Competitor Assessment
Company Overview
Description
Global Crossing is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and terrestrial
digital fiber optic cable systems. The company operates as a "carriers' carrier,"
providing tiered pricing and segmented products to licensed providers of international
telecommunications services. According the company, capacity on Global Crossing's network
is offered to all customers on an open, equal access basis. The systems completed or under
development by the company will form a state-of-the-art interconnected worldwide high
capacity fiber optic network. When completed, the network will consist of approximately
92,500 km, and will ultimately interconnect 100 of the world's top telecommunications
cities.
Based in Hamilton, Bermuda, and founded in March 1997, Global Crossing (GBLX) completed
its IPO in August 1998. In March of 1999, Global Crossing announced an agreement to merge
with Frontier Corporation.
Markets/Sales Strategy
Global Crossing markets capacity on its network to telecommunications providers, including
PTTs, ISPs and established and emerging telecommunications companies. The initial Global
Crossing sales strategy emphasizes the sale of capacity on an IRU (indefeasible right of
use) basis, whereby the customer purchases a unit of capacity for the remaining design
life of a particular cable system. On AC-1 (the company's first active underseas route
from the U.S. to Western Europe), Global Crossing sells capacity in increments of 155
Mbps, known as an STM-1, for the 25-year design life of the system. For the other Global
Crossing cable systems, Global Crossing expects to sell capacity to customers at the STM-1
level, as well as in smaller increments, based upon the demand levels along certain
routes. The company has instituted a tiered pricing schedule for all of its systems,
which provides for volume discounts, and allows customers to reduce their average circuit
cost as more circuits are purchased.
To facilitate sales of capacity on the Global Crossing Network as well as to increase
market awareness and name recognition, Global Crossing established regional sales and
marketing companies initially in the United States, the United Kingdom and Asia. Customers
will soon be able to purchase capacity anywhere on the Global Crossing network system by
signing a single CPA (capacity purchase agreements) with any of the regional sales and
marketing companies. Global Crossing has recruited and trained a full-service sales and
marketing team of professionals who had previously worked at traditional
telecommunications companies, emerging telecommunications companies and submarine cable
design and construction companies.
In total, the company has employed 21 marketing professionals as of December 31, 1998,
with offices in: Hamilton, Bermuda; Los Angeles and San Francisco, CA; Morristown, NJ;
Miami, FL; London, England; Amsterdam, the Netherlands; Tokyo, Japan; and Buenos Aires,
Argentina.
From a customer relations perspective, Global Crossing organizes at least one major
international conference per year in order to provide customers with updated information
on the Global Crossing Network. Attendees of such meetings are affiliated with both
existing and prospective customers and represent a variety of sectors of the
telecommunications industry. The company will also continue to host regional project
information meetings focusing on specific regions as the company expands coverage in new
geographic areas.
The company also plans to reinforce customer awareness through a variety of marketing
campaigns, including international conferences and regional marketing events,
participation in key industry and user group conferences, trade shows, speaking
engagements, press conferences and promotional campaigns. In addition, the marketing team
engages in regular visits to current and prospective customers to obtain a better
understanding of their individual needs and promote the advantages of the Global Crossing
Network.
Due to the breadth of the Global Crossing Network, the company feels it is uniquely
positioned to offer worldwide capacity to customers. Purportedly, customers acknowledge
that their need for large bandwidth is increasing, but are often doubtful with regard to
the precise routes where their particular growth will take place. In order to stimulate
customer loyalty and leverage uncertainty regarding bandwidth requirements, the company
developed the Global Crossing Network Offer (GCNO). The GCNO allows customers who can make
a multi-year dollar denominated commitment to the network with the flexibility to activate
capacity where they need it on an "as needed" basis in return for volume discounted
pricing. Additionally, the company continues to explore other marketing programs that will
provide further benefits to customers and position Global Crossing as the broadband
infrastructure provider of choice.
