GLOBAL CROSSING BOMBSHELL CREATES FALLOUT AMONG IXCs

Capacity glut remains a problem; consolidation expected

Global Crossing's bankruptcy has cast an even darker pall over the rapidly fading long-haul sector, and while Global Crossing expects to exist a little longer, analysts said the carrier and its competitors will find it more difficult to survive the sour market.

Before the Internet boom unleashed a host of new transport companies, there were only half a dozen global carriers in the long-haul space. Yet when the dust clears, analysts predict only half a dozen global carriers will be left standing because emerging carriers will fail or be bought by established players.

Global Crossing's plan to eliminate its debt in bankruptcy court only postpones the inevitable for a year or two, said Drake Johnstone, analyst for Davenport & Co. A restructured Global Crossing still will be another carrier with an abundance of capacity to sell at depressed prices, he said. While being debt-free will certainly help its balance sheet, only a brave carrier would have the faith to trust a nearly failed company in an ailing segment with its global data traffic, Johnstone said.

Meanwhile, competitors such as Level 3 Communications, Williams Communications and a reconditioned 360networks — still laden with debt — will face the same pressures, battling not only each other but entrenched carriers AT&T and WorldCom as well.

In addition to affecting competitive carriers, Global Crossing's bankruptcy took its toll on established providers. WorldCom and AT&T saw their stock prices take a beating last week along with those of the competitive carriers. WorldCom and AT&T have more financial stability than Global Crossing, but they face the same capacity glut.

Now all long-haul carriers are stuck in a holding pattern, with the incumbents waiting for the glut to fill up, and competitive carriers trying to last long enough to get acquired, said Nancee Ruzicka, analyst for The Yankee Group.

Some independent carriers may try to survive by specializing either in a specific geographic region or on a certain market. For instance, Level 3 has focused on ISPs, and Williams has targeted certain regions. Those that can hold out may be able to cut a better deal with ILECs when they tackle the long-haul market in the next few years, Ruzicka said.

“The ILECs won't be ready to go after the global data business for a couple of years, and then they'll start going after [the competitive carriers],” Ruzicka said. “Those carriers that can survive and build up respectable businesses will be able to negotiate better terms with the ILECs. The rest will just be fire sales.”

In the interim, the Bell companies and established interexchange carriers can wait for the new breed of carriers to be cannibalized by their own overbuilds.

“McDonald's would have failed if you built every shop on every corner the first time you realized it was going to be a success,” said Cary Robinson, senior research analyst for U.S. Bancorp Piper Jaffray. “Global Crossing failed because it had too much debt. They all failed because they had too much debt.”

With additional reporting by Toby Weber in Chicago.