Notes on GBLX's presentation at the H&Q conference (from Briefing.com)
Global Crossing (GBLX)
Global Crossing had the most impressive presentation of the
three telecom services, simply because of the extent of their
network. With the recent merger with Frontier, Global Crossing
has an extensive worldwide network. They own two cable
crossings in the Atlantic and two in the Pacific. They have
networks in most major American cities, and are currently
building out a network of 24 cities in Northern Europe. In
addition, they have networks in Asia and Latin America.
Global Crossing's most impressive statement is the fact that all
of their network is fully financed and that 80% of the current
capacity is under contract. While we haven't done a full
financial analysis of all the telecom companies yet, what this
statement means is that Global Crossing is likely to be one of
the more profitable telecom companies.
Expansion of capacity was shown to cause an increase in
margins. Growth with increasing margins is the ultimate
business. Global Crossing will achieve this because adding
capacity to their existing networks is far less costly than
building the network.
Dan Cohrs, CFO, showed a slide which demonstrated this. A
single fiber network (not sure what that meant) costs $750
million to install, with capacity of 40 GPS. This gives 256
circuits that can be sold, with each costing $2.9 million. Global
Crossing sells them for $8 million. When new capacity is
added, the upgrade costs $51 million, but it creates 256 new
circuits, which they expect to sell for $4 million in a year or so.
However, by that time, the incremental circuits only cost
$200,000 to build. This type of margin growth along with
revenue growth is exactly the type of message Wall Street
likes.
The rest of the presentation explained why Global Crossing
bought Global Marine, which was simply a purchase of the
vendor doing maintenance on the undersea cables.
When the Frontier merger is complete, Global Crossing will be
a powerful world-wide provider of fiber network services. Since
European prices are still 8-10 times US prices, and
deregulation is still occurring in Europe, the opportunity to ride
the declining price/rising demand curve is even greater in
Europe than it is here. |
