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

To: Theophile who wrote (10667)	4/16/2001 10:11:13 PM
From: Bill Fischofer	Read Replies (1) \| Respond to of 15615

Re: Gluts, shortages, and other myths Supply and demand are not point quantities. As any student of economics knows, they are curves which themselves shift over time in response to technology improvements. A shortage exists when there is more demand than supply at a given price. The answer to a shortage is to raise the price which drives down demand. For example, in California there is currently a severe shortage of 9-cent per KwH electricity. However, there is ample supply of 15-cent per KwH electricity. Conversely, a "glut" exists when there is more supply than demand at a given price. Once again, the answer to a "glut" is to lower the price which stimulates additional demand which will consume the supply. So here is where facile analysis goes awry. Pundits see capacity rapidly expanding and fret about a "glut" in communications supply and then they fret again when they note that prices are being lowered. Falling prices are not the problem. They are in fact evidence of the business plan being executed. If prices were not being slashed then we would indeed have a glut. If you want someone to use 5% more of something you can resort to just about anything. However if you want someone to use 10, 100, or 1000 times more of something you need dramatic shifts in pricing and supply to bring about this result. But this is exactly what has happened for decades in semiconductors and is now driving telecom. Communications demand is incredibly elastic, meaning that demand grows much faster than prices fall. I currently pay around $40 a month for a cable modem connection which on a good day delivers around 1 Mbps worth of bandwidth. If someone offered me 10 Mbps worth of bandwidth for $60 a month I'd sign in a flash. My provider would have increased the monthly revenue they get from me by 50% and if their costs increase only modestly in moving from 1 Mbps to 10 Mbps service then everyone wins. This is exactly what is happening everywhere and it is the fundamental virtuous cycle which drives technological progress. This is especially true in subsea links which are the chief bottleneck in the global Internet. As fast as subsea capacity can be added, it is growing far faster on either side of those links, meaning that the relative shortage in subsea capacity is in fact growing over time and will continue to grow for the foreseeable future. What this means is that GX's margins will be even stronger than they otherwise would be. So let the pundits fret about "gluts". It's what is allowing the GX firesale to continue for a little while longer.