Global Crossing's offer is intended to provide a one-stop shopping total solution to
carriers, integrating both trans-oceanic transport with terrestrial backhaul on a
city-to-city basis. As the network is developed, Global Crossing expects to generate
additional revenues by broadening its product line to include a range of (unspecified)
bandwidth services. The company is also planning to offer customers wholesale services in
addition to the long term IRUs which are currently being sold to customers. The company
has indicated that such offerings may include intermediate term capacity leases, metered
bandwidth and Internet transit services, and that it expects to begin offering these
products and services before the end of 1999.
Global Crossing has successfully marketed capacity on its systems to licensed
telecommunications providers, including PTTs, ISPs and established and emerging
telecommunications companies. Sales on the systems commenced in October 1997 and, through
December 31, 1998, the company had entered into Capacity Purchase Agreements with
customers providing for contract sales of just over $1 billion. Customers total more than
33 international telecommunications carriers, including AT&T, MCI Worldcom, Deutsche
Telekom, GTE, Cable & Wireless, Equant, Qwest, Teleglobe, Swisscom, PTT Telecom BV, Telia
AB, Level 3, among others.
Financials
Annual Revenue: $424,000 (000s) for year ended 06/20/1905
Employees: 1,550
Year Founded: 3/1/97
Symbol: GBLX
Exchange: Nasdaq
Link to Yahoo!Finance
Analysis
Aggregate Vendor Ratings
Current Perspective Position Direction Stability Status
High 3rd Tier Positive Moderate/High Emerging
Analytical Summary
We are taking a positive stance on Global Crossing, a relatively new entrant to the
telecommunications industry. Founded in 1997, the company is engaged in building out a
global fiber network which is envisioned to encompass approximately 81,500 route miles and
will consist of four undersea and two terrestrial systems. Aggressive plans call for the
majority of the Global Crossing Network to be completed by the end of 2000, with the last
system operational by March 2001. Further, the company has changed its original mandate
from providing strictly shore to shore transport service to including intercity traffic as
well. Ultimately, the Global Crossing Network will interconnect the top 100
telecommunications cities in the world, and to this end, the company announced in July its
intention to merge with Frontier (which is the perfect U.S. complement to Global
Crossing's global facilities) and its plan to construct the Pan European Crossing system.
Although we are taking a positive stance on Global Crossing and its acquisition of
Frontier, the company has some daunting challenges ahead. First, Global Crossing has set
some very aggressive targets in relation to its network buildout. As a company that is
heavily dependent on its stock value for capital for its network buildout, Global Crossing
must meet its delivery schedule to avoid alienating investors. Additionally, Frontier is
itself in transition (from LEC to data services provider), and therefore the transition
may be difficult in the near term while Frontier attempts to reorient its sales,
marketing, and engineering staff (as well as its executive team) to a very different
mandate. Moreover, Frontier's acquisition by Global Crossing is likely to lead to
increased near-term instability as the two carriers (one a staid carrier with a LEC
background and the other an international start-up with aggressive ambitions) attempt to
reconcile their business plans.
Competitive Positives
We are taking a positive stance on Global Crossing, and we believe that the company has
the following positive competitive points:
ú Though founded a mere two years ago (1997), Global Crossing is developing into a
competitive force to be reckoned with in the international carrier market. Formerly, IXCs
were limited to a handful of international carriers (AT&T, Cable and Wireless) and the
FLAG consortium for transoceanic service. With the addition of Global Crossing to the
mix, IXCs are now able to obtain capacity at lower cost on a private, international
network.
ú Since inception, the company has altered its mandate from providing shore to shore
network to providing shore to shore and city to city interconnections, allowing for direct
connections via one carrier. This shift allows the company to offer an additional leg of
the journey for international voice and data traffic, simultaneously increasing revenues
while decreasing the cost to the carrier. The company plans to provide interconnection
between the top 100 telecommunications cities in the world.
ú Given the increase in demand for bandwidth, Global Crossing is well positioned to offer
competing carriers access to its network. As an international carrier's carrier, Global
Crossing will benefit immensely from the growth of data services, international Internet
traffic, and the increasingly global nature of e-commerce.
