CEO Resigns At Bruised Midcom -- Missteps Caused Telecom Company's Value To Plummet

After a series of corporate pratfalls that cost Midcom Communications nearly $200 million in stock-market value, the Seattle company said today that its president and chief executive officer, Ashok Rao, resigned.

Paul Pfleger, founder and chairman, has replaced Rao at the reins of the long-distance telephone reseller.

In a brief statement, Midcom also said that Rao, 46, was no longer a director of the company.

Five months ago, Midcom stock peaked at $19.50, putting the company's market value - shares of stock multiplied by the stock price - at virtually $300 million. But after two major problems blitzed Midcom, the stock value plunged to $107 million, based on yesterday's closing price of $7.

The biggest loser was Pfleger. As the company's largest shareholder, with 36 percent of the stock, his stake plummeted almost $70 million, from about $107 million to $38 million. Rao's resignation gave the stock a boost today, however, pushing it up 50 cents to $7.50 at midday.

Although Pfleger, 60, founded Midcom in 1989 and has been chairman since then, he was better known in real-estate circles. In 1992, his real-estate business controlled nearly 40,000 apartment units.

Midcom first ran into trouble in January, when its planned acquisition of Telco Communications, a Virginia company, collapsed. That cost the stock 30 percent.

Then, in the past month, Midcom discovered that a billing system it employed last summer had fouled up, forcing it to report a more than doubling of its already announced third-quarter loss and a much-steeper-than-expected fourth-quarter loss. The stock lost more than half of its value.

The billing system estimated calls that occurred too late in the quarter for actual charges. But it overlooked pre-arranged discounts.

Rao joined Midcom in 1990. He previously had been president of a division of Ameritech, a regional Bell company in the Midwest.

Midcom was founded to provide telecommunication services to small and medium-size businesses across the country. Besides the Seattle headquarters, it has numerous sales and service offices nationwide. The company has more than 150,000 customers.