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Global Crossing’s Fate to be Determined Next Week

Global Crossing Ltd. (www.globalcrossing.com) could be destined for a transformation in one week after potential investors make final bids for the company.


The bankrupt operator won’t disclose names of the organizations that submitted bids last week, but a private auction is scheduled July 24 at the offices of Weil Gotshal (www.weilgotshal.com) & Manges LLP in New York. Global Crossing will submit a filing with the U.S. Bankruptcy Court once creditors agree on a winner.


The company owns a fiber-optic network linking 200 cities around the world.


Global Crossing’s CEO John Legere has told reporters in interviews the bidders include a mix of “strategic and financial investors,” spokeswoman Tisha Kressler said, adding, “It is a competitive process.”


Global Crossing is accepting bids for the entire business as well as bids for the assets it has designated as noncore: Global Marine, the undersea cable construction unit; U.K. Racal, the local network based in the United Kingdom; and the video and audio conferencing unit.


In the meantime, the Bermuda-based company asserts it is continuing to book new wholesale accounts six months after filing the largest telecommunications bankruptcy in U.S. history.


In first quarter preliminary results released in early May, the company disclosed it had signed approximately 475 news service agreements during the period, including renewals and new business. According to preliminary figures, revenue for the quarter tallied $788 million.


Global Crossing announced last week that May revenue for non-Asia entities totaled $245 million — exceeding the company’s forecast by $10 million – and that IP traffic grew roughly 400 percent on an annualized basis since January. What is more, the carrier recently won accounts from beleaguered carriers, including European operator KPNQwest (www.kpnqwest.com), Kressler said.


Technology analysts say contractual obligations may figure into why Global Crossing has been able to secure a relatively stable customer base.


A Global Crossing spokeswoman said the voice and data contracts do not include traffic volume commitments, although there “may be” other obligations.


“We have contracts that expire all the time” and “very few” of those customers defect, she said.


Although Global Crossing continues to operate its network under bankruptcy protection, customer support and other areas may suffer due to the thousands of layoffs the company has made since last fall, say analysts. Global Crossing employs 4,800 people, less than a third of last year’s 17,000-member workforce.


Frost & Sullivan (www.frost.com) analyst Rod Woodward speculates service providers ultimately will have more room to leverage additional clauses in future contracts that will help them hedge their risks, such as a clause allowing them to switch providers if their underlying carrier is encountering financial difficulties.


Analysts cite price advantages as a major reason why communications companies continue to negotiate business with bankrupt operators. Carriers may be tapping Global Crossing’s network to negotiate more competitive prices than through more stable carriers such as AT&T Corp. (www.att.com) and Sprint Corp. (www.sprint.com), they say.


“I think pricing is coming into play with some of these questionable carriers,” said Seth Libby, a wholesale telecom analyst at the Boston-based consulting and research firm, The Yankee Group (www.yankeegroup.com). Atlantic-ACM (www.atlantic-acm.com) analyst Nick Regas agrees. “Price is still a factor.”


Nearly all the carriers that built multi-billion dollar networks throughout the United States and around the world during the boom-boom days of the late `90s have filed for bankruptcy protection.


Williams Communications Group Inc. (www.williamscommunications.com) and 360Networks Corp. (www.360.net) are among them; and Qwest Communications International Inc. (www.qwest.com) faces a possible cash crunch as $5.6 billion of its debt matures over the next year.


Analyst Woodward speculates the Bell operating companies are the most likely telecommunications companies to buy the assets of a bankrupt long-haul carrier. However, even the once-invincible Bells are posting sluggish earnings during a chaotic era in telecommunications history, a period of incessant bankruptcy filings and corporate scandals that have rocked U.S. and overseas financial markets.


“I think in an uncertain time nobody really wants to pull the trigger out there right now,” Woodward said, but consolidation is “probably inevitable.”




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