ú With Frontier, Global Crossing acquires significant (20,000 route miles worth) broadband
network facilities in the U.S., Frontier's skilled enterprise sales force and channel
partners, a portfolio of business (and residential) customers, and Frontier's local access
facilities across 29 states.
ú Global Crossing is stocked with a plethora of industry veterans recruited from disparate
segments of the telecommunications industry, affording the company a high level of
expertise in a wide range of areas.
ú Global Crossing also boasts an impressive array of customers (totaling 44 at August
1999) which provide the company with free marketing fodder. Potential customers are
therefore presented with a confidence-inspiring list of current customers, a list that
includes MCI WorldCom, Qwest, Level 3, and Deutsche Telekom.
Competitive Concerns
Although we are taking a positive stance on Global Crossing's current business strategy
and performance, we do have the following competitive concerns:
ú Global Crossing is positioned as a wholesale vendor of bandwidth during a period when
demand for capacity is on the rise and prices are on the decline. As prices are dropping
to the point at which bandwidth is becoming a commodity, Global Crossing still does not
have a value proposition (i.e., value added services) to replace its sheer bandwidth
offering.
ú Although Global Crossing has demonstrated the ability to get its business up and running
- i.e., hire industry luminaries and sign on to its service an impressive list of industry
giants - losing U S West to Qwest demonstrates that the company only aspires to maturity.
In fact, what this move demonstrates is that the company is not yet able to go to the mat
with even a new player like Qwest, let alone an industry giant (AT&T, MCI WorldCom,
Sprint).
ú In Frontier, Global Crossing gained a company that is going through a mid-life crisis.
Although Global Crossing realized (albeit somewhat belatedly) that it needed to integrate
itself vertically into the communications transport industry, it chose an ILEC which was
in the midst of becoming more of a CLEC. Frontier has shed its wireless component to Bell
Atlantic Mobile in July, in an effort to become more focused on business data services
such as IP (also announced in July).
ú In the data networking and services space, Frontier simply is a market follower.
Therefore, Global Crossing can't rely on Frontier to vault the combined entity suddenly
into data services market leadership, particularly because Frontier's principal
competitors for multinational services (AT&T, MCI WorldCom, and Sprint) have robust
portfolios, extensive networks, and established brands.
Vendor Support Actions
We suggest that Global Crossing consider the following actions to strengthen its overall
focus over the next six to 12 months:
ú Global Crossing must remain focused on its primary objective of building out its
transoceanic and terrestrial cable systems on time. The company has set aggressive
targets such as finishing the entire initial network -some 35,000 miles - by the end of
2000. Hitting the targets is crucial to maintaining investor confidence, which has
survived and flourished directly as a result of that confidence (as is reflected by its
stock price).
ú Global Crossing must walk a fine line to ensure that Frontier's reinvigorated efforts to
establish itself as an IP and data market leader aren't derailed by the acquisition. At
the same time, the company must also make sure that merger goes smoothly and that the
forays into new areas of operations are not distractions at the expense of the entire
company.
ú Global Crossing needs to leverage Frontier's data services skills and begin developing
high-end IP applications and services (e.g., global VPN services, IP fax, and messaging).
ú Although Global Crossing's marketing and sales departments have brought in just over $1
billion in sales revenues, Global Crossing should also leverage Frontier's considerable
marketing and sales expertise as the company develops its international strategy.
ú In light of the projected decrease in bandwidth valuation, Global Crossing must
determine to what extent it will maintain its position as a "carrier's carrier."
Acquisition/Development Actions
We suggest that Global Crossing consider the following acquisition/development actions:
ú Global Crossing should consider acquiring Sprint (which has substantial local exchange
holdings) or a large national CLEC such as Intermedia, ICG, and/or e.spire in order to
complement Frontier's national fiber network.
ú Global Crossing should establish strategic relationships (via Frontier) with companies
such as Microsoft, Hewlett-Packard, and Oracle for applications services, so that the
company will have a range of value-added services ready should it decide that sheer
bandwidth is not a viable business play in the medium to long term.
