Global Crossing Holdings Ltd. faces new questions about its future, and sources say answers are getting tougher to predict.

The carrier's bid to merge with Singapore Technologies Telemedia Pte. Ltd. (STT), which recently cleared other hurdles (see Court Chills Icahn's Global X Bid), reportedly faces new challenges: The Wall Street Journal reported July 9 that a Pentagon aide has objected to the proposed sale.

"It's not looking good," says Frank Dzubeck, president of Communications Network Architects, a Washington, D.C., consultancy. Any indication from the Department of Defense that foreign ownership of Global Crossing could threaten national security would be a deal-breaker, he says.

It could at least color the view of agencies [ed. note: would that color be orange?] involved in reviewing the case for the U.S. Treasury's Committee on Foreign Investments in the United States (CFIUS). The group must decide by July 21 whether to approve the sale or investigate it for another 45 days before sending it for a 15-day Presidential review and approval.

"It's not likely to be approved easily... given concerns over critical infrastructure post September 11," says Farooq Hussain, general partner with consultancy Network Conceptions LLC.

"I think it has a chance to pass, but by a narrow margin," says Tom Nolle, president of CIMI Corp., yet another consultancy.

Both Global Crossing and STT say they remain positive on the outcome of the review process.

But if the merger falls through, it could be curtains for any foreign ownership of Global Crossing assets, and that situation could make for a tough sell. According to Hussain, Global Crossing's main attraction has been to Asian carriers seeking links to Europe and the U.S. And the carriers most interested have been those in markets where government controls keep pricing relatively stable. Unfortunately, those are the buyers with government affiliations that raise hackles in the stateside approval process.

Who would step in? XO Communications Inc. (OTC: XOXO) has been the only actual bidder for the carrier's assets, and it already owns roughly $790 million of Global Crossing's debt, according to papers filed last week by Global Crossing. Indeed, the carrier has filed a motion with the U.S. Bankruptcy Court for the Southern District of New York, complaining about XO chairman Carl Icahn's aggressive attempt to stake his claim. The carrier says he and his staff "interfered with" Global Crossing's restructuring plan by campaigning against the STT proposal with Congress and the Federal Communications Commission (FCC). A hearing on the motion is set for July 30.

Icahn hasn't issued any statements since Global Crossing slapped its motion on the table, but it's generally thought he'll continue to press. That might not be for the best, some think. XO doesn't need the U.S. assets Global Crossing has, so Icahn may simply sell them and keep what XO can use in Asia/Pacific. "There's no new vision being communicated," says Hussain. "The deeper question is how much sense it actually makes. XO doesn't need the capacity... There must be some upside to this I can't see."

XO and two other carriers that have made noises about buying Global Crossing -- IDT Corp. and Level 3 Communications Inc. (Nasdaq: LVLT) -- may not have solid cases for buying the network. But that could change. "If the RBOCs were going to add or buy domestic assets for long distance... it might make Global Crossing and others in that market more attractive," says CIMI's Nolle. Alternative providers are widely assumed to be the partners RBOCs will seek when they forge seriously into international long distance.

In the end, there's a chance Global Crossing won't survive, a scenario that appeals to one observer: "Seems to me Global Crossing's customer base... as well as the various network assets, probably should be broken out and sold separately to different domestic and international telecom carriers which have a reputable past and a viable future, plus want to boost their user numbers or expand their geographical reach," writes Frank Barbetta, research director for global carriers at Probe Group LLC, in an email. He says assets might be split up according to vertical markets.

— Mary Jander, Senior Editor, Light Reading