Euro GlobalX Boss: No Price War

Global Crossing Ltd. has emerged from its 22-month stint under bankruptcy protection with a flurry of newspaper advertisements and a promise not to start a price war (see Global Crossing Emerges From Chap 11 and Global Crossing Gets Branding).

The operator was one of the telecom sector's highest-profile examples of excess and mismanagement during its expansion days (see GlobalX: The Burst Bubble) – but now, a new Global Crossing has emerged from the wreckage with just $200 million of debt, instead of the $12.4 billion it had when it filed for Chapter 11 protection (see Global Crossing Gets New Board).

The carrier's European managing director, Phil Metcalfe, says dragging service prices down to win business wouldn't make any sense. "We could do that if we wanted, but it wouldn't be wise – we'd only end up back where we were, and we don't want that. It's not in the business plan or strategy. We have good products, and we want to generate cash," says Metcalfe.

Metcalfe also said that Global Crossing won't be joining MCI (Nasdaq: WCOEQ, MCWEQ) (a.k.a. WorldCom Inc.), in targeting Europe's small and midsize business, either (see MCI Europe's Slippery Strategy). "I don't think we'll ever target European SMEs. We're aiming higher up the food chain than that," adds Metcalfe.

Metcalfe says that with the network mostly built and debt removed, the company is ready to make some money. "We spent $4.1 billion in 2001 and less than $200 million this year, which is a good indication that the network is pretty much built out." Globally, the company claims its IP network connects more than 200 cities in 27 countries, and that it has "tens of thousands" of customers located in 500 cities in 50 countries.

Metcalfe predicts the company could generate net income in 2005.

In Europe overall, the company says it has 1,400 customers connected to its MPLS-enabled network, 270 of which are service providers and 1,130 enterprises, with most of that business in Britain. Of the carrier's $700 million revenue in Europe in 2003 (of a global total of $2.9 billion), about 60 percent is generated in the U.K. – largely due to the customer base that came with the acquisition of Racal Telecom for about $1.6 billion in cash in 1999. Consequently, of the 1,150 or so staff in Europe, about 1,000 are in the U.K.

With no new network plans, Global Crossing will need to partner if it is to break into the emerging Eastern European services market (see Europe's VOIP Scene Is Hot and Eastern Europe Has Promise). While Metcalfe says the operator has a "limited presence" in Austria and the Czech Republic, any move further East would be "through partners – it would be too expensive to build into that region, and others have already done that."

For higher margins – most likely coming from IP VPNs – the company still has some work to do. According to a recent Boardwatch Insider report, "International IP VPNs: Goodbye Hype, Hello Reality," only 28 percent of the bids in which the operator is involved include an IP VPN element (see Report Unveils Top IP VPN Providers). The report names Global Crossing as one of the "niche players" in the international IP VPN market, while pegging AT&T Corp. (NYSE: T), BT Group plc (BT) (NYSE: BTY; London: BTA), Equant (NYSE: ENT; Paris: EQU), Infonet Services Corp. (NYSE: IN), and MCI/WorldCom as the sector's likely winners.

Gartner Inc. analyst Jay Pultz, in a research note for enterprise users, suggests that Global Crossing currently "will primarily appeal to large enterprises seeking a low-cost secondary provider." Pultz adds that the operator has done well to cut its operating expenses by 63 percent to "a manageable $700 million annually," though it still "has a considerable way to go" to improve its service metrics.

One way the carrier could attract more VPN business would be to add VOIP to its IP VPN offering and take the packetized voice service all the way to the desktop, something many of its main competitors are already offering. "We're talking to some customers now about that service," says Metcalfe.

Global Crossing's European VOIP transport business is growing. "We're carrying 2 billion minutes of VOIP traffic each month now for other carriers and enterprises, using Sonus Networks Inc. softswitches in seven European locations. Originally we were taking our VOIP traffic over ATM to get quality of service, but we're migrating that traffic over to MPLS now."

So what can new owner Singapore Technologies Telemedia Pte. Ltd. (STT) expect from its IP carrier? On the financial front, an application has been made to list the new common stock on the Nasdaq (it's currently trading in the over-the-counter (OTC) market). STT now owns 61.5 percent of the equity, or 18 million shares of preferred stock and 6.6 million shares of the new common stock. The rest of the equity, 15.4 million shares of common stock, are held by the operator's former secured and unsecured creditors.

Investment bank J.P. Morgan Chase & Co. (NYSE: JPM) is suing Global Crossing founder Gary Winnick and other former and current executives for $1.7 billion, accusing them of "fraud, aiding and abetting fraud, conspiracy to commit fraud, negligent misrepresentation, and aiding and abetting negligent misrepresentation" – though the operator is not a defendant in the litigation, according to a filing with the Securities and Exchange Commission (SEC).

Global Crossing says it does not comment on any lawsuits, and could not name the current executives involved in the action.

— Ray Le Maistre, International Editor, Boardwatch

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