Global Crossing’s CEO Likes the Cards He’s Holding
Since its founding a mere three years ago, Global Crossing Ltd. has built an impressive fiber communications network that runs undersea and over land, hitting most of the world’s hottest markets.
It’s raised billions of dollars in capital, completed the acquisition of U.S. long-distance firm Frontier Communications and Britain’s Racal Telecom, and forged a smattering of large joint ventures.
Now the company, based in Bermuda but managed largely from Beverly Hills, is shifting gears. Leo J. Hindery became chief executive in March, and his focus on operations is already evident. In the last few months, Global Crossing has streamlined its crowded executive ranks and added solid managers in key spots. We interviewed Hindery recently about the company and what’s ahead.
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Question: How would you rate Global Crossing at the three-year mark?
Answer: I’ve got a wonderful deck of cards . . . 101,000 miles [of fiber network], built on time, on budget. It’s a stunning set of assets, probably so good that they couldn’t be replicated. There are very credible people in this sector: Qwest, Level 3, MCI. Those are very capable companies, but nobody has an asset [like ours] that goes from east Asia to east Europe, and north and south throughout the Americas seamlessly.
Q: That network was helped along by some acquisitions, right?
A: The company is substantially built, and only modestly acquired--about 75% constructed and about 25% acquired. My guess is that most people would suggest it’s the inverse of that because the company was so publicly acquisitive.
But like anything that is built so quickly, it has all of the problems that any 3-year-old has. Sometimes it hits the coffee table and puts his or her hand on the burner. And I’m not implying that Global Crossing’s been run badly, I’m just suggesting that we’re 3 years old.
Q: What kind of stumbles do you mean?
A: It’s from the ridiculous to the sublime. Sublime are things like common billing services, when there are 11 throughout the company today, which is 10 too many.
Also, I think the US West thing was an enormous surprise for people, the bidding for it. If you’re going to go buy a [Baby Bell], that’s a dramatic amplification of strategy, and you’ve got to condition and prepare shareholders for that. I’m not saying it was the wrong idea--it’s not for me to say, because it was long before I got here--but it was dramatic. Then we were in the midst of these rumors . . . regarding other telecoms being interested in buying the company.
Q: So what’s the message on the sale question, then?
A: Maybe that was a fairly large stumble. Somewhere in 1999, we left the impression that we were for sale. As a fiduciary, it’s irresponsible to suggest that you will never be bought. But we got into a modest trap where there was the inference that we were for sale. And that was really hard on the employees, it was hard on focus and it ultimately became hard on our shareholders.
Telecom is inherently fluid right now, and there will be 100 deals. But they’re better if they just evolve, as opposed to becoming a fixation. So we’re just going to run the company as well as we can.
Q: What should people expect from Global Crossing, in terms of performance?
A: Frankly, what’s possible for Global Crossing is very stunning performance. We had $1.25 billion of [cash flow] in 1999, and a little over $4 billion of revenue. We can grow revenues consistently in the 25% range. We can grow cash flow fairly consistently in the 35% range.
Q: Still, there were significant doubts after your fourth-quarter earnings report, and your stock price fell precipitously.
A: In times when precision is demanded, we were less than precise. We compounded that by raising in the earnings discussion a very complex accounting issue. In the context of something around a billion and a quarter of revenue, it involved something like $60 million. Yet, I read in the aftermath, it was like Chicken Little, the sky is falling.
Q: You’ve taken the position that owning the network is important, but you’re missing the so-called “last mile” part--the part that connects the customer location to your network--aren’t you?
A: The only last mile we need to be successful, which we have, is premises to premises. We don’t see ourselves as coming into your home. We see ourselves as being sort of a high-end customer/corporate network-based telecom company. The residential user or customer is not our target.
Q: MCI recently announced an undersea cable plan, which seems to indicate heavy demand . . . but there are those that still believe there will be a glut of fiber. What do you think?
A: On an intellectual level, there’s one side of you that has to agree with that [glut theory]. But every time somebody tries to figure out demand, they tend to grossly underestimate. The reason is because in data, there’s no practical limit to how much data transfer or bit traffic occurs in this world. It’s involved in every aspect of our lives. It’s media, it’s entertainment, it’s our financial services, our purchasing, our education, and it is our communications.
Q: Who is your closest rival?
A: MCI. But I’m not talking about the residential, retail parts of MCI/Sprint, I am talking about the network. [MCI Chief Executive] Bernie Ebbers, to his eternal credit, saw a network as an international phenomenon, as did the founders of this company.
Q: You’ve raised quite a bit of money through debt and other offerings. Now you’re selling shares in a tracking stock for the GlobalCenter Web-hosting business, and next up will be an IPO for Asia Global Crossing, right?
A: GlobalCenter’s worth quite a lot of money, and we’ll find out precisely how much shortly. Asia Global Crossing is worth a lot of money, and we’ll find out soon what that number is, but I can’t be more precise than that.
Q: What are the challenges going forward?
A: Us. I met the enemy, and it’s me. I don’t have to ask for more cards. The network works, and it was built on time. What little needs to be done is under fixed-cost contract, and we just raised the capital that is sufficient to finish it. Oft happens, good cards are played badly, but most often, good cards are played well. These are good cards, and we have to just hunker down and play the cards well.
