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Face to face with Dan Cohrs - Getting a hold on cash in the global network
David Molony
19 February 2001
Global network operators all look the same to some Wall Street investment analysts. But Dan Cohrs, chief financial officer at Global Crossing Ltd., says they should look closer.
The Hamilton, Bermuda-based company has been rebuilding its revenue base at the same time as it has been building its network. And the bandwidth sales model at which analysts have taken fright - and which prompted many to downgrade operators' shares - is not the mainstay of Global Crossing's business plan any more.
"Our business has been transformed," says Cohrs. "Eighteen months ago, the entire company was selling (indefeasible rights of use) on the Atlantic Cable; that was it. In our budget for next year we expect less than 2% of our revenues to come from selling IRUs on the Atlantic Cable."
Global Crossing is marching on running rate revenues of more than $6 billion a year, compared with historical revenues of $1.7 billion in 1999.
Cohrs admits a large part of that growth is coming from acquisitions like Frontier Corporation, a pan-continental network operator in the United States that Global Crossing bought in September 1999.
However, in recent months the company has seemed uncertain which directions it should take. A major investment in data centers was halted when GlobalCenter Inc. was sold to Exodus Communications for $6.5 billion only 12 months after it was launched. Data hosting had seemed like the obvious activity for a big network operator to support, and most have been doing so. But Global Crossing, under the management of its third chief executive inside a year, decided otherwise.
Despite selling the hosting centers, the company thought it would still offer hosted applications services, but after six months of market testing, it changed its mind about that, too.
"We ... have to demonstrate that we are running efficiently," says Cohrs.
"This is the way we are focusing in business."
Now Global Crossing is setting its sights on the corporate market.
But Cohrs acknowledges that the company has only just begun the process of convincing analysts and bankers that the global networking business has growth prospects.
"We are looking for milestones," he says. "We have to keep demonstrating that we are getting significant customer wins ... What (Wall) Street wants to hear is that we actually are being successful in doing that."
The reduced reliance on capacity selling is paying dividends and demonstrating that Global Crossing is moving up the value chain.
This month, the company claimed a major contract win when SWIFT, a financial services cooperative that provides a messaging service between banks and brokerage houses, said it would outsource its network operations to Global Crossing.
The deal follows hard on the heels of a cross-selling agreement with Computer Sciences Corporation (CSC), of El Segundo, California. CSC will similarly sub-contract its network to Global Crossing's optical backbone, and in return Global Crossing will outsource some of its systems projects to the information technology specialist.
"CSC will do from the building to the desktop," says Cohrs. "And we will do from the building to the rest of the world."
Together, the two companies will eventually sell wide area networking and local area networking into global corporates, in a package of managed services. "We will jointly go to customers and provide total solutions," says Cohrs. "If this relationship works really well there should be a lot of potential."
But in a telecoms world faced by funding crises, cash is king right now, and Cohrs is banking that the deal with CSC will be worth $150 million from networking traffic over five years.
The agreement with SWIFT is expected to be worth about $300 million in revenue.
Moving into managed services
These deals prove Global Crossing can make the move into advanced managed services, Cohrs says. The company claims to be the world's biggest provider of desktop trading systems through the acquisition of IXnet, a service provider which supports networks of financial trading rooms.
Cohrs says there are more vertical markets to develop - most likely media and entertainment companies that need high-bandwidth content delivery.
"The media companies are the highest projected growth rates in terms of use of bandwidth," says Cohrs. "They are relatively small today. Investor conferences (are) being webcast with not just audio but video. Maybe we will have a partnership or a joint venture; or even an acquisition in that area ... would make sense."
Still, acquisitions could be difficult to pull off in the current climate.
"If we did decide to (make an acquisition) we would need to raise more financing, (to enable us to) pay cash," says Cohrs. "We don't want to issue stock when its undervalued ... but that's possibly an option."
Cashing in on consolidation
In fact, Cohrs surmises that there could be opportunities in the misfortunes of the sector.
"There certainly will be more consolidation in some form," says Cohrs.
"There are a number of smaller companies that are in very bad trouble.
Invariably, there will be bankruptcies. There will be roll-ups of those assets and there may be prepackaged bankruptcies. There will be acquisitions.
There's no question there will be activity."
But Cohrs has had to take some drastic cost-cutting action, too, laying off thousands of former employees of U.K. operator Racal Telecom, acquired in 1999.
"The focus on global customers means that our staffing can be more efficient," says Cohrs. "We still have ... 13,000 people. It's just a matter of having the right number of people. If you look at our product mix, probably ten products are important. If you look at BT or Verizon, (they) probably have a thousand products."
Currently, though, Cohrs' main accounting concern is to maintain funding of the continuing network buildout.
"In our sector it's very important when we can say our business plan is financed and we don't have to raise any more capital," he says. "We are in that position; we've raised about $20 billion since the company was started. And a lot of that has been repaid ... effectively recycled. We have raised about $20 billion and we don't need to raise any more money in order to complete our business plan."
And that means he can look forward to presenting the sort of financial news that might at last please those analysts on Wall Street. "Some time in the second half of 2002 we (will) actually become free cash flow positive," says Cohrs. "We become net generators of cash ..." |
