Another Crossroad

Global crossing digs in

Global Crossing has one of the flashiest histories in the telecommunications industry. Now, Wall Street is asking top managers to make sure the long-haul carrier isnt just another flash in the pan.

Its founder, Gary Winnick, made history in the 1980s as one of Michael Milkens leading bond traders. Winnicks brainstorm to build a worldwide fiber-optic network became a Wall Street hit when Global Crossing went public in August 1998. It has stayed in the news with takeovers and takeover attempts. It sold a major data-hosting business that once seemed central to its future and said goodbye to two chief executives in the last year.

Still, Global Crossing managed to beat analysts earnings estimates in the most recent quarter.

But its shares — like those in the rest of the carrier industry — have taken a beating, falling into $14 territory, from a 52-week high of $61. Investors are uneasy about the fact that Global Crossing gathers 80 percent of its revenue by wholesaling bandwidth to carriers. Wall Street wants the company to wring more revenue from its worldwide optical network by selling higher-margin services to retail customers, says Pat Cormack, an analyst at Guzman & Co.

The executive tapped to do that is David Walsh.

Walsh has taken that mandate to heart and is already showing results. Swift, a Belgian provider of messaging services for the financial industry, recently signed a $300 million contract with Global Crossing for networking services — exactly the type of traffic the company needs to break away from low-margin wholesaling. If Walsh brought that business with him from IXnet, then he probably deserves to head the drive for more profitable commercial business, Cormack says.

Walsh joined Global Crossings board in June 2000 and was named president and chief operating officer in January. He had been president of Global Crossing subsidiary IXnet, a relatively small carrier with a valuable customer base among Wall Street firms. IXnets extranet and data centers provided domestic and international data, voice and hosting services to financial companies.

Walshs appointment coincided with the realignment of Global Crossings management structure and the creation of a Financial Markets group that includes IXnet and IPC Trading Systems, a subsidiary providing voice and data hardware products to Wall Street traders. The company will retool the model to pursue customers in other vertical markets, Walsh said recently.

In the financial services sector, Global Crossing faces two major competitors: Bridge Information Systems spin-off Savvis Communications, and Radianz, created by Reuters Group and Equant.

Savvis has grown rapidly, but needs to raise cash to finance its business. Its largest customer is Bridge Information, which recently filed for bankruptcy protection. Reuters is essentially outsourcing its network to Radianz, which plans to upgrade and expand the companys reach worldwide and build an extranet for the financial industry. Radianz is also opening a large data center in New Jersey to offer application services to Wall Street firms.

Global Crossing hopes to reach eight vertical markets with its nine product groups and its 20,000-mile fiber-optic network. For example, the media and entertainment vertical market might use the global network to move large files, or perhaps use an extranet similar to the one that IXnet built for Wall Street. The product groups include Internet Protocol services, virtual private networks, outsourcing, managed services, structured capacity, voice and videoconferencing, frame relay and Asynchronous Transfer Mode (ATM) services. Hosting services will be provided by Exodus Communications.

Global Crossing swapped its GlobalCenter hosting business for a 20 percent stake in Exodus earlier this year. The deal included a 10-year pact, valued at $4 billion to $5 billion, that requires Exodus to buy 50 percent of its bandwidth outside of Asia from Global Crossing.

"That is our hosting solution," Walsh says. "We provide the network."

One of Global Crossings product groups will focus on "new-age telecommunications providers" such as application service providers, hosting companies or value-added carriers. Another will sell bandwidth as a commodity, with guaranteed delivery at some date and time. Walsh calls it "structured capacity. It allows the carrier to buy capacity in the future and get the price locked in. We expect this to evolve into a trading market."

Custom desktop systems for Wall Street traders from IPC are on the horizon, but Global Crossing is also looking for a partner that could outsource the management of that equipment.

Global Crossing is building metropolitan fiber rings in 10 or 12 cities in the U.S., sometimes by leasing conduit from other carriers such as Level 3 Communications, sometimes partnering with carriers such as Telergy in New York. Alcatel, Cisco Systems and Lucent Technologies are primary vendors for routers and ATM switches.