Global Crossing: Buying or Selling? Maybe Both!

Despite a first-half profitability downturn, Global Crossing (Nasdaq: GLBC) is still projecting a positive end to 2010 and is expecting to be a player in the competitive service provider industry's ongoing consolidation.

But whether the company will be buying or selling is still in question, according to CEO John Legere, the man who led Global Crossing through bankruptcy and into financial stability over the past nine years.

Legere and Global Crossing CMO David Carey say in an interview this week that they believe their company is operating from a position of strength, but expecting to find ways to grow both organically and by acquisition or merger.

Global Crossing's stock is currently trading near its 52-week low at around $11, and both its first- and second-quarter results showed significantly higher losses than the previous year's first two quarters.

But Legere says Global Crossing is on track to meet the 2010 guidance provided in February, coming in at the low end of projected 7 to 10 percent revenue growth, while generating operating income of between $390 million and $440 million, and free cashflow of $10 million to $60 million.

That's due in part to two strong quarters of selling, including a second quarter in which Global Crossing "had the highest level of new orders on the business that we have ever had," Legere says. "We are up as much as 25 percent in the first half of 2010, over the last half of 2009."

Those sales are coming in what Global Crossing calls its "invest and grow" segment of the business, which includes IP-VPN (virtual private network) and data services in contracts to the wholesale voice business, which the company has been gradually winding down by restructuring prices to get rid of unprofitable accounts.

"We have to be careful, and we have to be conservative," Carey says. "But there are things you didn't hear on the quarterly earnings call. Collaboration traffic is up 15 percent, IP VPN ports are up 11 percent, and bandwidth is up 17 percent, IP backbone traffic up 80 percent, 17 percent sequentially. The trends of traffic on the network and customer satisfaction with our network are up. We are quite optimistic about the rest of the year."

Even without that optimism, Legere says Global Crossing would be tracking worldwide trends and keeping an eye out for possible partners and acquisition targets. Those could range from smaller companies, designed to help the company in certain market segments, to much bigger deals.

"There's a group of us -- Global Crossing, Level 3 Communications Inc. (NYSE: LVLT), Paetec Communications Inc. (Nasdaq: PAET), Savvis (Nasdaq: SVVS), XO Communications Inc. , tw telecom inc. (Nasdaq: TWTC) -- all of which are candidates for coming together in some fashion to create that significant third player [to AT&T Inc. (NYSE: T) and Verizon Enterprise Solutions ], or becoming components of some of these global players' attempts to come into this market or becoming the way some of the big players in the US participate in expansion outside," Legere says.

Global Crossing does not have to grow by acquisition or be acquired to generate profits for its investors, he insists, although others might.

"We don't have to do anything inorganic, and that changes how you play the inorganic game," Legere says. "If we continue to invest in ourselves and grow organically, we can have a very valuable company for shareholders. There are some players playing the inorganic game that have to because of their debt structure or a competitive disadvantage. We are aware of that as well."

One place Global Crossing might spend to expand would be in Asia/Pacific, where the company isn't as strong a player as it is in North America, Europe, and, of late, Latin America. But Legere admits finding the right Asia property at the right price is a long shot.

Global Crossing's strength is in its transport services and data center infrastructure, which have positioned the company to play well at the core, connecting content delivery networks (CDNs) globally and providing transport for rapidly growing mobile networks as well, Carey says. The carrier isn't playing in the free-for-all that mobile backhaul has become -- "we aren't in the fiber-to-the-tower business" -- but is riding the mobility boom through transport expansion.

Similarly, Global Crossing won't jump into the CDN pool, which is already crowded and would be expensive, but teams up with CDNs, such as Limelight Networks Inc. (Nasdaq: LLNW), and provides the transport that will help push popular content closer to the end user, once that model is monetized, Carey says. And through its Global Crossing Partner Program, the company now provides VPN services to other service providers on a white-label basis that allows those service providers to track network performance and service-level agreements. (See GC Enhances CDN With Limelight Acceleration).

That program is of increasing interest to major global carriers that are once more expanding their reach to satisfy their major multinational business customers, repeating a trend from the 90s that ended when the telecom bubble burst just after the turn of the century.

Global Crossing is part of another growing trend -- cloud-based services -- although it sees the market as three separate markets, once for infrastructure as a service, a second for communications as a service, and third for software as a service, according to Carey.

This time around, however, things will be different, he contends, as such companies as Google (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT), and other non-traditional players may have an impact.

— Carol Wilson, Chief Editor, Events, Light Reading

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