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Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: JDN who wrote (4043)	1/18/2000 11:16:00 AM
From: Robert Sheldon	Read Replies (4) \| Respond to of 15615

Last night I mentioned that this whole Tyco thing is a solid verification and actually pretty good for GBLX . . . Jack Grub at SSB seems to agree, and puts it a bit more in focus with the following excerpt (I could not have said it better myself - save for the demand prognostications . . . Jack is low): We view this move by Tyco as massively positive for GBLX for several reasons: 1) Tyco is the ultimate insider in that they are the leading builders of subsea systems and as such, has a very good read on the demand forecast for capacity. The fact that they are exiting their own business (which they were very good at) to go into the business of operating a subsea network tells you something about their view of how great the business is. As a corollary to this, it is clear that Tyco fundamentally believes that demand for bandwidth, especially on subsea routes, will continue to be explosive since it will not be until 2003, that Tyco really is up and running. Thus, this clearly underscores the demand potential for GBLX as well as underscores the notion that the price-demand relationship will continue to be a positive one for carriers. Specifically, given the declining cost/price nature of the business, by the time Tyco is fully operational, price points for STM1s will be one-tenth of what they were in 1998. Yet, Tyco believes (as we do also) that they will get a great return or investment. This is because demand for subsea bandwidth is doubling every year with capacity sales migrating upward from STM1s to STM64s to complete wavelengths. Moreover, network businesses are extremely leverageable with very high incremental ROIs. 2) Tyco, being one of the 2 leading builders of subsea systems along with Alcatel, is now taking themselves out of the supply chain outside of the existing contracts they will honor. Thus, any Tom, Dick and Harry who is running around with a business plan trying to get financing for a subsea system (of which there are many of these initiatives) will have a very difficult time getting financing since there will be nobody to build a system (we doubt that Alcatel could handle all of the potential demand for subsea systems). Thus, from a GBLX perspective, even with the Tyco network coming on board in 2003, the fact is a major source of supply has been eliminated. 3) Finally, GBLX continues to be much more commercially-oriented and by 2003, it is clear that the majority of their revenues will be coming from commercial customers rather that carrier customers. Thus, just like what happened in other market segments in telecom, voids get left that others fill. In this instance, we think Tyco will be in a perfect position to fill the void of a carrier's carrier of subsea capacity that will be left largely by GBLX which by 2003 will be a much more commercially-oriented enterprise. It also should be noted that GBLX bought the global marine part of Cable and Wireless which means GBLX has their own ships for in-house maintenance thus, are not at all vulnerable to Tyco being out of the market for maintaining subsea systems. The bottom line is Tyco is an extremely smart company, is the leading builder of subsea systems, is the ultimate insider in terms of being privy to demand forecast and they decided at this stage that it makes sense to go into the business of running subsea network (which we believe will result in tremendous value creation for Tyco). Tyco realizes that there are 50 terrestoral networks operating or being built worldwide to go along with thousands of ASPs, ISPs, etc. developing applications which will drive bandwidth demand. This is in contrast to 17 proposed subsea systems of which only 8 are actually under way and given the nature of the beast, no subsea system can approach the ultimate capacity of a terrestoral system (subsea systems have 4-8 fiber pairs versus 144 for terrestoral and subsea systems will never carry as many wavelengths as terrestoral networks). Thus, capacity in subsea networks will lag demand even to a greater degree than supply lags demand on terrestoral networks. This is a tremendous endorsement of GBLX and competitively, we believe, that GBLX is far better off with a Tyco running a carrier's carrier system in 2003 than they would have been if Tyco was there to supply everybody who wanted to build a subsea system.