ATLANTIC-ACM Analyzes Marketplace Impact of Global Crossing's Emergence from Bankruptcy.

Business Editors/High-Tech Writers

BOSTON--(BUSINESS WIRE)--Dec. 11, 2003

ATLANTIC-ACM Dataline Analysis

The Marketplace Impact of Global Crossing's Emergence from Bankruptcy 

By Taher Bouzayen ([e-mail])

Background:

Global Crossing is emerging from Chapter 11.

Analysis:

It was no secret that several large, bankrupt carriers were restructuring to emerge from Chapter 11 and the effects of these efforts will impact the competitive long distance industry. The question was not whether, but when, it would happen.

The latest resurrected carrier is Global Crossing, which emerged with financial strength on its balance sheet. Moving forward, Global Crossing's main focus will be data and IP markets serving the enterprise and carrier customer segments. The following is an impact assessment measuring the effects of this event on the long distance marketplace and what it means to Global Crossing from a market share perspective:

Global Crossing (GX) is expected to generate about $2.2 billion in long distance revenues in the United States in 2003, seizing about 2.9 percent of the U.S. long distance market, according to ATLANTIC-ACM analyses. GX's total long distance revenues are expected to grow to $2.7 billion by 2008, representing a market share of approximately 3.4 percent.

Data and IP services will fuel GX's growth. ATLANTIC-ACM anticipates that GX's U.S. long haul data and IP revenues will grow at a Compound Annual Growth Rate (CAGR) of 9.5 percent over the next five years, reaching $775 million by 2008 and strengthening its market share in this segment (long haul data and IP) to 2.3 percent. As for U.S. retail data and IP, ATLANTIC-ACM expects GX to grow at a CAGR greater than 10 percent, reaching $557 million -- a 2.1 percent market share -- over the same time period.

However, the voice side of the company presents a different profile. First, GX is better positioned in the U.S. long distance voice market than it is in the data market, as it currently generates about $1.7 billion (3.5 percent market share). By 2008, revenues will be approximately $2 billion, which ATLANTIC-ACM estimates will represent a market share of 4.2 percent. Aggressive pricing has long been a weapon used by GX to secure business. Since GX has now emerged with a strong balance sheet (dramatically reduced debt), the company is free to pursue aggressive pricing strategies to capture customers.

On the wholesale side of the fence, it is important to note that, in contrast to its position in the data and IP markets, growth of the long distance voice market for GX will be fueled by its wholesale operations, which are expected to blossom at a CAGR (03-08) exceeding 4 percent, reaching $1.5 billion and capturing a 12 percent market share. Small resellers are becoming increasingly price-sensitive and represent a potentially lucrative sweet spot for GX.

The Bottom Line:

GX is emerging with a strong financial profile -- combining dramatically reduced debt (from $11 billion to $200 million) with aggressive CapEx reduction (which helps to solidify the profitability outlook for GX). Since this opens the door to aggressive pricing, the majority of GX's gains over the next several years will be at the expense of entrenched carriers that were able to financially withstand the shakeouts.

However, competitors should not dive directly into pricing wars as this will not benefit them or others in the marketplace. Instead, they should explore options that are easier on the bottom line, such as margin-sharing business models and other creative avenues. Further, it is important to maintain as much margin as possible as the largest bankrupt player is expected to emerge next year.

About ATLANTIC-ACM

Boston-based ATLANTIC-ACM is a leading provider of strategic research and consulting services serving the telecommunications and information industries. The company assists clients in evaluating telecommunications opportunities for successful investment, market entry and long-term planning. For more information, visit ATLANTIC-ACM's Web site at www.atlantic-acm.com.