Global Crossing Ltd. Business Information, Profile, and History

Company Perspectives:

Global Crossing's mission is to develop, own and operate the world's first independent integrated global network to help satisfy the explosive demand for reliable, high quality undersea transmission capacity. Global Crossing is rapidly developing major fiber optic undersea cable systems and terrestrial facilities to reliably and cost-effectively connect the leading cities in the world.

History of Global Crossing Ltd.

Bermuda-based Global Crossing Ltd., the first independent owner and operator of undersea fiber optic cables, is building a system and offering telecommunication and Internet product services to link telecommunications carriers, multinational businesses, and small businesses anywhere in the world. Its completed transatlantic cable provides high capacity for transmitting telephone, fax, e-mail, and web pages between the United States and Europe, and its terrestrial Pan European network connects major commercial centers. The company is also building submarine cables linking the United States with Japan, the Caribbean, and Central and South America, which were expected to become operational in 2000. At the same time, the company was acquiring land-based networks, including Frontier Communications, and developing joint ventures with owners of fiber optic networks in Asia and Europe. When complete, its global fiber optic network would stretch over 90,000 miles and serve five continents, 24 countries, and more than 170 major cities. In addition to providing bandwidth to carriers and Internet service providers, the company owns the world's largest fleet of cable laying and maintenance vessels, and its Global Centers provide a variety of telecommunication and Internet services, including Web-hosting facilities and cache management, as well as hosting more than 300 of the top Internet brands.

An Independently Owned Subsea Cable: 1997

The story of Global Crossing Ltd. combines fiber optic technology, undersea construction, the tremendous global demand for voice and data transmissions, and one man's belief that he could beat 'the big guys.' When venture capitalist and financier Gary Winnick established Global Telesystems in March 1997, all the fiber optic cables that crisscrossed the ocean floors were built and owned by consortia of large telecommunications firms. These companies, such as AT & T, Deutsche Telecom, and Nippon Telegram and Telephone, would put up large amounts of money to design a cable and lay it beneath an ocean. Once it was completed, the consortia member were guaranteed a portion of the cable's capacity to send long distance telephone calls, faxes, e-mail, and Web pages. The capacity they were not using they would sell to smaller companies, often at a very significant markup.

Winnick believed it was possible for an independent company to build and own a cable running beneath the Atlantic Ocean, connecting the United States and Europe. A former furniture salesman, Winnick spent nearly a decade at Drexel Burnham Lambert with Michael Milken, the junk-bond guru. He left there in 1985 and formed the Pacific Capital Group, an investment firm, buying and selling companies. For his Atlantic Crossing (AC-1) cable venture, he formed Global Telesystems Ltd. and brought Lodwrick Cook, the former chairman and CEO of Atlantic Richfield Co., out of retirement. In March, they signed a deal with AT & T Submarine Systems, a cable-laying subsidiary of AT & T, and began raising funds to lay a 14,000 kilometer, state-of-the-art cable that would provide high capacity transmissions between the United States, the United Kingdom, Germany, and the Netherlands. Global Telesystems Ltd., the owner of the cable, was capitalized by Pacific Capital group and several other institutional investors.

The cable network itself, according to EDGE, was the most advanced undersea telecommunications system ever constructed. It was a high-capacity four fiber self-healing Synchronous Digital Hierarchy ring network, capable of providing 40 gigabits per second of initial service, double the capacity of existing systems. The company later increased capacity to 80 gigabits. In mid-1997, AT & T sold its submarine systems business to Tyco International, which formed Tyco Submarine Systems Ltd. (TSSL).

Going Global

In November 1997, Winnick announced the formation of a holding company, Global Crossing Ltd. This reflected his interest in building a global network of submarine cables to link major cities around the world. Before the end of the year, Global Crossing had announced plans for three new operations to accomplish this. The Mid-Atlantic Crossing (MAC-1) was a joint venture with cable system owner TeleBermuda International Ltd. to build and own an undersea cable connecting New York, Bermuda, the Caribbean, and Florida. The new cable would connect with AC-1 in New York.

The Pan American Crossing (PAC-1) undersea cable would link California, Mexico, Panama, Venezuela, and the Caribbean. The Pacific Crossing (PC-1) cable, a joint venture with Japanese trading firm Marubeni, would link California and Washington and Japan. Ultimately, Global Crossing planned to build and own a 31,000 mile cable network running beneath the Atlantic, Caribbean, and Pacific Oceans.

Internet service providers in particular were demanding high bandwidth single channels, and Global Crossing was not the only company looking to the Pacific Rim. China-U.S. Cable Network, a consortium of carriers (AT & T, MCI WorldCom, Sprint, Teleglobe of Canada, and China Telecom) planned to build a $950 million, 30,000-kilometer cable between China and the United States, and Neptune Communications Corp., a private company, announced it would build the Pacific Express Cable Network between Hawaii, Japan, the Republic of Korea, and Canada.

