World shrinks for struggling Global Crossing

March 1, 2002

Following the Enron debacle, Global Crossing's filing in late January for Chapter 11 reorganisation - the fourth largest in US history - shook the financial community. However, it was just the latest in a series of global operators to restructure.

"Once an industry darling, Global Crossing was a pioneer in the deregulated global telecom market, offering first undersea capacity to other serviceproviders," said KMI Research analyst Patrick Fay.

"Later it became a full-fledged service provider offering city-to-city connectivity over its own-built undersea and terrestrial network." But like international telecoms companies 360networks, Viatel and Pangea, Global Crossing failed to generate sufficient revenue to service the USD7bn (Euro8bn) in debt, incurred while building a global network.

"There is a more than ample supply of bandwidth from multiple suppliers in global markets now, which has driven down prices for bandwidth capacity. As prices fell, new customers migrated to short-term capacity leases rather than signing 20-year IRUs (Indefeasible Right of User) that were standard when Atlantic Crossing was built," Fay explained.

"Global Crossing was the first non-consortium, privately financed undersea cable operator when Atlantic Crossing-1 was built, and it was able to successfully compete as a lower-cost alternative to incumbent carriers that funded previous undersea cable construction. But as low-cost competitors proliferated, Global Crossing's competitive advantage evaporated."

Global players have started to revise their plans. Level 3 sold its Asian operations to Reach, the IP backbone venture between Hong Kong's Pacific Century CyberWorks and Australian operator Telstra.

These current difficulties faced by new pan-European service providers such as Global Crossing and Carrier-1 underscore the difference in strategies employed by new entrants that built their own fibre networks and other switch-based operators and incumbents that relied on expanding services through leased fibre arrangements.

"We watched in amazement as new carriers rolled out pan-European routes with multi-duct systems and cables with high-fibre-count cables," said Emmanuel Lugagne-Delpon, vice president, Transmission Networks of France Telecom Long Distance Planning and Transmission Networks.

"Our studies showed that we could meet bandwidth demands with our existing and DWDM, and that we did not need to install large quantities. Our pan-European network has been put together using a maximum of two fibre pairs and DWDM technology."

Other incumbents such as Deutsche Telekom and Telecom Italia that based their regional and global plans on fibre and capacity acquired from Global Crossing say that it is business as usual.

However, they are not taking chances and are looking at other options. Ironically, the lower risk strategy of many of these switched-based operators and incumbents is benefiting from the fibre and wavelengths brought by the new operators.

"Nothing has changed for us, the Global Crossing network is up and running," said a Telecom Italia executive who declined to be identified. "But our lawyers are studying the issue, and we are looking at other networks in the event that we have to move capacity."

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