Good article from The Wall Street Urinal:
Gives investors a good overview of what is going on. I'm still really excited about the prospects for the small number of shares i bought on the last dip and will wait until the first quarterly report to add (or bail out). I bolded one part cause I thought that it is wicked important to understanding where this company stands in the "big picture."
Dow Jones Newswires -- September 21, 1998
TALES OF THE TAPE: Telecom Battle To Control The Sea Begins
By Craig Karmin
NEW YORK (Dow Jones)--In the war for global telecommunications dominance, most of the battles so far have been fought on land. But like some of history's other great wars, the winner of this fight
may well be determined by which parties control the sea.
The marine battle should be particularly intriguing for another reason: It pits the mighty armadas of the world's premier telecom companies against two independent start-ups, both of which aim to wire the planet on their own.
Global Crossing Ltd. (GBLX) and privately held Project Oxygen Ltd. are separately building what - if all goes as planned - will be the first and only fiber optic cable systems to span the entire globe,
beginning in 2000 and 2002, respectively.
These continuous loops are poised to change the way voice and data services are delivered, offering all telecom carriers greater flexibility and smaller telecom carriers a better opportunity to compete with the giants.
Over all, investment in undersea fiber optic cables across the globe is booming. It has already reached $30 billion - and by some estimates is expected to surpass $50 billion by 2003 - as major carriers in the U.S., Europe and Japan form exclusive consortiums to lay cable and deliver Internet and voice traffic across the Atlantic and Pacific.
These networks are responding to exploding demand for Internet services. This data traffic is growing at a rate of 85% a year - about 6.5 times as fast as the growth of voice services, according to Global
Crossing Chief Executive Jack Scanlon.
Industry experts say these new fiber optic systems will usher in an Internet age of faster service, superior quality and better reliability.
At the same time, little-used services like Web broadcasting and video teleconferencing could become integral parts of doing business overseas. That's because the new networks' greater bandwith, or transmission capacity, will dramatically improve the quality of these services.
"Big chunks of bandwith will be available at cheaper prices, making all costs cheaper," added Tom Soja, president of the fiber optic consultancy firm T. Soja & Associates.
Before the battle for the sea begins, however, the two brash start-ups need to complete their networks, and that includes securing rights-of-way licenses across the globe. In some parts of the world, that could prove exceedingly difficult or expensive.
And where will this money come from? Global Crossing says the $3 billion it has raised in debt and equity is enough to build the first stage of the global network, but Project Oxygen's financial situation
is considerably murkier. Company officials declined to say how much of the $10 billion they need to lay fiber globally has been raised.
Even some investors who believe in the technology and like the strategy say these companies face some significant hurdles.
"The demand for these services is there, but both companies have unproven management teams in international telecommunications," said Craig Ellis, a portfolio manager at Orbitex Management.
He added, "I don't think they'll have a proprietary network over time. The AT&Ts of the world will continue to lay fiber. They have to."
Indeed, AT&T Corp. (T) and many of its brethren already have. Most prominently, 11 carriers, including AT&T and Sprint Corp. (FON), announced earlier this month the signing of a $1.5 billion project to build a fiber link between the U.S. and Europe.
The project, known as TAT-14, is expected to be completed by the end of 2000. Gemini, a fiber network operated by MCI WorldCom Inc. (WCOM) and the U.K.'s Cable & Wireless PLC (CWP), opened for business in July over the same route.
Meanwhile, two other consortiums led by the major U.S. long-distance companies are building networks across the Pacific to China and Japan.
Global Crossing and Project Oxygen will also have to contend with FLAG Ltd., a consortium led by Bell Atlantic Corp. (BEL) that runs the world's longest undersea fiber optic network, linking Europe and Asia by way of the Middle East.
Finally, the fiber optic networks must also fend off competition from satellite companies that will be providing the same global reach for voice and Internet services.
So what can the two start-ups offer to siphon business away from the majors?
To begin with, all information will flow over a single continuous loop, rather than passing from one consortium network to another.
That's an important distinction because a small telecommunications firm that buys bandwidth to offer its phone and Internet service is currently forced to sign contracts with multiple cable operators for
each leg of a transmission - a process as costly as it is burdensome.
For example, a small telecom carrier that offers phone service from Chicago to Frankfurt would need a domestic contract to get the call to the East Coast of the U.S., a separate agreement to get the call across the Atlantic, and a third to move the call from the U.K. to Germany.
But as a customer of Global Crossing or Project Oxygen, that telecommunications company would need strike only one agreement to have use of the worldwide network.
The single loop delivery system will also break new ground in terms of flexibility for telecom carriers.
Where today telecommunications companies must buy fixed amounts of bandwith over a specific route, Global Crossing and Project Oxygen will allow their customers simply to purchase bandwith good for anywhere on the network.
That way, a telecom provider can instantly move the focus of its traffic from one part of the planet to another as demand shifts over time.
The costs to the carrier on the Global Crossing or Project Oxygen system would be the same, whether the traffic went a few hundred miles from Barcelona to Madrid or across the globe from San Francisco to Hong Kong.
Although the two networks are designed to operate in a similar fashion, Global Crossing is well ahead of its peer in terms of construction and financing.
In May, the Bermuda-based company began offering service over the trans-Atlantic leg of its fiber optic network, partnering with Qwest Communications International Inc. (QWST) to deliver traffic across the U.S.
Global Crossing has already signed up 30 customers for this route, including some of the same communications giants that have joined a consortium to build the competing trans-Atlantic network TAT-14.
The South American and Asian links are slated to begin operation during the first quarter of 2000 - and with it, the start of the world's first global fiber optic network. Eventually, the cable system expects to include 100 cities.
Global Crossing has raised $3 billion through the combination of an initial public offering, high-yield debt and project financing that will fund the initial phase of the global network build-out, according to CEO Scanlon.
Project Oxygen, meanwhile, intends to raise $10 billion to lay 158,000 kilometers of cable connecting 77 locations world-wide. It hopes to offer an IPO and tap the junk bond market next year.
By the end of this year, Chief Executive Tagare said, the company and financial advisor J.P. Morgan Securities Inc. will announce the first stage of its funding plan. That announcement will reveal the company's equity partners and the amount of money Project Oxygen has raised from bank loans, Tagare said.
"It will be several billions of dollars," he added.
Project Oxygen, which like Global Crossing is based in Bermuda, has also received an unspecified amount of "seed capital" from eight sponsors, including Lucent Technologies Inc. (LU) and Japan's NEC Corp.
In December, the company says it will disclose which companies have signed non-binding agreements to buy bandwidth on the network. For the most part, the company is keeping this information private.
Only India's telecom carrier Videsh Sanchar Nigam Ltd. has publicly announced its intention to buy capacity on Project Oxygen's network. |
