investors.com
Global Crossing's Coach Sets Telecom Game Plan
Date: 11/10/99
By: Reinhardt Krause
Investor's Business Daily
If Bob Annunziata coached football instead of running a phone company, rivals would be well-advised to prepare for an offensive-minded team.
As it is, his playbook at Global Crossing Ltd. has been full of surprises. The telecom firm made two big buys this year and barely missed out on a third. More purchases may be on the way as Annunziata expands Global's Internet-age communications network.
Global Crossing began selling phone services via undersea fiber-optic cables less than three years ago. Annunziata, who came aboard as chief executive in March, wants to turn the upstart into a provider of high-speed data pipes and services to large companies around the world. He's built Global's fiber network with electronic commerce between businesses in mind.
"We're well-positioned and not just with an end-to-end network," he said at an investor conference in New York last week. "We're growing Web-hosting, we're in the high-bandwidth space, we have capabilities to grow (internally)."
Shortly after leaving AT&T Corp. to join Global Crossing, Annunziata launched a bold gambit using the upstart's soaring shares. He aimed to buy both US West Inc., the smallest regional Bell, and Frontier Corp., a local and long-distance phone company. Qwest Communications International Inc. foiled Annunziata's plan by making a better bid for US West.
Still, Global Crossing closed a $10 billion acquisition of Frontier on Sept. 28. And Annunziata had more tricks up his sleeve.
In September, Global Crossing took the wraps off a fiber-optic venture in Asia with Microsoft Corp. and Japan's Softbank Corp.
Then Global Crossing struck a mid-October pact to buy the telecom unit of Britain's Racal Electronics PLC for $1.65 billion.
Looking To Grow
What's next at Global Crossing, which is based in Bermuda and Los Angeles, is anyone's guess.
"If there's a smart acquisition, we'll take a look at it, but not at any price, as we showed with US West," Annunziata said. "We're always looking for something that will jump-start our business."
Global Crossing was started by Gary Winnick, who helped Michael Milkin build junk bond house Drexel Burnham Lambert in the 1980s. Global Crossing's early customers were other telecom carriers and Internet service firms that needed trans-Atlantic links.
To expand its reach, Global Crossing this year began building a land-based fiber network in Europe with several partners. The deal to buy Racal's telecom business will give Global Crossing a 4,700-mile fiber network in the U.K.
Global Crossing says its network will span the world's 50 largest cities by late 2000.
The joint venture with Microsoft and Softbank, called Asia Global Crossing, plans to link Japan with Taiwan, Singapore, Hong Kong, Malaysia and the Philippines before 2001. A second stage will link Japan with China and South Korea.
Global Crossing's high-speed data network carries e-mail, graphics and video to far-flung corporate branch offices. It lets companies share data with customers and suppliers via highly secure Web sites.
Some well-funded rivals are attacking the same markets. MCI WorldCom Inc., Qwest and Equant NV of the Netherlands also are targeting the international data market.
Big Spender
Some of those rivals are larger than Global Crossing. But the company has grown fast and has a market capitalization of about $30 billion.
It's still in the heavy-spending stage, however. Global Crossing posted a third-quarter loss of $34.1 million as it's moved fast to build its network. Analysts say the loss was smaller than expected. Pro-forma revenue rose 7.5% to $929 million.
As Global Crossing builds up, some analysts say it could be a takeover target.
Its assets could attract a regional Bell with global ambitions, such as SBC Communications Inc. Other merger speculation centers on European heavyweight Deutsche Telecom AG, which has been a Global Crossing customer.
Annunziata, who competed against the regional Bells in local phone markets in the early 1990s, is in no rush to sell out. He waited for a big payday at Bell-rival Teleport Communications Group Inc., which AT&T bought for $11.3 billion last year.
The Long Island, N.Y., native also is wary of telecom alliances that don't work. Deutsche Telekom long has been rumored to be interested in Global Crossing. But Annunziata says he wouldn't want to sell Deutsche Telekom a stake in Global if it meant Global couldn't compete in Germany.
"We don't need another Global One," he said, referring to the struggling alliance between Deutsche Telekom, France Telecom SA and Sprint Corp.
Analysts say Global Crossing faces hurdles. Investors may be taking a wait-and-see stance. Its stock got pounded after it revealed its bid to buy US West, falling from more than 60 in May to a closing low of about 20 on Sept. 7. Since then, Global Crossing's shares have rebounded a bit and are trading at about 35.
One trouble spot is pricing in the U.S. long-distance market. Rochester, N.Y.-based Frontier's revenue slid this year as AT&T, MCI WorldCom and Sprint cut prices.
Turning around Frontier's consumer long-distance business will take time, Merrill Lynch & Co. says.
With Frontier, Global Crossing got a Web-hosting operation. Called Global Center, that's one area where Global Crossing is investing heavily. Annunziata expects growth from such data services as hosting corporate Web sites will offset long-distance woes. |