ú Global Crossing needed to extend its global network -- which had been focused on
undersea and terrestrial networks abroad -- throughout the U.S. Global Crossing should
now continue its expansion by searching out potential acquisition targets and partners in
both the U.S. and the overseas markets.
Competitor Actions
Global Crossing's position in the marketplace requires action from competitors.
ú Competitors with acquisition ambitions should accelerate their plans or risk being
acquired -- or worse, being squeezed out of the industry. Judging by Global Crossing's
initial interest in both Frontier and U S West, it is fairly safe to assume that the
company's appetite for acquisition has not yet been sated, and that it will continue to
evaluate other prospects to absorb in the world's most prosperous telecommunications
market. In addition, considering Global Crossing's acquisition of Frontier and Cincinnati
Bell's acquisition of IXC, it is easy to see that the pool of eligible candidates is
quickly drying up.
ú In the medium term, domestic broadband fiber carriers such as Qwest and Williams should
intensify their efforts to develop global networks and/or partnerships for those reasons
stated above.
ú The major players such as AT&T, MCI WorldCom, and Sprint, all of which have significant
international telecom and network capacity requirements, should examine their global
strategies with the expectation that Global Crossing is still 18 to 24 months from the
provision of seamless global services.
ú Other domestic bandwidth carriers -- Level 3, Williams, IXC, and Enron -- need to assess
their global strategies, including evaluating potential partners such as Global Crossing.
ú SBC and Bell Atlantic, two long-term domestic contenders with sights on "national-local"
strategies, need to re-evaluate their narrow concentration on the U.S. and consider
expanding their geographic horizons with the assistance of a carrier like Global Crossing.
User Actions
We suggest that users consider the following actions or ask the following questions of
Global Crossing:
ú Domestic bandwidth carriers should continue to evaluate Global Crossing as an
opportunity to springboard into Europe, Asia, and Latin America.
ú AT&T, MCI WorldCom, and Sprint, which have significant international telecom and network
capacity requirements, should assess Global Crossing's fiber routes and consider the
company as a viable option for global bandwidth.
ú In the medium term, end user customers, particularly large business enterprises with
multinational requirements, will need to evaluate the Global Crossing-Frontier combination
as a viable competitive alternative.
ú Frontier's customers should try to discern how the merger with Global Crossing will
affect them. Will international voice and data rates diminish as a result? Will Frontier
be so embroiled in its own integration issues that service will deteriorate?
Network Coverage
Network Description
Global Crossing's original mission was to be the world's first independent provider of
undersea, fiber optic communications systems. It has since modified its original paradigm
from shore-to-shore connectivity to an expanded goal of city-to-city connectivity and is
now building two terrestrial systems linking its trans-oceanic cables to major
metropolitan centers around the world. To this end, Global Crossing has made selective
wholesale acquisitions of terrestrial capacity, enabling customers to achieve city-to-city
connectivity through the Global Crossing Network at prices believed to be significantly
lower than if such customers had attempted to purchase such terrestrial capacity
independently. For AC-1 customers, the company enters into contractual arrangements
providing terrestrial capacity between its landing stations in the United States and the
United Kingdom, and New York City and London, respectively. In addition, Deutsche Telekom
and KPN provide terrestrial capacity directly to Global Crossing AC-1 customers in Germany
and the Netherlands, respectively. Furthermore, through SAC, GAL and PEC, the company
plans to provide terrestrial connectivity directly on its network to cities in South
America, Japan and Europe.
In May 1998, the company launched the first of its undersea systems, Atlantic Crossing
(AC-1), which links the United States to the United Kingdom. This is in conjunction with
Global Crossings' other systems in development -- Pacific Crossing (PC-1) connecting the
U.S. and Japan; Mid-Atlantic Crossing (MAC) connecting the eastern U.S. and the Caribbean;
and Pan-American Crossing (PAC), connecting the western U.S., Central America and the
Caribbean. The company has also announced two terrestrial systems: Pan European Crossing
(PEC), connecting major cities in Europe, and Global AccessLimited (GAL), connecting the
largest Japanese cities. South American Crossing (SAC) is a four-fiber-pair system
linking the U.S. Virgin Islands, Brazil, Argentina, Chile, Peru, Colombia, and Panama. SAC
will be implemented in several phases with the complete self-healing ring scheduled for
service in early 2001.