Creating the Network: 1998

Global Crossing would have to make money by selling capacity on its cables. Unlike the telecommunications consortia that owned existing submarine cables, Global Crossing opened its cable to anyone who wanted to use it. Traditionally, a company wanting to buy capacity on a cable, whether it was land based or submarine, had to sign a long-term contract for a fixed amount of capacity from point A to point B. Since different parties owned different cables, a customer had to have separate agreements with each owner of a land or oceanic cable along the route it wanted to use, say from Houston to Rome. Global Crossing offered customers the flexibility to use capacity anywhere along its network as they needed it. In addition to AC-1 and the other subsea lines it was building, Global Crossing was also constructing or hooking up with terrestrial cable owners, so that its customers were not left to fend for themselves on the shore of a foreign country.

As AC-1 was being constructed, carriers began buying capacity, including New Jersey-based IDT, Unisource (PTT Telecom of the Netherlands, Telia of Sweden, and Swisscom), PSINet, and Deutsche Telekom. The deal with Deutsche Telekom included 'backhaul services' whereby all AC-1 customers would have access to that company's land network. Global Crossing also signed an agreement with Qwest Communications International to swap capacity, so that Qwest would use AC-1 to transmit to Europe and Global Crossing would use Qwest's Macro Capacity Fiber Network, which, when completed in 1999, would serve more than 125 cities in the United States.

Going Public

In April 1998, John M. Scanlon left Motorola Inc.'s cellular division to become CEO of Global Crossing, while Lodwrick Cook and Winnick became co-chairmen. On May 26, ten months after construction began, the first phase of AC-1 initiated commercial service, allowing data and voice transmissions between the United States and the United Kingdom. The start-up coincided with the tenth anniversary of the first submarine fiber-optic cables. According to John Burgess of the Washington Post, the cable could 'handle more than 480,000 simultaneous two-way transatlantic conversations, each duplicated for protection.' Tyco Submarine Systems Ltd., which was the hardware developer and primary contractor during the construction of the system, was now responsible for operating and maintaining AC-1.

In June 1998, Global Crossing finished raising the $800 million needed to build PC-1 through a private note offering to major institutions and mutual funds. The company had $3 billion of projects underway, and while profits remained well out of sight, as of April 1998, it had more than $400 million in binding agreements with customers for AC-1 and more than $175 million in non-binding agreements.

Winnick took the company public in August, raising $399 million in net proceeds. The stock, traded on the NASDAQ, opened at $19 per share and closed at $25.50. The proceeds were used primarily to complete the AC-1 financing.

In October, the company announced it was building a $700 million fiber optic network (Pan Europe Crossing, PEC) to link 18 cities in Europe to AC-1 and the rest of its cable system. In November, one of the company's indirect subsidiaries, GC Pacific Landing Corp., merged with Neptune Communications, LLC, which was controlled by The Carlyle Group, an international investment firm.

The company was having an impact. At the end of the year, CEO Scanlon told Investor's Business Daily that prices for leased lines beneath the Atlantic had dropped by half since AC-1 began operating in May. In December, Global Crossing announced its second terrestrial network, to connect major cities in Japan. The company owned 49 percent of the new network, called Global Access Limited (GAL), and Marubeni Corporation, its partner in PC-1, owned the rest. The company was heavily in debt. At the end of the year, it had $1.3 billion in total liabilities.

Fighting a Consortium and Selling Capacity: 1999

Global Crossing began 1999 by asking the Federal Communications Commission (FCC) to defer approval of a landing license in Japan for the telecommunications consortium building the Japan-U.S. Cable System. The company contended that such approval might be anti-competitive because the three Japanese companies in the 30-member consortium (which also included AT & T, Sprint, MCI WorldCom, and British Telecommunications) would control transmission prices within Japan. After several months, as Global Crossing's lobbyists haunted Capitol Hill, the FCC granted the license free of any conditions.

The attempt to break up the consortium did not stop AT & T from leasing capacity on Global Crossing's transatlantic cable. With the tremendous demand by carriers for more bandwidth, AC-1 was proving even more popular than anticipated. The company reported it had generated $1 billion in contract sales during 1998, although most of that ($634 million) would be realized over the next three years. In the fourth quarter alone, the company had revenues of $205 million and a net income of $56 million. It also announced it would begin developing a second transatlantic cable (AC-2) as well as a system (South American Crossing, SAC) to link the U.S. Virgin Islands, Brazil, Argentina, Chile, Peru, Columbia, and Panama.

