Global Crossing Sells for $250M

AP ^ | 10 Aug 02 | Bruce Meyerson

[pepsionice]

$250 million is nothing to these guys, but the current contracts that Worldcom has....will likely pay them their money back within 3 years. Worldcom has several large-scale contracts that apparently still are valid and its the best deal of the year!

[Southack]

"The latest systems that I was involved in had a capacity of 7.6 terabit per second. That is one cable, less than one inch in diameter, and a building full of terminal equipment, of course."

Hey, that's great! That's a lot of capacity.

But tell me, how much capacity do you use everyday while you are on the internet, and how much per month do you pay for it?

Most people find the monthly internet access and data transmission fees to be so low that they consider the Internet to be free.

Do you really want to buy into a business model that has to compete with a virtually free service?

---

Here's another way to look at fiber: 90% unused fiber means that businesses paid 10 times more than they needed to in order to provide for today's level of demand.

That's inefficient, and it readily explains why we are seeing so many massive fiber bankruptcies.

Now consider that the bargain hunters are going to buy up 20 to 30% of that unused capacity.

That's still 2 to 3 times more capacity than our current market needs, and worse, there will still be DOUBLE that aggregate level of unused capacity left unpurchased even by the bargain hunters, just waiting for yet another level of even deeper bargain hunters to come in and underprice those who buy in today.

That's not the kind of business model that one recommends widows and orphans invest their money into...

[SamAdams76]

I'm well aware of the bandwidth difference between fiber optics and wireless. But that is today. Wireless technology is improving all the time (802.11b is theoretically capable of 11mps). While that is still far below what fiber optics are capable of, there is no doubt that the gap between wireless and fiber optics will continue to close as time goes on and someday in the future, the bandwidth of wireless will achieve parity with fiber optics.

[batter]

Thanks. What a shame...now the all knowing State Dept. etc. will just sit on its thumbs.

[tortoise]

While that is still far below what fiber optics are capable of, there is no doubt that the gap between wireless and fiber optics will continue to close as time goes on and someday in the future, the bandwidth of wireless will achieve parity with fiber optics.

Unregulated wireless can push up to 400 Mbits, 100-200 Mbits if you don't want to pay a fortune. It has a couple problems though that make it a "second-best" solution to fiber. First is limited range, dead spots, and all the other nuisances of RF. Second, the FCC is planning on regulating it, and it will become far more expensive than it is now. Third, the latency of even the best RF systems is really bad compared to fiber, which limits its usability as a backhaul. Mission critical links are still done using fiber, both for fiber's reliability (sub-second convergence, self-healing networks) and its excellent network performance.

In practice, wireless canopies into residential areas are fast becoming realities, particularly with better gear than 802.11b protocols (very common, but better stuff exists that is similarly cheap). We use high-speed wireless links and canopies all the time, the canopies for short-range distribution and the high-speed wireless link to connect it to a fiber lateral if the site is a few miles from fiber.

So right now, the best networks are hybrid wireless and fiber, and the smarter fiber providers are running Ethernet protocols throughout (dirt cheap equipment, excellent performance). "Over-capacity" is a bit inaccurate as well. We may have 5-10 times the fiber capacity we need at this moment, but using even 5% of the capacity of a given fiber ring makes it very profitable. So using all the fiber currently laid in the ground at a tiny fraction of its theoretical capacity is actually a profitable venture. Fiber laterals become cost effective at only 0.5-1% utilization.

Profitability with such low utilization may throw people not familiar with the business, but you can't understand why people would buy these things if you don't understand the cost structure (and why you can't have pure wireless networks even though wireless is cheaper). The people who are buying up the distressed fiber networks are doing it at a price that allows them to make decent profit almost immediately. The investment upside is that they can support 10-100 times the capacity over the exact same equipment they already paid for. In other words, the business is profitable today, and as the demand for fiber continues to grow rapidly year over year, they can absorb that business as almost pure profit since they already own orders of magnitude more capacity than they currently utilize. The key though, is that they are operating in the black even at their current level of utilization and are carrying no signficant debt load.