Global Crossing intends to connect its network to reach 100 of the top cities in the world
by the year 2000.
Construction of the Global Crossing Network began in 1997 when cable ships began laying
the Atlantic Crossing (AC-1) cable. Over the next few years, Global Crossing expects to
have installed, tested and commissioned more than 81,400 kilometers of cable.
MAJOR CROSSINGS
Atlantic Crossing
AC-1, the company's first undersea fiber optic cable in the Atlantic region, is a 14,300
km four fiber pair self-healing ring that connects the United States and Europe with
landing stations in the United States, the United Kingdom, the Netherlands and Germany.
AC-1 is equipped with state-of-the-art DWDM, and the full ring initially offers 40 Gbps of
service capacity, which is upgradeable to a minimum of 80 Gbps using DWDM technology. AC-1
started service on its United States to United Kingdom segment during May 1998, and the
full system was completed during February 1999.
The total cost of AC-1 excluding upgrade payments was approximately $750 million.
Furthermore, the company recently entered into a $50 million contract with Tyco Submarine
System (TSSL) to upgrade AC-1 capacity from 40 Gbps to 80 Gbps. In addition to the
contract with TSSL for construction of the system, Global Crossing has entered into other
agreements with TSSL for services and support associated with operations, administration
and maintenance of the system.
On March 24, 1999, the company announced its intention to develop and construct AC-2, an
additional eight fiber pair cable connecting the United States to Europe. AC-2 will be
integrated with the two cables of AC-1, adding a third high-apacity cable across the
Atlantic for the Global Crossing Network and providing AC-2 with self-healing
capabilities. The new cable will cost approximately $750 million and is expected to be in
service in the first quarter of 2001.
Landing points for AC-1 include:
Brookhaven, New York
Whitesands, United Kingdom
Beverwijk, the Netherlands
Sylt, Germany
Pacific Crossing
PC-1, Global Crossing's first undersea fiber optic cable in the Pacific region, is being
developed as a 21,000 km, four fiber pair self-healing ring. When completed, it will
connect California and Washington in the western United States with two landing sites in
Japan. PC-1 is designed to operate initially at 80 Gbps of service capacity, upgradeable
to a minimum of 160 Gbps, using DWDM technology. In April 1998, Global Crossing executed
a construction contract with TSSL for the construction of PC-1, which provides for a
system completion date of July 2000.
Mid-Atlantic Crossing
MAC is being developed as a 7,300 km two fiber pair self-healing ring that, upon
completion, will connect New York, the Caribbean and Florida. MAC will be connected to
AC-1 via its cable station in Brookhaven, New York and to SAC via its cable station
anticipated to be constructed in St. Croix, United States Virgin Islands, providing
connectivity between Europe, the eastern United States, the Caribbean and South America.
This system is being designed to operate initially at 20 Gbps of service capacity,
upgradeable to a minimum of 40 Gbps using DWDM technology.
In June 1998 and October 1998, Global Crossing executed a contract with Alcatel Submarine
Networks (Alcatel) and TSSL, respectively, for the construction of MAC, which provides for
a system completion date of December 1999 at a total cost of approximately $330 million.
Pan American Crossing
PAC is being developed as a 9,500 km two fiber pair cable that, upon completion, will
connect California, Mexico, Panama, Venezuela and the Caribbean. PAC is being designed to
interconnect with PC-1 through the landing station anticipated to be constructed in Grover
Beach, CA, with MAC through the landing station anticipated to be constructed in St.
Croix, United States Virgin Islands and with SAC through the landing station anticipated
to be constructed in Fort Amador, Panama. The company anticipates that PAC will cross
Panama via an existing terrestrial right-of-way. PAC is being designed to operate
initially at 20 Gbps of service capacity, upgradeable to a minimum of 40 Gbps using DWDM
technology.
