article

Where’s the Bottom?

Posted: 03/2002

THE LETTER

Where’s the Bottom?

First Enron, now Global Crossing. The international carrier’s January filing for Chapter 11 bankruptcy — which listed $12.3 billion of debt and $22.4 billion of assets — is one of the largest bankruptcy cases in U.S. history
(Click Here).

In the same week, McLeod USA Inc.
(www.mcleodusa.com) also filed for bankruptcy protection and Level 3 Communications Inc. (www.level3.com) delivered news that it may violate the minimum telecom revenue covenant tied to its secured credit facility later this year.

Companies like Global Crossing Holdings Ltd. (www.globalcrossing.com) are caught between a rock and a hard place: mounting dept from network construction and falling long-haul prices.

Probe Research Inc. (www.proberesearch.com) reports dark fiber prices are down 10 percent to 15 percent year over year and bandwidth prices have dropped 25 percent. TeleGeography Inc. (www.telegeography.com) found bandwidth prices between North America and both Asia and Europe have fallen by about 50 percent in each of the past two years. (The Global Crossing network accounts for 20 percent of the undersea bandwidth connecting the United States with the rest of the world, TeleGeography notes.)

“While The Telecommunications Act and the Internet gold rush created a speculative boom for long-haul carriers, now the boom is over and they will have to find a way to salvage their invested capital,” explains Lynda Starr, vice president of Probe Research.

The result of so much speculation is large amounts of unlit fiber in the ground as carriers struggle to finance the equipment needed to enable it.

Probe Research says new carriers have roughly 525,000gbps in total planned capacity, with 5,000gbps installed, while the established players — AT&T Corp. (www.att.com), Sprint Corp. (www.sprint.com) and WorldCom Inc. (www.worldcom.com) — have 95,000gbps planned, with 6,400gbps installed.

One way that carriers are trying to salvage their invested capital is to wholesale what lit fiber they have as waves to competitors and to multinational corporations. On the other side of the coin, they are buying these same waves where they have not yet lit capacity in order to avoid high costs of doing so. In this month’s cover story on page 16, PHONE+ looks at the increasing significance of optical waves and network outsourcing for carriers braving the economic downturn.

In a related story on page 20, analysts at ATLANTIC-ACM (www.atlantic-acm.com) take a look at the increasing migration of wholesale voice traffic to IP-based networks, specifically, the Internet. In fact, they point out that using the public Internet has become the model of choice because of the significant cost efficiency over capital-intensive private networks. The poster child? Global Crossing. 

Khali Henderson

Editor in Chief


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