[dtel]

Good post.
The flaw in most of the "fiber is overbuilt, out of date, crowd" is they think the fiber is the technology.
Wrong.
What you use to pump the info into the fiber is the technology and can easily be changed as faster, more efficient lasers, etc., are developed.

[Cacique]

Just how hard is it to learn Mandarin?

[tortoise]

Do you also think Wi-Fi will help bypass the telcos and their precious copper?

Yes. It turns out that a good distribution solution for cheap residential service is a wireless link from the backbone distributed by a local canopy, where the resident either gets an Ethernet port or the signal gets propagated over phone lines by a building-wide DSL system (particularly useful in multi-tenant buildings). The equipment to do this is very cheap these days, but you can have way more coverage, range, and network performance than DSL gives the telcos.

[tortoise]

The flaw in most of the "fiber is overbuilt, out of date, crowd" is they think the fiber is the technology. Wrong. What you use to pump the info into the fiber is the technology and can easily be changed as faster, more efficient lasers, etc., are developed.

Precisely. Good fiber is almost infinitely scalable. Most of the fiber in the ground today can support 1,000 times the bandwidth we routinely configure it for now. We'll use up our existing over-capacity in 3-4 years at the current growth rate of demand. But with fiber, all you have to do is swap out a couple lasers and you've instantaneously given yourself another order of magnitude of bandwidth you can sell, literally for a matter of several thousand dollars in upgrades. Lather, rinse, repeat as necessary. Realizing again, that any fiber utilization above 5% is almost pure profit at today's bandwidth levels in today's market. You can't do that effectively with either wireless or copper; those mediums have serious bandwidth limits pretty much built into them.

I'm steeped in the business (2nd gen fiber/wireless companies, not as part of the collapsing megaliths), and not only is it profitable, but growing rapidly as well. I'm content to let people dismiss fiber as worthless while I watch the number of digits in my bank account expand; it reduces the competition. And if it is such bad business, then how com Warren Buffet just dumped 500 million dollars into it? The people who are running and investing in these new fiber network companies are very savvy individuals; the identity of the individuals backing my company is private, but I can say it is a veritable "who's who" of telecomm/networking moguls. The people in the business know where the money is.

[El Gato]

Technology drops in price and doubles in speed every 18 months,

That applies to memory and processing, it does not necessarily apply to transmission media. The interfaces to the media, perhaps. The media itself, (i.e twisted wire, coax, microwave, and fiber) tends to stick around for much longer, and of course it's phsyical limitations on bandwidth don't change at all.

So right now there's a not as much requirement for bandwidth as expected, someday it will be needed.

I think fiber in the ground is more like land, than it is houses. Often you'll see an area laid out for developement,even to the point of putting in streets, water and sewer, only to have the demand for developed land not meet expectations, so the original developers sell at "fire sale" prices. Then in a few years the demand returns and someone else comes along and buys the land from the person who'd bought it at the lower prices. The same will be true of fiber.

The only difference between fiber and this land analogy is that nothing will ever replace land. However I don't know of any other technology with fiber's capabilities that's on the term horizon for the medium term.

[El Gato]

the bandwidth of wireless will achieve parity with fiber optics.

Never happen. The available bandwidth is to some degree dependent on the base frequency. A wireless net might operate at 10s or 100s (at most)giga-Hertz carrier (10^9) frequencies. Fiber operates at near light frequencies, which are hundreds of terra-Hertz. At least 3 orders of magnitude higher. It's not quite that simple of course, but it is illustrative of maximum available bandwidths.

[El Gato]

I think fiber in the ground is more like land, than it is houses.

Of course I wouldn't want the Red Chinese buying up a bunch of our land either. I think that the Clintonista's, including some at Global Crossing, already sold them the technology, probably at fire sale prices.

[Chemnitz]

Sounds good to me. It will be another revolution when it happens. I am on VDSL now and I could never go back to 56k.

[Southack]

"And if it is such bad business, then how com Warren Buffet just dumped 500 million dollars into it?"

You should ask yourself if it's such a great business, why didn't Buffet spend an extra $250 Million and buy out Global Crossing.