In July 1998, Global Crossing executed a contract with TSSL for the construction of PAC
which provides for a system completion date of February 2000 at an estimated total cost of
$495 million.
South American Crossing
On March 11, 1999, GCL announced plans for the development of SAC, an 18,000 km undersea
and terrestrial fiber optic network directly linking the major cities of South America
through MAC and SAC to the United States, Mexico, Central America, the Caribbean, Asia and
Europe. The company expects that SAC will cost approximately $1,130 million to construct
and will commence service in 2000. The company plans to build SAC in three phases. The
first two phases, providing Argentina and Brazil with connectivity to the Global Crossing
Network, are scheduled to commence service in the fourth quarter of 2000. The final phase,
completing the loop around the continent, is scheduled for completion in the first quarter
of 2001. The undersea portion of SAC is currently planned to be wholly-owned, while the
terrestrial portion is
expected to be constructed through joint-venture arrangements.
Upon construction, the undersea portion of SAC will constitute a state-of-the-art
four-fiber pair, self-healing ring, built using advanced DWDM technology. Undersea
portions of the ring are expected to connect to landing sites at St. Croix (United States
Virgin Islands), Fortaleza (Brazil), Rio de
Janeiro (Brazil), Santos (Brazil), Las Toninas (Argentina), Valparaiso (Chile), Lurin
(Peru), Buenaventura (Colombia) and Fort Amador (Panama). Terrestrial segments are
expected to connect to most major South American cities, including Rio de Janeiro, Sao
Paulo (Brazil), Buenos Aires (Argentina), Santiago (Chile), Lima (Peru), Cali (Colombia)
and Bogota (Colombia). The SAC ring is expected to be completed on its southern-most end
by a terrestrial link across the Andes between Las Toninas and Valparaiso. The
PAC system from Panama to St. Croix is expected to complete the ring. Initially, SAC is
expected to have a capacity of 40 Gbps and to be upgradable, using DWDM technology, to a
minimum of 80 Gbps.
In addition to the undersea segments of the Global Crossing Network, the company has
acquired or constructed, and expects to continue to acquire or construct, terrestrial
fiber capacity to complement its undersea cable systems and complete a global network to
meet customer demands for worldwide city-to-city connectivity.
Pan European Crossing
Global Crossing recently announced plans to build PEC which, upon completion, will be a
self-healing ring offering connectivity between AC-1 and 24 European cities, including
London, Paris, Strasbourg, Amsterdam, Rotterdam, Antwerp, Brussels, Berlin, Frankfurt,
Munich, Stuttgart, Hamburg, Hanover,
Dusseldorf, Cologne and Copenhagen. The company also plans to connect additional European
cities to this system. PEC is initially planned as a 10,000 km system with 24 to 72 fiber
pairs as well as spare conduits.The company is are currently negotiating with various
parties for the acquisition of rights of way and the cquisition or construction of
conduits. Furthermore, Lucent Technologies, will supply fiber and equipment as well as
project management and integration services. Based on these arrangements, the company
believes that the construction costs for the system will be approximately $850 million.
PED will be developed in several phases, initially providing connectivity among 24 cities.
The initial phase has an anticipated completion date during December 1999. The second
phase will add five cities and has an anticipated completion date in 2000.
Global Crossing recently obtained a 49% interest in Global Access Ltd., a company which
will own and operate GAL, a fiber optic terrestrial system being developed in Japan that,
among other things, will connect the PC-1 cable stations with three cities in Japan.
Through GAL, the company intends to offer terrestrial services to PC-1 customers at prices
substantially lower than those currently available. GAL is initially planned as a 1,300 km
system. Global Access is currently negotiating with various parties for the construction
of GAL and, based on those negotiations, construction costs for GAL are believed to be
approximately $190 million. The initial expected RFS date for the first phase of GAL's
development is December 1999.
Global Crossing is in the process of planning several new cable systems and evaluating
other business development opportunities which will complement the Global Crossing
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