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No. of Recommendations: 7
First let me say that my opinions are not meant to be offensive. I understand that you, mishas, work for Global Crossing and as such you represent a valuable source of knowledge. With that in mind, help me out in understanding your viewpoint.

Ok let's not beat around the bush. GX is financed until cash-flow break even.

Just one comment: SHOW ME THE MONEY! You've done nothing to back up your statement. Look at their balance sheet, capital spending plans, and continued operating losses. Subtract the uses from the sources and there's a shortfall. Every company in the sector is claiming fully-financed status in this market. They have no choice because the second they admit "We're not fully funded" then the investors that were out of the know will pound the stock. You've got quacks like 360networks, Level 3, and Williams Communications all claiming that they're fully funded. Yet both Level 3 and 360networks increased lines of credit in the first quarter and it's widely recognized that Williams needs to do the same. Why would they need to do that? Because the numbers aren't working out. Show me the numbers. Because to me, this dog don't hunt.

we end up having payed almost nothing for everything remaining of Frontier

How do you figure that? Global Crossing paid roughly $11 billion for Frontier. They received 108 million EXDS shares valued at roughly $1.2 billion. After tax, the ILEC sale will bring in $2.75 billion. Thus you paid $11 billion and received $4 billion, if we round up. How do you figure Frontier was free? What else was sold? You say EXDS shares might be undervalued? The price of Exodus shares would have to increase from $11 to over $60 to validate your statement.

In fact, the costs of AC1 have been totally recouped and everything is now gravy. And GX may very well build AC3 in the next few years.

I can tell that you've been listening to management because that is one of their favorite lines. The fault in the statement's logic is that it is only correct if you judge AC-1 on a project basis. However, Global Crossing is not a project, it's an on-going business. Therefore whether a project has already paid for itself is immaterial. What is important is whether Global Crossing will be able to cover its costs (SG&A, capital spending, interest, etc.) IN THE FUTURE. TyCom's costs are lower than Global Crossing all around. That includes SG&A, interest, capex, etc.

And GX may very well build AC3 in the next few years.

If Global Crossing builds AC-3, they'll purchase it from Alcatel (they could buy it from KDD but KDD has sullied its reputation with a less than stellar performance on the construction of the much-delayed TAT-14). Alcatel will charge Global Crossing an amount that is at least 20% (standard construction margin) more than what TyCom pays for its own cables, thus Global Crossing starts out with a built in 20% cost disadvantage which in the world of rapidly declining IRU prices is a marked disadvantage. What's really disturbing is that Global Crossing and its brethren are locked into one viable supplier: Alcatel. Can you spell M-O-N-O-P-O-L-Y?

Tycom will now be competing with them by building its own network. Tycom's not the only game in town. Alcatel and even GX can compete on installation / maintenance.

Global Crossing does have a subsidiary with ships (named Global Marine). However, ships are a very small, and easily replicated, component of the subsea construction process. Only Alcatel really competes with TyCom. Global Crossing has neither electronics nor subsea cable manufacturing capability, which is the most important component of building a subsea system. When Leo Hindery was CEO, he stated Global Crossing would sell Global Marine if it could find a buyer. After all, it needs the capital ;)

Arrangements like that made with Swift are certainly accomplishments in this area - it's not true they haven't executed yet on "any" of these higher-margin deals.

My generalization regarding execution of higher-margin deals was too broad. Global Crossing bought an existing financial services business when it purchased IPC/IXnet. However, this was an acquisition and not organic growth. The SWIFT deal was completely the doing of the IXnet subsidiary. What I would like to see for a nice warm fuzzy are value-added Global Crossing deals done in the marketplace that are not part of their financial services business (i.e., IPC/IXnet, renamed Global Crossing Financial Markets). The deals with the British embassy and airports were an important start. But it didn't seem to be enough to meaningfully affect the managed data services revenue component (which is what you have when you subtract wholesale, voice, and IRUs from top line).

After reading my past post and this one, I realized that these notes make me sound much more negative on GX than I really am. To an extent I'm playing devil's advocate. But humor me and explain how you figure that Global Crossing is fully-funded. That is my number one concern. The other issues are either unprovable (e.g., Global Crossing's future ability to win value-added service contracts) or unimportant (e.g., Global Marine); though if you disagree, feel free to explain.

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