Sure, Buffet pumped some money into Level3 (run by his crooked friend, Crowe), but that hardly means that Level3 will make anyone money except Buffet and Crowe.

Crowe, after all, has pumped and dumped a series of telecom companies, including Worldcom/MCI. I expect him to do no differently on Level3.

That being said, Crowe's track record suggests that there will be a point where Level3 stock, if not the actual business, is worth selling.

After that point Level3 will be under just as much federal investigation scrutiny as is Worldcom, Martha Stewart, and Global Crossing.

Crowe knows how to pump and dump companies. He knows how to sieze onto fads to coaxe money from normally tightwad investors. He also seems to know when to get out before things get too hot.

But that doesn't mean that fiber is as much of a business so much as it is a business idea (for gullible investors).

The leopard doesn't change his spots. Crowe will repeat his earlier behavior.

And at some point in time people will come to laugh at and deride fiber companies just as they do dot com firms.

[Southack]

"I think fiber in the ground is more like land, than it is houses."

I think that fiber in the ground is more like railroads.

If 90% of railroad tracks were unused, would you be buying them?

Call me when railroads become the next hot stock play for magical returns and massive "growth".

[Rockitz]

Another interesting thing about fiber is that it is somewhat immune to interference by nuclear clouds that may at some point be circling the globe. Wireless communications systems will be rendered junk in the event of some well placed nuclear blasts. Who will control the airwaves then?

Now all we can hope is that we don't start relying on GPS for all navigation- ground, air traffic, shipping, missiles, rockets.

[Southack]

Fiber repeaters fail when hit by EMP. Fiber networks require more effort to eavesdrop on, but they are only more secure and stable than above-ground wires.

[tortoise]

Sure, Buffet pumped some money into Level3 (run by his crooked friend, Crowe), but that hardly means that Level3 will make anyone money except Buffet and Crowe.

Absolutely. I know a lot more about that deal, and if you look at L3's books and assets and know something about their business, the 500 million will let them operate a few more years without filing for bankruptcy. We compete with them (quite successfully) in a couple markets. The reason they are dumping money into it is that it is a pseudo 2nd gen fiber company; they perpetrate like they are but they aren't. So yes, it is a pump and dump. They want to keep the company alive long enough for companies like ours and other 2nd gen providers to attract hype so they can ride on the coattails. Same with the NorWest deal. And Telseon is an orphan. OnFibre is a consortium of telecom execs IIRC -- well-connected but also the same guys that sort of ruined the 1st gen fiber companies. There are a lot of bum deals being hyped right now. The claimed financing in the press releases does not really exist, at least not in the amounts and types implied for any of the companies that I know about. I know a lot more about the boardroom discussions and investments at these companies than I can discuss, obviously.

Level 3 will probably be the last to fall. Buffett dumped money into Level 3 both due to personal connections and because it is the last marginally viable major player of the 1st gen fiber companies. And if they overhaul their company, they could actually come out okay, though there is nothing to suggest that this will actually happen. Most other companies despise peering with them and avoid it when possible.

I wasn't actually suggesting anyone invest in the publicly traded fiber companies. Most of the really good ones these days are privately held or wholely owned by one of the big guys that is going into the tank. Guilt by association isn't valid reasoning; just because the telcos can't run fiber companies to save their lives (and that is what happened -- they were run by telco execs) doesn't mean that fiber companies can't make a profit. There are a few companies (not just us) that are operating very rapidly growing 2nd gen fiber businesses. None of them are nearly as big as the large 1st gen fiber companies, but they have numbers that just about any company would love to have. You are looking at the dying dinosaurs, and completely missing the significance of the small mammals scurrying around them. I'd love for you to explain how a company that operates all its fiber networks well into the black with no significant debt and enjoying exceptional growth is a bad investment. Is the Internet going away soon?

[tortoise]

Fiber repeaters fail when hit by EMP. Fiber networks require more effort to eavesdrop on, but they are only more secure and stable than above-ground wires.

Most fiber repeaters are in vaults that won't get much EMP. But yes, the backbone routers and similar are susceptible, but those too tend to be in vaults that would be pretty well isolated from EMP.