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Nacchio Chips
By Alex Gorelik

Joseph Nacchio surveyed his hand. Three of a kind, off a deuces wild seven-card draw. The odds were average. He figured he could wager 10,000 pensions on it. He could intimidate Liberty Media's John Malone with the Telecom climate in Europe. Malone had just dropped billions on UPC in the Netherlands and was reeling from a number of failed plays in Germany. Of course it had been recorded as revenue… Nacchio smiled. Always an ace up your sleeve as long as you've got someone else's shady trades in your back pocket.

His own trades with Global Crossing were nearly out front now. It hardly mattered. The stock market vultures were so anxious to recoup some of their losses, they were right back on the stock as soon as Qwest announced they'd found a buyer for QwestDex. 25 point gains in hours. He threw down some chips.

Nacchio was going to hold on to his hand. What did he have to lose, he'd been pushed out as CEO of Qwest, replaced by the already questionable Richard C. Notebaert, of Ameritech fame. Notebaert was already being challenged over dubious deals made while CEO at his former company, so Nacchio could only lean back, sip his bourbon, and wait. Ameritech was never known for quality of service, either. They'd been audited by a private firm in Ohio State and found to have provided constantly deteriorating service for years.

Malone asked the dealer for another 3 cards. The dealer handled the transaction. The house often makes out well on these big stakes tables. Billing providers, third party services and the miscellaneous back-end vendors draw a nice take off the top. At the end of the day, customer data belongs to the billing bureau anyway. The four major billing providers run the only casinos, so convergent service data just bounces around from cable at one house to telephony at a second. The Internet house was bringing in a little more burlesque to liven up the after hours spending but the margins were anorexic.

Malone was now looking at a full house. Collections using the European accruing rate was murder on their unpaid balance carryover program, but made it easy to inflate projected earnings. Managing 3rd party prepaid wireless services was a logistical nightmare, though. Could he bet 10,000 employee's insurance benefits on the odds? The downtrodden dotnet workforce made for easy pickins' in free-lance contractors. If only the feds hadn't just hit him with 150 million in unpaid taxes and an additional debt of $500 million in stock. He could hold off the feds for a while, maybe even get a permanent waiver, and get a new contractor workforce when the market improved. This was a high stakes table, after all. Hell, why not play this hand to the end.

Liberty Media was going back for more in Germany already. After failed attempts to buy TeleColumbus for $5.5 billion, he was going to try it again, this time for only $3.5 billion. The main obstacle was the German Federal Cartel's insistence that he invest in upgrading the cable network so it could compete with Deutsche Telekom in telephone services and high-speed Internet access - thus outweighing the diminished competition in cable. After acquiring TeleColumbus he would own 60 percent of the country's 18 million subscribers. But Malone had already seen Dick Callahan's communications development and operating company Callahan and Associates nearly go broke trying to do that very thing. He'd rather put on his poker face and see who flinches.

Bernie Ebbers, former CEO of MCI-WorldCom held a joker. It seemed peculiar since the two that had been in the deck were neatly displayed to the dealer's left, face up and mocking him. Ebbers was sacked with liability. With an income of over $350 mil/year for at least half a decade, he'd still managed to accrue insurmountable personal debt, including loans from his own company. With a marked joker in hand and $4 billion in bookkeeping irregularities to account for, it was unlikely he'd finish the round.

Now the new MCI-WorldCom CEO John Sidgmore was sending letters to the mayor of Vegas, saying he was surprised and outraged by the entire accounting fiasco and begging not to be banned from town. Remember, he told the mayor, we spend way too much money in this town for you to think about kicking us out. After the bankruptcy, WorldCom will still own more than half of the nation's Internet traffic, he reminded Vegas.

John Rigas, the now incarcerated founder and former CEO of Adelphia, along with his two sons was out of the game for taking $2 billion in loans off chips he hadn't cashed in. His cards were already being cycled back into the deck. On a seven-card draw, there aren't always enough cards to go around. A Communication Workers of America (CWA) Labor Union representative had asked to cut the deck to ensure a fair shuffle, but was denied by the house's Creditors Committee. CWA hoped for a single face card as compensation for employee's unpaid vacation and sick time, but was denied. CWA simply isn't a big enough player, house rules.

AT&T CEO Michael Armstrong was letting Comcast look over his shoulder, taking the advice of his suitor. Meanwhile AT&T was also suing the house to let Comcast switch the game to Texas Draw just before the quarterly earnings call came due. The merger will be a sweet deal for Armstrong, who will become the CEO of the new cable powerhouse. In the deal, he is selling assets that cost AT&T and its investors over $97 billion two years ago for $62 billion. For handing AT&T a $35 billion loss, Armstrong received 1.4 million in AT&T stock worth more than $32 million in bonuses.

The deal would make the new company dwarf all other cable providers. Only AOL/Time Warner would even come close in size. The near monopoly has allowed cable companies to raise rates at three times the rate of inflation over the last four years. As long as Comcast was looking over Armstrong's shoulder, why not take a peak at former AOL/TW CEO Gerald Levin's cards. He'd been forced to fold after a verbal attack from Ted Turner exposed his weak hand. If they could count their combined cards, it'd be pretty easy to figure what their odds were against the soon to be combined Digital Broadcast Satellite (DBS) companies EchoStar and DirecTV.

AOL/Time Warner's new CEO Richard Parsons wanted to drop 1 and pick up 2. That was the running joke. Drop Internet, pick up wireless and program licensing from network broadcasting to DBS. A competitive bet. TW always kept an eye on the blackjack table of entertainment programming even with a bet laid on the Multiple Service Provider table. AOL/TW's play didn't make K. Rupert Murdoch sweat. Murdoch's News Corporation simply transformed news to tabloid to keep the revenue rolling from advertisers who didn't want to be associated with the hard news on the Turner Networks anymore. Besides AOL/TW had just been placed on S&P's Negative CreditWatch listing, revealing over $2 billion in debt after restructuring- handing AT&T $1.5 billion of AOL Time Warner common stock in the process. America Online was also being investigated for accounting practices by the SEC and the Justice Department.

Nobody wanted to play with Enron anymore. Kenneth Lay sat alone at the nickel slots. Caught too many times with a 53-card deck and too many trumps in a deal. He'd confessed to marking the cards in exchange for being acquitted of forgetting to ante up to begin with. He was penalized with a small contribution back to the pot and banned from the tables until the players changed seats. At least their employees could still get their pictures up on the wall as the old sympathetic looking daily winners on the nickel slot piggy bank or maybe, if they were lucky, in a Playboy spread. With a hard pull of the lever, they might get all 7s and a chance to win back their 401ks.

The round was up and the bets were placed. Time to show your hands boys. They watched each other unflinching, eyes moving slowly around the green table. Just as they were revealing their cards, the doors were busted open and the cops swarmed the club. Trailing the rear came none other than the mayor of Vegas himself, George W. Bush. He announced with bravado, I'm sorry fellas, but this money is going to be needed to help fund the War on Terror. Thanks for your cooperation.

 

 

 


Mike Doughty



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