I found the IBD article:
Phone Maverick Surfaces Among Telecom's Sharks
Date: 12/1/98
Author: Reinhardt Krause
Global Crossing Ltd. doesn't want to join any club.
A few telecom-industry cliques own most of the undersea phone networks
that traverse the world. These consortiums, led by former government-
owned phone companies and big long-distance carriers, parcel out phone
lines as they see fit. Rivals may pay high rates to use undersea links - if they
can get access at all.
Enter Global Crossing. It's building an undersea fiber-optic phone system
that will connect most big cities in the world. It will sell space on its
network to new industry players created by deregulation, many of which
prefer not to deal with the ''clubs.''
''Global Crossing is breaking the stranglehold of the big carriers,'' said
Michael Ruddy, an analyst at market researcher Pioneer Consulting Inc. in
Cambridge, Mass. ''They're the first company to come along with no links
to other carriers, a completely independent operator.''
There's another factor spurring Global. The club-owned cable systems are
running out of capacity because of booming Internet, and other, demand,
analysts say.
''The clubs fell way behind in meeting the capacity needs of the Atlantic,''
said Global Crossing Chief Executive Jack Scanlon. ''They didn't see
international data coming. They missed it and gave us an opportunity.''
Scanlon, former chief of Motorola Inc.'s cellular unit, says prices for leased
trans-Atlantic phone lines have dropped in half since Global Crossing
began operating in May. His customers include Germany's Deutsche
Telekom AG.
Global won't be the new kid under the sea for long, though. A few big
carriers are backing an undersea cable firm called TAT(Trans-Atlantic
Telephone)-14. It may be in service by the end of '00. It's also laying fiber
cable in the Pacific Ocean.
The club-owned undersea cable systems are operated by
former-monopoly phone companies, many of which are state-owned. They
include AT&T Corp., British Telecom PLC, France Telecom SA and
Nippon Telegraph & Telephone Corp.
Scanlon isn't worried about TAT. ''We have a 30-month lead in the
Atlantic and we'll have a five- month lead in the Pacific,'' he said.
Global Crossing - which is based in Los Angeles and Hamilton, Bermuda -
first began offering service between the U.S. and Britain. Its Pacific cable
system is scheduled to be completed in March 2000. Global Crossing says
its fiber links - which can carry about 30,000 times the data of normal
phone lines - will span the world's 50 largest cities by mid-2000.
And Global is building a land-based fiber-optic network in Europe with
several partners for about $700 million.
One of Global's new rivals is a partnership led by MCI WorldCom Inc.
and Cable and Wireless PLC. The partnership is selling extra space on its
Gemini fiber-optic system to phone upstarts and Internet service providers.
And its anti-club message is similar to Global's.
''We're open to all. We're a nonclub (undersea) cable,'' said Mark Weeks,
an MCI WorldCom spokesman in London.
Weeks says Global Crossing is copying MCI WorldCom's strategy by
building the land-based network in Europe.
Scanlon responds that his company doesn't compete with its customers, as
do MCI WorldCom and Cable and Wireless.
''We're a wholesaler,'' he said. ''We're the platform for everybody to
compete with WorldCom.''
In the U.S., Global Crossing has signed up Level 3 Communications Inc.
and Qwest Communications International Inc. Both high-profile start-ups
are building networks to compete with older carriers like AT&T and the
regional Bells.
Global Crossing has raised about $3 billion to build its undersea fiber
network.
Its initial public offering in August garnered $400 million. It's obtained
about $1.8 billion in bank loans. And it's raised $800 million from junk
bonds.
Gary Winnick, who helped Michael Milken build the junk bond house
Drexel Burnham Lambert, founded Global in March '97. Its largest
shareholder is CIBC Wood Gundy Capital, which holds about 22.5%.
In competing with the club-owned cable systems, Global Crossing may
have advantages, analysts say.
In the new, competitive telecom world, old-timers and newcomers alike
are leery of sharing resources, says Daniel Reingold, an analyst at Merrill
Lynch & Co. in New York.
Still, it costs big bucks to build networks. Global Crossing lost $159 million
in the first half of '98.
But in the third quarter, the first in which it's recorded sizable revenue, the
company reported revenue of $117 million, up from zero a year ago, and
net income of $15.2 million, or 8 cents a share.
Merrill Lynch says Global Crossing's sales will grow from about $383
million this year to $695 million in '99 and $1.9 billion in '04.
A few others are pursuing strategies similar to Global Crossing's.
One rival is Pacific Gateway Exchange Inc. It owns stakes in several
consortium-operated fiber networks. Using its rights to those networks,
Pacific Gateway resells capacity wholesale.
Another newcomer, CTR Group Ltd. , is seeking financing for an ambitious
project called ''Project Oxygen.'' Woodcliff Lake, N.J.-based CTR has
been delayed, however. It had been seeking $14.7 billion in financing, but
in June scaled back plans. It now says it will build its network in phases.
CTR expects to announce partners for a $3 billion Atlantic cable link by
year- end, says Chief Executive Neil Tagare. CTR wants to start service in
2000. On Nov. 18, it named Bechtel Corp. of San Francisco as its
contractor.
CTR plans to compete with Global Crossing by offering better leasing
options. It also will link smaller markets that Global is bypassing, analysts
say.
(C) Copyright 1998 Investors Business Daily, Inc. |
