Opportunities: Golden Global
Stambovsky, Jeff
Golden Global BY JEFF STAMBOVSKY Driven by the Street s fear of a fiber glut, the tech slump has been particularly hard on next-generation, fiber-optics networks like Global Crossing (GX),...
...When complete (it's more than 80 percent of the way there) the GX network will serve more than 200 major cities in 27 countries, with a laser-like focus on data traffic, where all the growth and margins are to be found...
...As price drops, unit volume increases more than fast enough to compensate...
...But the group's story is even better now: These companies have significant advantages over their own traditional competitors and now a significant barrier to entry against new entrants...
...The October 2000 IPO of the Asia Global Crossing (AGCX) joint venture left GX with a 56 percent interest in that offshoot carrier...
...to work with each other can be an operational nightmare...
...Not content to rest comfortably behind this protective barrier, GX has been busy creating competitive advantages that extend well beyond temporary dislocations in the financial markets...
...Among those unlikely to be admitted are non-household names with plans to go into competition with the likes of GX and 360networks and requiring billions of dollars and years of construction before they show a dollar of revenue...
...But if you are lucky enough to be one of those household names, and your state-of-the-art network is already fully funded, those fussy capital markets can function as your protective moat...
...Spectator readers who use this information for investment decisions do so at their own risk...
...But if you need to reach another land mass, you'll probably wind up talking to Global Crossing, or later, 360networks...
...The author may hold positions in stocks discussed in this column...
...Money It takes a lot of hard cash to build a cutting-edge network today...
...getting all of those switches (and people...
...They finally re-opened for business in January (after the Feds belated easing), but they're still not letting just anybody in...
...they've met or beaten every ambitious rollout deadline they've set for themselves...
...Golden Global BY JEFF STAMBOVSKY Driven by the Street s fear of a fiber glut, the tech slump has been particularly hard on next-generation, fiber-optics networks like Global Crossing (GX), 360networks (TSIX), Metromedia Fiber Networks (mfnx), OPPORTUNITIES Williams Communications (WCG),and Level 3 Communications (LVLT...
...Last year, new issue junk-bond buyers, the folks from whom capital-devouring projects get their grubstakes, put up a sign reading "Closed Until Further Notice...
...As CFO Dan Cohrs said following the company's recent $1 billion "drive-by" bond financing: "We had no real need to raise money...
...68 THE AMERICAN SPECTATOR ¦ March 2001CTATOR ¦ March 2001...
...Better still, if you're already up and operating cash positive, the lenders will just about force you to take their money as long as you don't need it That's what happened in January to Global Crossing, the premier next-generation global telecommunications carrier...
...Moreover, GX has an all but unique value proposition that will make its network the compelling first choice for much of the Fortune 500...
...Global Crossings execution has been nothing short of flawless...
...But the fiber-glut theory was always shaky, given the continued explosion of demand and wonderful price elasticities...
...I]t was compelling because it was cheap...
...The barrier to entry...
...GX started off with the right vision: a 100,000-plus mile fiber-optic network running over land and, importantly, under the oceans that will be able to connect just about any location in the world to any other...
...AT&T requires, according to my colleagues at the Gilder Technology Report, 13 leased or partnered handoffs (line connection agreements) with other telcos in order to connect, say, your Stuttgart office to a branch operation in Tokyo...
...All of a sudden the market was open "for a select set of companies...
...Those arrangements not only cost time and money...
...A late summer agreement to sell its Web-hosting operations to market leader Exodus (EXDS) gave Global Crossing a 20 percent stake in Exodus...
...Global Crossing will get the job done all on its own seamless global network...
...Less than three years after going public, GX is on track to book more than $7 billion of cash revenue in fiscal 2001...
...In other words, they made us take it...
...The AGCX and Exodus holdings alone are worth—at current market prices—about $5 billion, while GX's own current equity market capitalization stands at $18.3 billion, with the debt load at a manageable $5.3 billion as of September 30...
...Metromedia Fiber, Level Three Communications, and Williams Communications all operate state-of-the-art metropolitan and long-haul optic data networks with an emphasis on the terrestrial links...
...A game of CEO musical chairs now appears to be over, along with distracting if profitable forays into non-core competencies (e.g., local exchange carriage...
...GX's most direct competitor is 360networks, another well-financed and well-run next-generation submarine carrier that is not quite as far along in its build-out as GX...
...The stock (which recently moved from NASDAQ to the NYSE), traded briefly above $60 in early 2000, only to be brought back down to earth in the general unpleasantness of the second half of the year...
...CEO Tom Casey expects that number to grow by 30 percent a year...
...Meanwhile, unknowns go begging...
Vol. 34 • March 2001 • No. 2
