Failures in Sector Expected to Ease

By JUBE SHIVER Jr

Jan. 29, 2002 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

After a year in which record numbers of companies went bust trying to wire the world for the Information Age, Global Crossing Ltd.’s bankruptcy filing Monday may signal the end of big telecommunications failures, analysts say.

“This is probably the last big bankruptcy for a while, but I think the fundamental problem for the telecom sector is, ‘Where do you get growth and revenues from?’” said Blair Levin, a former chief of staff at the Federal Communications Commission and now a telecom analyst at the Legg Mason Wood Walker Inc. investment firm.

The Global Crossing bankruptcy filing is the latest example of how quickly the carnage has piled up in one of the nation’s largest and most important economic sectors.

During the boom days of the dot-com era two years ago, Global Crossing was among the strongest of the upstarts, taking on the established telecom carriers that were perceived as being too slow to respond to the new economy’s demands for more bandwidth to carry e-mail, Web pages and other data.

But after the collapse of so many dot-com companies, a succession of big telecom names were caught in a vise: Demand for telecommunications services was slowing, while many of the new service providers were saddled with huge debt loads from their rapid expansion. The result has been a flurry of bankruptcy filings.

Among those forced into Bankruptcy Court were 360networks Inc., a Canadian telecommunications company run by former Microsoft Chief Financial Officer Greg Maffei. It listed $5.6 billion in assets when it filed for court protection in June. The company now ranks as the second-largest telecom bankruptcy, after Global Crossing.

360networks had been preceded in April by New York-based Winstar Communications Inc., which collapsed with billions of dollars in debt amassed trying to connect businesses to the Internet via antennas on rooftops.

Meanwhile, PSINet Inc. a Herndon, Va., company, wound up in Bankruptcy Court in March, despite being among the first to offer Internet access to consumers.

Along with Global Crossing, the companies had pinned their hopes on consumers and businesses generating insatiable demand for bandwidth because of growing use of e-mail and other data and voice services, ranging from video conferencing to cellular phones.

But consumers and businesses are still using only a fraction of the new electronic capacity for transmitting data around the world.

Nevertheless, prospects for the remaining companies serving the troubled market may finally be looking up, some experts say.

One analyst said Global Crossing fared better than most other recent telecom casualties, noting that the company has attracted a $750-million cash offer from two firms to help it maintain operations while it reorganizes.

Global Crossing “got [offered] 7 or 8 cents on the dollar, which is more than Winstar or Teligent [another troubled wireless firm] got when they filed for bankruptcy” last year, said Herschel Shosteck, who heads his own Wheaton, Md.-based telecommunications consulting firm. “That seems to suggest that things may have bottomed out,” he said.

Others note that several telecommunications firms that went bankrupt in recent years have reemerged, albeit in a dramatically scaled down fashion. For instance, IDT Corp., a New Jersey-based telecom company, bought Winstar for about $40 million after winning approval from a bankruptcy judge.

Similarly, the communications satellite company Iridium, which filed for bankruptcy in August 1999, emerged from the proceedings after a well-financed private investment group bought the company for $25 million. The new owners say they expect Iridium to become profitable this year.

But no such quick turnaround is expected for the telecommunications industry as a whole.

Telecommunications equipment makers such as Lucent Technologies, Cisco Systems and JDS Uniphase are unable to get many customers to upgrade to new equipment because there remains a glut of used equipment on the market.

Meanwhile, long-distance telephone providers such as AT&T; Corp. and WorldCom Inc. are struggling because big corporate customers increasingly are routing long-distance calls over cheaper leased lines provided by satellite operators or companies such as Global Crossing.

The cellular phone industry, which has pushed wireless phone rates to as little as 7 cents a minute, is also a keeping price pressure on phone carriers.

Washington-based research firm TeleGeography Inc. said a telecom capacity glut will persist for some time. The current inventory of used capacity is “frighteningly small,” the research firm said. Even if demand doubled for telecommunications pipelines crossing the Atlantic, TeleGeography estimates, it would fill less than a sixth of existing capacity.

But analysts say they are heartened that the excess capacity is slowly being wrung out of the market as the number of players and their scope are reduced by bankruptcies.

Telecommunications capacity “got overbuilt during the last decade but ... demand will eventually catch up,” said David Cooperstein, an analyst at the Cambridge, Mass.-based Forrester Research.

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Largest Telecom Bankruptcies

Global Crossing Ltd.’s bankruptcy filing is the largest ever by a telecommunications company, according to BankruptcyData.com. The top 10 telecom bankruptcies:

Company Bankruptcy Assets

(month/year) (in billions)

Global Crossing Jan. 2002 $22.4

360networks June 2001 5.6

Winstar April 2001 4.9

PSINet March 2001 4.5

Exodus Communications Sept. 2001 3.9

Iridium Aug. 1999 3.7

Global TeleSystems Nov. 2001 2.8

ICO Global Aug. 1999 2.5

Arch Wireless Dec. 2001 2.3

Viatel May 2001 2.1