Undersea pipe still a good idea.

YES, Global Crossing Ltd. used some questionable accounting tactics. And its founders cashed in on hundreds of millions of dollars worth of stock when the company still looked like a new-economy powerhouse.

But before investors start to tag Global Crossing with the Enron label, they should keep in mind that some telecom experts still believe founder Gary Winnick and his colleagues were doing the right thing.

"On the technology front, absolutely they were," said David Isenberg, founder of Isen.com, an independent telecommunications analysis firm. "On the management front, on the financial front, on the accounting front, diplomatically, I must say I am not qualified to comment."

According to this view, Global Crossing and other participants in the worldwide fiber-optic build-out did the economy a good deed that ultimately may outweigh the prodigious losses now being borne by investors, lenders, employees and trading partners. By devastating an inefficient pricing structure tied to outdated equipment, they made long distance access cheaper for consumers worldwide.

"They really didn't discover a new kind of money machine," Isenberg said, "but in fact, what's happening is the cost of transmission is getting radically cheaper. The price that people can charge will follow the cost - probably sooner than Global Crossing investors believed that it would."

In other words, investors may have lost out, but everybody else will reap the benefit in lower long-distance rates for voice and data, including broadband content. "Realistically I don't know what happens in five years, but ... if the narrow-band Internet was good for the economy I have to believe that the broadband Internet will be good as well," Isenberg said.

Stephan Beckert, research director at telecom consultant Telegeography.com, said Global Crossing predecessor Atlantic Crossing helped set off the pricing revolution in 1998, when it laid down its first transatlantic pipe. The cable was done cheaply and in much less time than the doddering consortium approach that was prevalent until then.

"They made great margins, even though their access prices were less than half of consortium prices," Beckert said. "They did so well with it they spawned a host of imitators, and that's the problem."

Many of those new firms, including Qwest Communications International, Level 3 Communications International and Williams Communications Inc., have fallen on hard times as long-distance pricing has tumbled. On transatlantic and transpacific routes, for instance - where Global Crossing controls 20 percent of the capacity going in and out of the U.S. - pricing has been falling at a rate of 30 percent to 70 percent per year, Beckert said. (Prices to Asia generally have held up better.)

While Global Crossing's overall value won't be determined for some time, its bankruptcy is having an effect on the telecom landscape. As each operator reorganizes, its leaner financial structure supports even more price-cutting in the industry, putting pressure on the ones that remain standing.

Williams, Qwest and Verizon Communications Inc. are among those being scrutinized closely for balance-sheet weakness, and all saw their share prices cut in the wake of the Global Crossing bankruptcy as investors sour on the industry's outlook.

This isn't to say Global Crossing, or any of the others, will disappear. "Global Crossing is not too big to fail, but it's too big to go away," said Beckert.

Reaching a balance

Ultimately, Beckert and Isenberg expect long-route supply and demand to reach some sort of equilibrium. They point to recent data from Internet co-founder Larry Roberts, showing that Internet traffic doubled in 2001, despite the U.S. recession and a slower world economy. They also note that no one's going to be building any more undersea cables for some time.

If there are companies that can operate successfully in the new environment, they will be efficient operators who carefully control costs and assets.

Of course, there are possibilities that would throw this scenario out-of-whack. New technology could continue to multiply number of phone calls, or amount of data, that are carried on each optic fiber. Also, regulations that favor incumbent telecom providers could allow them to hold fiber, and the accompanying price efficiencies, from local telecom markets.

Finally, Isenberg said, there's a scenario whereby the unlit fiber embedded in the cables of Global Crossing and other carriers becomes immensely valuable - much in the way a call option gains value when the underlying stock price exceeds the strike price. That will happen, he said, if consumers a few years from now trade videos over the Internet with the same abandon they did with music files on Napster before that was outlawed.