Work continued on the other legs of the company's network. For the terrestrial Pan European cable, the company announced a $150 million deal with Lucent Technologies to supply technology and systems that provided high bandwidth connections and allowed carriers to integrate voice and data on fiber backbones. Lucent's experience with both subsea and land systems helped win the contract.

A New CEO Moves Quickly

Also in January, Global Crossing got a new CEO. Robert Annunziata, the head of AT & T's business services, replaced Jack Scanlon, who became vice-chairman. Annunziata was hired to take Global Crossing from its position as a wholesale carrier to a full-fledged telecommunications competitor by adding local networks and customers. The plan was to make its network truly global, with underwater cables connected to countrywide networks linked to local networks serving major cities. The Pan European Crossing would begin to serve that purpose in Europe. What Global Crossing needed was a network, or backbone, in the United States, with existing customers.

Three weeks after coming onboard, Annunziata began merger talks with Rochester, New York-based Frontier Communications, the fifth largest long-distance carrier in the United States. In addition to Frontier's nationwide fiber optic network, the deal would bring Global Crossing two million customers using Frontier's local and long-distance telephone, Internet, data, cellular, and paging services as well as 34 local telephone companies in 13 states, and it appeared to be closed in March. The company then bought Cable & Wireless's undersea cable operations for $885 million, and in May announced a $35.5 billion agreement to take over Denver-based U S West, Inc., the smallest of the Baby Bells but a $12.4 billion corporation.

Global Crossing's bid to buy U S West was stymied when Qwest Communications International went after Frontier. Qwest, like Global Crossing, was primarily a network builder and operator looking for end use customers. After a takeover battle lasting five weeks, Global Crossing ended up buying Frontier for $10.9 billion, and U S West merged with Qwest.

Selling Services As Well As Capacity

With its acquisition of Frontier, Global Crossing moved from simply providing ultra-high long-distance capacity to carriers, a wholesale operation, to also operating local networks and providing telecommunication and Internet services on a retail basis to customers--carriers, corporations, small businesses, and consumers.

Over the next several months, it introduced new telecommunications and Internet product services, including WebSaver, with discounted long distance telephone rates; audioconferencing; uCommand, an account and network management tool; ISP Advantage for Internet service providers; web hosting and managed caching services to distribute web content more quickly. For its wholesale carrier customers, it launched Asynchronous Transfer Mode (ATM), which made it possible to support several applications (data, Internet, voice, and video) over a single platform by increasing bandwidth incrementally. To bring its products to international markets, the company announced it was building ten new Global Centers worldwide.

Still, Annunziata was not ignoring the network. Global Crossing began expanding its city-to-city concept as it announced a joint venture with Microsoft and Softbank. The new venture, called Asia Global Crossing, was to build a $1.3 billion broadband network (East Asia Crossing) to link Japan, China, Singapore, Hong Kong, Taiwan, South Korea, Malaysia, and the Philippines with Global Crossing's network. Shortly thereafter, Global Crossing acquired Racal Telecom, which owned a 4,500-mile fiber optic network in England, giving Global Crossing another land network to link with the Pan European Crossing and more customers for its services.

As all this was occurring, Winnick assumed the position of chairman of the board. In November, the company announced a joint venture with Hutchison Whampoa Ltd., named Hutchison Global Crossing, to sell telecommunications and Internet services over Hutchison's network in Hong Kong. The new venture was worth an estimated $1.2 billion.

With its national networks and international pipelines, Global Crossing was an attractive takeover target in the fast-moving, quickly consolidating telecommunications field. In November 1999, Deutsche Telekom reportedly offered $60 a share, which the company allegedly rejected. Winnick had anticipated the phenomenal demand for bandwidth and the need to provide carriers with a simple, single connection across borders and shorelines. He recognized the potential growth of Internet traffic, which was soon outdistancing that within the U.S. market, and concentrated on submarine cables. Whether it continued as an independent company or not, Global Crossing had already changed the telecommunications industry.

Principal Subsidiaries: Global Crossing Network Center, Ltd.; Global Marine Systems Ltd.; Global Crossing International, Ltd.; Atlantic Crossing Holdings, Ltd.; Pacific Crossing Holdings Ltd.; Mid-Atlantic Crossing Holdings Ltd.; Pan American Crossing Holdings Ltd.; Global Crossing Landing Holdings Ltd.

Principal Competitors: AT & T Corp.; MCI WorldCom, Inc.; Bell Atlantic Corporation; BellSouth Corporation; GTE Corporation; FirstCom; Qwest Communications International; Sprint Communications Company; Global Telesystems Groups Inc.

Chronology

• Key Dates:

• 1997: Global Telesystems Ltd. begins building Atlantic Crossing subsea fiber optic cable; holding company Global Crossing Ltd. is created.
• 1998: Atlantic Crossing begins commercial service; Global Crossing goes public.
• 1999: Company acquires Frontier Communications.