCI stock. And last June, GCI obtained WorldCom's 85 percent interest in the fiber-optic cable system built along the trans-Alaska oil pipeline for preferred stock valued at $10 million.

Alaska's Permanent Fund Corp. had no shares of WorldCom when the accounting problems surfaced, said Joan Cahill of the fund. The fund had held an interest earlier as part of an index fund handled by Deutsche Asset Management, she said. ''When WorldCom fell out of the index, they sold it,'' she said. The fund also didn't have any WorldCom bonds, she said.

Alaska's pension funds also appear to be in the clear as far as WorldCom goes.

''We didn't have any (WorldCom) in the bond portfolio or in actively managed accounts,'' said Lee Livermore, chief investment officer for the Department of Revenue. Some of the pension funds may have held some WorldCom stock as part of an index fund, he said.

The Revenue Department handles investment for public employee and teacher retirement funds, deferred compensation plans, and the state's own investments.



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